Nobel Prize-Winning Research Highlights Cambodia’s History of Extractive Institutions – The Diplomat

Nobel Prize-Winning Research Highlights Cambodia’s History of Extractive Institutions

Earlier this month, Daron Acemoglu, Simon Johnson, and James Robinson were awarded the Nobel prize in economics for their work on how colonial institutions are a key determinant of whether countries become rich or poor.

The Role of Institutions in Economic Development

The basis of their work is a paper published in 2001 which led to a book by Acemoglu and Robinson, “Why Nations Fail: The Origins of Power, Prosperity and Poverty,” which came out in 2012. The essence of their argument is that the wealth and poverty of countries depends on the kind of institutions they have. Inclusive institutions, which protect property rights and democracy, are more likely to achieve sustainable economic growth. Countries which rely on “extractive institutions” to concentrate wealth in the hands of a ruling elite are more likely to remain stuck in poverty.

The Impact of Colonialism on Institutions

The period of European colonialism is identified as a key time in the formation of these institutions. The model says that colonial institutions were more likely to be inclusive where European settler societies emerged, and more likely to be extractive where colonialism operated in the absence of large European settler populations.

The claims can of course be contested on historical grounds, and some have reacted to the Nobel award with disappointment at the exculpatory implications for at least some colonial regimes. It’s a reasonable objection. Try telling an Algerian, a black South African, or a Kenyan, for example, that European colonial settler societies tended to lead to inclusive institutions and prosperity. The prize winners, however, are economists, not historians. Their work provides an analytical model (among many other models) which historians can use. Any specific empirical case study is unlikely to fit the model exactly.

Cambodia’s Historical Context

Cambodia during the colonial period fits the model well, but its trajectory since the Khmer Rouge period of 1975 to 1979 moves it outside the bounds of the current developmental debate. France established a protectorate over Cambodia in 1863 and integrated the territory into French Indochina in 1887. Cambodia, along with Laos, had very low policy priority for the French colonialists. The number of French settlers in Cambodia was tiny, and colonial administrators oscillated between ignoring the territory and trying to find commercial advantages there. French attempts to improve health and educational provision within the region were heavily concentrated on Vietnam, which was overwhelmingly likely to provide local colonial officials.

The Khmer Rouge period saw the creation of what was probably the ultimate extractive state, with citizens having unlimited responsibilities with zero reward beyond possibly being allowed to remain alive. The extractive nature of the system survived the demise of the Khmer Rouge. Research by Jean-Christophe Diepart and Laura Schoenberger has shown that the modern system of Economic Land Concessions that the Hun Sen regime has routinely used as a form of patronage, at the expense of those living on the land, and who needed to be displaced, has French colonial origins. The French used the land concessions as ways to ensure that colonial forest rents could be maintained, and output from rubber plantations maximized. After the fall of the Khmer Rouge, Diepart and Schoenberger found, the concession system enabled the centralization and control of power by Hun Sen at the expense of opposition and ruling party rivals.

The Challenges Faced by Cambodia

Nobel laureates Acemoglu and Robinson argue in their 2012 book that economic growth may be possible in countries with centralized extractive institutions such as Cambodia, Vietnam, Rwanda, Burundi, and Ethiopia, but that growth will not be sustained. Among those five countries, Cambodia stands out as an especially difficult case. The other four all clearly have more functional states than Cambodia, though all are highly repressive. Rwanda under Paul Kagame was a central mover behind the creation of the African Continental Free Trade Area. Ethiopia, which had its own communist revolution in 1974-75, has undergone partial financial liberalization under current prime minister Abiy Ahmed, and is in the process of launching a stock market. Whether these initiatives will create prosperous and stable societies is still impossible to know.

Cambodia has no such signature achievement or bold reform program. Forty-five years after the overthrow of the Khmer Rouge, the country remains a least developed country (LDC). The government’s old target of ending LDC status by 2025 has slipped first to 2027, and now to 2029. The country’s institutions have remained extractive, with the land rights which were abolished under the Khmer Rouge never having been solidly re-established. Hard land rights in Cambodia today are reserved for the ruling elite, while most citizens have only soft property rights which can be revoked at any time.

The Issue of Forced Criminality

Whether highly centralized economies run by dictatorships can be internally reformed to create open and prosperous societies is an open question. Many historians would probably answer that no accurate generic answer is possible, and that the outcomes in individual cases are likely to vary widely. The range of possible outcomes becomes even wider when an extractive state such as Cambodia becomes reliant on organized crime for a large chunk of its national income.

The only growth industry in Cambodia today is forced criminality. The country’s extractive institutions have made Cambodia the ideal location for the cyber-scam compounds operated by the Chinese mafia. The United States Institute for Peace has estimated that cyber-slavery compounds are generating at least $12.5 billion per year, or about half the country’s official GDP, with the complicity of the Cambodian government. According to new research from the Cambodia Counter Trafficking in Persons (CTIP) project, 2024 has seen a trend of cyber-scam compounds being moved from Myanmar to Cambodia, with the latter being judged by the criminals to be the safer operating environment. The CTIP estimates that there are now at least 350 cyber-slavery compounds in Cambodia, drawing up the “largely involuntary labor” of 150,000 people from at least 22 countries.

The Need for International Cooperation

There are no policy textbooks about how to deal with a state which allows mass forced criminality on such a scale to flourish. It’s hard to see how progress can be made on cyber-slavery in Cambodia until China and the U.S. agree to work together on the issue. Citizens of the two countries suffer more from cyber-slavery in Cambodia and the region than anyone else. Chinese make up the bulk of the people who are tricked into working in the compounds, while affluent Americans have emerged as the prize target for the scammers.

It may be unrealistic to expect the U.S. and China to set aside their competing interests in Cambodia, given notably the alleged existence of a Chinese naval base at Ream. But until the two major powers are able to isolate the issue of Chinese organized crime in Cambodia from their wider strategic competition, Chinese, Americans, Cambodians, and many others will continue to suffer the consequences.

SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 1: No Poverty
• SDG 8: Decent Work and Economic Growth
• SDG 10: Reduced Inequalities
• SDG 16: Peace, Justice, and Strong Institutions

2. What specific targets under those SDGs can be identified based on the article’s content?

• SDG 1.4: By 2030, ensure that all men and women, in particular, the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership, and control over land and other forms of property, inheritance, natural resources, appropriate new technology, and financial services, including microfinance.
• SDG 8.5: By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value.
• SDG 10.1: By 2030, progressively achieve and sustain income growth of the bottom 40 percent of the population at a rate higher than the national average.
• SDG 16.6: Develop effective, accountable, and transparent institutions at all levels.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Indicator for SDG 1.4: Percentage of population with secure rights to land, property, and other productive resources.
• Indicator for SDG 8.5: Employment-to-population ratio.
• Indicator for SDG 10.1: Income growth rate of the bottom 40 percent of the population.
• Indicator for SDG 16.6: Existence of effective, accountable, and transparent institutions at all levels.

SDGs, Targets, and Indicators

Source: thediplomat.com