សេដ្ឋកិច្ចខែ្មរ

Excellencies
Ladies and Gentlemen,

1. First of all, I would like to thank the Conference Organizer (the Ministry of Commerce, the Faculty of Laws, and the Cambodian Legal Resources Development Center) for inviting me to speak at this important Globalization Conference from Business and Law Perspectives. The timing of this Conference is very crucial because Cambodia has been a member of the Association of South East Asian Nations (ASEAN) for about two years, and we are now actively preparing to join the World Trade Organization (WTO).
2. Knowledge about the Impact of Economic and Trade Liberalization on Cambodia is very significant for our daily work/business as well as for the future socio-economic policies of the Royal Government of Cambodia.
I. Introduction

3. As you already know, in 1979, after defeating the Pol Pot Regime, Cambodia's administration at that time took control of a country in which private property rights had been abolished; property records had been destroyed; former proprietors were decimated or had been displaced; productive assets had largely been devastated; and urban properties had been laid waste. Faced with the challenges of rebuilding the economy, the administration kept real estate, natural resources, and all substantial enterprises under state ownership.

4. In 1985, the administration began to accept a larger role for private initiatives, in particular, by relaxing the collective organization of agriculture and by officially recognizing private enterprises beyond merely household production.

5. In 1989, a decade after assuming control, the authorities launched a broad reform program for the governance of the country's properties. This program gave state enterprises greater autonomy and strict budget constraints; allowed for privatization of state enterprises and other state assets; and encouraged foreign and local private investment.

6. The reform program deepened when the Royal Government of Cambodia was established in 1993 following the General Elections sponsored by the United Nations. The Free Market Economy is scripted in the Cambodian constitution.

II. Core Strategy of Royal Government of Cambodia

7. Since its establishment in 1993, the Royal Government of Cambodia considers the integration of the Cambodian Economy into the Regional and World Economies as one of the core government strategies for socio-economic development and for poverty alleviation in Cambodia.

8. Economic integration will result in close economic relationships among participating members, through the free movement of goods and services, capital and labor, the coordination of economic and financial policies, and information sharing networks. These are factors that stimulate the process of economic liberalization, increase the economies of scale, improve factor mobility and reduce the prices of imported and exported products. Therefore, such integration will increase the attractiveness of Cambodia to investors, promote a higher factor of productivity, and create and develop the comparative advantages of the nation through the participation in international competition and specialization. If economic integration can be properly implemented and handled, it will play a crucial role and have positive direct or indirect impact on economic development and poverty reduction.

9. In this sense, Cambodia applied for ASEAN membership in 1994 and became an ASEAN observer in 1995. Since April 1999, Cambodia has been a full member of ASEAN. As such, Cambodia has participated in many ASEAN economic activities, for example the ASEAN Free Trade Area (AFTA), ASEAN Industrial Co-operation (AICO) Scheme, ASEAN Investment Area (AIA), and ASEAN Framework Agreement on Trade in Services (AFAS).

10. In addition, Cambodia has signed many bilateral trade and investment protection agreements with the countries in the region and in the world. Furthermore, being classified by the United Nations has resulted in Cambodia receiving trade preferences (Generalized System of Preference-GSP and Most-Favor-Nations-MFN) from 28 developed countries. Since receiving these trade preferences, Cambodia has exported mainly garments to the US and EU markets.

11. Last but not least, Cambodia is also actively preparing for accession into the World Trade Organization (WTO), which now has 140 countries as members.

III. Evidence of the Positive Impact of Economic and Trade Liberalization
III. 1. Macroeconomic Development

12. When we look at the past economic development in Cambodia, we can say that the achievement was quite favorable for us even though peace and stability only first fully prevailed in the entire country in late 1998 following the establishment of the second Royal Government of Cambodia. This is evidence that economic and trade liberalization has contributed enormously to that achievement.

13. Between 1993 and 1996, Cambodia managed to maintain high economic growth with an annual average of 6.1 percent. In 1997 and 1998, due to the adverse impact of domestic political developments and regional economic turmoil, economic growth dropped to 3.7% and 1.8% respectively. During the last two years, in 1999 and 2000, real GDP growth rebounded to 5.0% and 4.5% respectively. The GDP per capita has increased from US$ 200 in 1993 to US$ 289 in 2000.

14. The inflation rate fell sharply, down from 41.1 percent in 1993 to 12.6 percent in 1998, and to almost zero percent in 1999 and 2000. Curbing inflation is crucial for an economy because unrestrained inflation, as we all know, afflicts the poor first and foremost as their resources are too inelastic to withstand volatile price movements. The exchange rate was fairly stable since the end of 1998 ranging around KHR 3,800 to KHR 3,900 per US Dollar.

III. 2. Impact on Trade Development

15. The total international trade of Cambodia increased from US$ 754 million in 1993 to US$ 2,192 million in 1999 (see also table 1 below); and the simple annual average of growth for international trade from 1993 and 1999 was 23.2 percent. The strongest growths were recorded with 63.7 percent and 65.4 percent in 1994 and 1995 respectively. These were the years of better peace and stability in Cambodia right after the first general elections sponsored by the United Nations, and after the formation of the first Royal Government of Cambodia.

Table 1: Cambodia's Trade Development from 1993 to 1999 in Million US$

	1993	1994	1995	1996	1997	1998	1999
Total Volume % Change Exports % Change Imports % Change Trade Balance	754	1234	2041	1716	1954	1973	2192
		63.7	65.4	-15.9	13.9	1.0	11.1
	283	490	854	644	862	900	980
		73.1	74.3	-24.6	33.9	4.4	8.9
	471	744	1187	1072	1092	1073	1212
		58	59.5	-9.7	1.9	-1.7	13
	-188	-254	-333	-428	-230	-173	-232

Source: National Bank of Cambodia

16. Cambodia's exports rose from US$ 283 million in 1993 to US$ 980 million in 1999; and the simple annual average of export growth from 1993 and 1999 was 26.1 percent. In 1997, Cambodia's exports went up by 33.9 percent when compared to 1996 because of the MFN trade preference granted by the United States in 1996. But the annual growth rate of exports in 1998 and 1999 were only 4.4 percent and 8.9 percent.

However, in general, Cambodia's exports were strongly supported by the trade preferences "GSP and MFN" granted by the 28 developed countries, especially by the United States and the European Union. The exports under these schemes continuously increased from US$ 102 million in 1996 to US$ 1,012 million in 2000. The simple annual growth rate of exports under these schemes was 84.2 percent (see also table 2 below). The annual growth rates for 1998, 1999, and 2000 were 40.5%, 44.6% and 78.5% respectively.

Table 2: Cambodia's Exports under MFN and GSP Scheme (in million USD)

Year	Textile Products	Non-Textile Products	Total
1996	80	22	102
1997	227	51	278
1998	378	14	392
1999	553	14	567
2000	985	27	1,01

Source: Ministry of Commerce

17. Cambodia's imports went up substantially to US$ 744 million in 1994 and US$ 1187 million in 1995 or by 58 percent and 59.5 percent, respectively when compared with imports from the previous years. In 1996, 1997 and 1998, trends of imports were -9.7, +1.9, and -1.7 percent, respectively, because of the financial and economic crises in Asia. However, imports rose by 13 percent in 1999 when compared to 1998, following economic recovery in Cambodia and in Asia.

18. The trade deficit declined noticeably, mainly reflecting buoyant garment exports and stagnant imports from 1997 to 1998.

III. 3. Impact on Investment

19. As you may already know, foreign and local private investment was first encouraged in 1989. From 1994 to 2000, investment amounts in fixed assets in Cambodia, declared by foreign and local investors in approved projects, was US $ 6,102 million (see also table 3 below). Investments have been made in many sectors of the economy like in manufacturing, construction, tourism, agriculture, and the agro-industry. With the investments, Cambodia has benefited from the generation of new employment opportunities and absorbed new technology, know-how, and experiences associated with FDI and international trade. Cambodia's production and export capacity have been expanded and strengthened.

However, the amount of investment in Cambodia had not increased steadily because of internal and external factors like the political events in Cambodia and the financial crises in 1997, the economic slowdown in the US and Japan, and the high oil prices, etc.

Table 3: Investment Trends in Cambodia 1994-2000

Year	Number of Projects	Investment Amount in million US $	Number of required Jobs
1994	37	594	21,552
1995	164	2,379	48,772
1996	182	803	71,731
1997	206	759	130,465
1998	142	850	115,817
1999	62	448	-
2000	96	269	59,279

Source: The Cambodian Investment Board (CIB).

Note: "Investment amount" and "number of required jobs" refer to declared magnitudes in the approved investment projects rather than actual out-turns.

IV. Benefits and Challenges of Joining ASEAN

IV. 1. Benefits of Joining ASEAN

20. Let us now look closer at the benefits that Cambodia gained by joining the Association of South East Asian Nations (ASEAN). As a member of ASEAN, Cambodia enjoys the following benefits:

a) Lowest Import Tariffs in ASEAN for Cambodia's Export Products
Under the Bold Measures announced by the ASEAN Leaders at their Sixth ASEAN Summit in Hanoi in December 1998, the original ASEAN-6 have to achieve a minimum of 90% of their tariff lines in the Inclusion List with tariffs of 0-5% in year 2001 (see also table 4). By 2002, 100% of items in the Inclusion List would have tariffs of 0-5%, with some flexibility. This means that Cambodia's products in the Inclusion List with import tariffs up to 20% can enter ASEAN-6 markets with low import tariffs in the range of 0-5 % beginning in 2002. The average CEPT tariff rate for all ASEAN-10 is 3.54% this year (see also table 5). Cambodia's average CEPT tariff rate is 10.4% in 2001.

In addition, the original ASEAN-6 will eliminate all tariffs by 2010 and for the newer ASEAN-4 by 2015, with some flexibility.

Table 4: CEPT Product List For the Year 2001

COUNTRY	INCLUSION LIST	TEMPORARY EXCLUSION LIST	GENERAL EXCEPTION LIST	SENSITIVE LIST	TOTAL
Brunei Darussalam	6,284	0	202	6	6,492
Indonesia	7,190	21	68	4	7,283
Malaysia	9,654	218	53	83	10,008
Philippines	5,622	6	16	50	5,694
Singapore	5,821	0	38	0	5,589
Thailand	9,104	0	0	7	9,111
ASEAN-6 Total	43,675	245	377	150	44,447
Percentage	98.26%	0.55%	0.85%	0.34%	100.00%
Cambodia	3,115	3,523	134	50	6.822
Lao PDR	1,673	1,716	74	88	3,551
Myanmar	2,984	2,419	48	21	5,472
Vietnam	4,233	757	196	51	5,237
New Members Total	12,005	8,415	452	210	21,082
Percentage	56.94%	39.92%	2.14%	1.00%	100.00%
ASEAN Total	84.74%	13.40%	1.28%	0.55%	100.00%
PERCENTAGE	84.74%	13.40%	1.28%	0.55%	100.00%

Source: ASEAN Secretariat. As of 15 September 2000

Table 5: Average CEPT Tariff Rates by Country

Country	2001	2002	2003
Brunei Darussalam	1.17	0.96	0.96
Cambodia	10.40	8.93	7.96
Indonesia	4.36	3.73	2.16
Laos	6.58	6.15	5.66
Malaysia	2.58	2.45	2.07
Myanmar	3.32	3.31	3.19
Philippines	4.17	4.07	3.77
Singapore	0.00	0.00	0.00
Thailand	5.59	5.17	4.63
Vietnam	7.09	n/a	n/a
ASEAN	3.54	3.17	2.63

n/a: not available

Source: ASEAN Secretariat

Regional CEPT tariff rates are a weighted average with the number of tariff lines in the Inclusion List for 1999 used as the weights

b). Market of 500 Million People
The combined population of the 10 ASEAN member countries is about 500 million people. The grouping, which is also rich in natural resources, raw materials, and land, represents a large market full of economic potential and an attractive destination for investment. The combined GDP of the ASEAN-10 was about US$ 700 billion in 1996. The region experienced high economic growth of 5% to 7% in the 25 years before the financial crises in 1997.

c). Membership in ASEAN allows Cambodia to import fabrics from ASEAN countries to produce garments for the EU market. When Cambodia was not a member of ASEAN, Cambodia had to ask for derogation from the EU every year in order to import fabrics to produce garments for the EU market, and at the same time, to meet the requirements in the Rules of Origin under the European Union GSP Scheme.

d). Cambodia's Membership in ASEAN Increases Investor Confidence
The fact that Cambodia was allowed to be an ASEAN member represents a collective vote of confidence on the country's political and economic situation. This is an important and positive sign that greatly influences the attitude of investors.

e). ASEAN is a training ground for Cambodia to prepare itself for participation in the global economic cooperation, i.e. the World Trade Organization (WTO), because ASEAN trades in goods (AFTA) and in services following the same principles as the WTO for the implementation of its own economic cooperation.

f). ASEAN is a catalyst for stimulating Cambodia's domestic economic and institutional reform process.

g). Cambodian consumers will get better goods and services with reasonable prices.

h). ASEAN will help strengthen Cambodia's position in negotiations with big countries or organizations.

IV. 2. Challenges of Joining ASEAN
21. There are five challenges that Cambodia is or will be facing: expected loss of import tax revenues, financial means, legal and institutional reforms, human resources, and international standards.

a). Expected Loss of Import Tax Revenue
Membership in ASEAN requires Cambodia to participate in an ASEAN economic cooperation like AFTA and the ASEAN Industrial Cooperation (AICO) Scheme, and so on. By participating in AFTA, Cambodia will reduce its import taxes for ASEAN exports to Cambodia to 0% to 5% in ten years, beginning January 1, 2000 and ending January 1, 2010. And by 2015, Cambodia will eliminate import duties for all ASEAN products. Therefore, Cambodia will lose an important part of its import tax revenue, on which Cambodia is heavily dependent (42% of the total current revenue or 65% of the total tax revenue in 1996). Hence, Cambodia needs to reform its tax structure in order to compensate for the expected loss of import duties in the coming 10- 15 years.

b). Financial Means
As a member of ASEAN, Cambodia has to pay contributions to the ASEAN Fund and other ASEAN activities for the operation of the ASEAN Secretariat, for participating in ASEAN meetings and for hosting ASEAN meetings.

c). Legal and Institutional Reform
Cambodia should undertake legal reforms in order to make our current legal system compatible with the legal systems of ASEAN countries to facilitate trade and investment in Cambodia. Laws and regulations to be established are, for example:

Commercial Contract Law, Law on Business Organizations, Commercial Arbitration Law, Trade Marks Law, Law on the Establishment of a Commercial Tribunal, Law on Insurance, Law on Patents and Industrial Designs, Law on Customs Code, and Copyrights and Related Rights Law.

In addition, Cambodia also has to carry out institutional reforms in order to work effectively with the ASEAN countries. Since its preparation for joining this Association, Cambodia has established ASEAN departments and/or bureaus, and working groups in various ministries for dealing with ASEAN activities. Cambodia has also nominated senior government officials to be responsible for different ASEAN activities.

d). Human Resources
There is a lack of human resources dealing with ASEAN matters, especially officials with good skills/capabilities (in economics, trade and English). Cambodia needs further technical assistance to upgrade its human resources. Moreover, Cambodia does have enough manpower so that more officials could be recruited for dealing with regional and global integration matters, if Cambodia would be able to provide better salaries for them. This issue is very important for future economic development in Cambodia. We need to build an effective and capable administration in dealing with regional and global integration matters.

e). International standards
In order to be able to export Cambodia's products and to compete on the world market, Cambodia needs to produce goods and services that meet international standards. Moreover, we also need to have capable institutions, which are in a position to test and certify that the export product meets international standards.

V. Future Policy Options

Cambodia is a small Least Developed Country with limited natural resources, insufficient skill and technology. Liberalization is thus not a choice, but a necessity for Cambodia if it is not to be marginalized in this increasingly globalized world economy.

The benefits from liberalization, however, will not take place in a vacuum or automatically, but in the context of an integral plan which properly defines priorities and sequences of stimulating policy actions.

How fast and how much Cambodia can gain from liberalization is up to the government and to our efforts to create an environment conducive to cross-border trade, investment, knowledge and other resource transfers.
Cambodia
Until 1953, Cambodia was a colony of France. Its monetary policy was once in the hands of France. A monetary union created in 1950 stood for the equivalent of a central bank of Indochina (a region containing Vietnam, Cambodia, and Laos).

In the Sihanouk Period (1953-1970), Cambodia began to issue its own currency. This currency, Riel, was pegged to gold, and backed by 13 million non-tradable French francs and 4 million in France's own treasury. By 1969, Cambodia was mired in the Vietnam War and a subsequent hyperinflation. The Riel was devalued and the exchange rates for tourism and imports were abolished.

Since the establishment of the Khmer Republic in 1970, the currency was known as Khmer Riel. During the period of Khmer Republic (1970-1975), the Vietnam War further paralyzed the economy. The species speculations and shortages in basic commodities resulted in radical inflation and currency devaluation. U.S. aid-financed goods flowed into Cambodia. In 1970, a semiofficial Commercial Import Rate was accepted for U.S. aid-financed goods. The exchange rate regime also experienced several changes within this short period. In 1971, a Flexible Floating Rate was established for all transactions except specified government transfers. In 1974, a three-tier exchange rates structure was introduced.

The following Democratic Kampuchea period(1975-1978) was dominated by the authority's aim to rusticate the economy. Economic activity was entirely managed by the state apparatus. The currency was banned. Banks and markets were closed. Barter was a unique feature of Democratic Kampuchea against the rest of the world. (Ear, 1995)

The post-Democratic Kampuchea Cambodia once used old, the Thai Baht, and the Vietnamese Dong for transaction. A national currency backed by rice was introduced in 1980. The currency was named as Cambodian Riel in 1990. Since then, the exchange rate system comprised two rates: the Official Rate and the Parallel (market) Rate. The National Bank of Cambodia adjusts the Official Rate daily to make it close the Parallel Rate. The Official Rate, which is classified as managed floating by IMF, applies mostly to external transactions by the government and State-owned enterprises. The Parallel Rate is tolerated by the government and actually dominates interbank and most other transactions. (IMF 1997, p.154)

The U.S. Dollar circulates freely and is used for payment. (IMF 1998, p.166)

Sources of reference include:
1. World Currency Yearbook. (WCY)
2. IMF Annual Report on Exchange Arrangement and Exchange Restriction. (IMF)
3. Ear, Sophal (1995): " CAMBODIA'S ECONOMIC DEVELOPMENT AND HISTORY:
A Contribution to the Study of Cambodia's Economy", Undergraduate Economics Honors Thesis, University of California, Berkeley. (Available online at: http://www.csua.berkeley.edu/~sophal/whole.html).
Please Read more!

សេដ្ឋកិច្ចខែ្មរ

The Economy under the Khmer Rouge, 1975-79
Cambodia Table of Contents
Under the leadership of the Khmer Rouge, Cambodia underwent a brutal and radical revolution. When the communist forces took power in Phnom Penh in April 1975, their immediate goals were to overhaul the social system and to revitalize the national economy. The economic development strategy of the Khmer Rouge was to build a strong agricultural base supported by local small industries and handicrafts. As explained by Deputy Premier Ieng Sary, the regime was "pursuing radical transformation of the country, with agriculture as the base. With revenues from agriculture we are building industry which is to serve the development of agriculture." This strategy was also the focus of a doctoral thesis written by future Khmer Rouge leader Khieu Samphan at the University of Paris in 1959. Samphan argued that Cambodia could only achieve economic and industrial development by increasing and expanding agricultural production. The new communist government implemented the tenets of this thesis; it called for a total collectivization of agriculture and for a complete nationalization of all sectors of the economy.

Strict adherence to the principle of self-reliance constituted the central goal of the Khmer Rouge regime. A Phnom Penh radio broadcast in early May (about a month after the Khmer Rouge arrived in the capital) underscored the importance of Cambodian self- reliance and boasted that during the war the Khmer Rouge had used scrap iron and wrecked military vehicles to manufacture their own bullets and mines. The statement made it clear that the policy of self-reliance would continue in peacetime. In another move aimed at reducing foreign influence on the country, the regime announced on May 10 that it would not allow foreigners to remain in Cambodia but that the measure was only temporary; and it added, "We shall reconsider the question [of allowing foreigners to enter the country] after the re-establishment of diplomatic, economic and commercial relations with other countries." Although Cambodia resumed diplomatic relations with a number of nations, the new government informed the UN General Assembly on October 6, 1975, that it was neutral and economically self-sufficient and would not ask for aid from any country. On September 9, however, the Chinese ambassador arrived in Cambodia, and there were soon reports that China was providing aid to the Khmer Rouge. Estimates of the number of Chinese experts in Cambodia after that time ranged from 500 to 2,000. The policy of self-reliance also meant that the government organized the entire population into forced-labor groups to work in paddies and on other land to help the country reach its goal of food self-sufficiency.

The Khmer Rouge, as soon as it took power on April 17, 1975, emptied Phnom Penh (of its approximately 2 million residents) as well as other cities and towns, and forced the people into the countryside. This overnight evacuation was motivated by the urgent need to rebuild the country's war-torn economy and by the Khmer Rouge peasantry's hostility toward the cities. According to a Khmer Rouge spokesman at the French embassy on May 10, the evacuation was necessary to "revolutionize" and to "purify" the urban residents and to annihilate Phnom Penh, which "Cambodian peasants regarded as a satellite of foreigners, first French, and then American, and which has been built with their sweat without bringing them anything in exchange." The only people who were not ordered to leave the city were those who operated essential public services, such as water and electricity.

Other Khmer Rouge leaders rationalized the evacuation as a matter of self-reliance. They told the Swedish ambassador in early 1976 that "they didn't have any transportation facilities to bring food to the people, and so the logical thing was to bring the people to the food, i.e., to evacuate them all and make them get out into the ricefields." Indeed, when the evacuees reached their destinations, they were immediately mobilized to clear land, to harvest rice crops, to dig and restore irrigation canals, and to build and repair dikes in preparation for the further expansion of agriculture. The rice crop in November 1976 was reported to be good in relation to earlier years. At the same time, plantations producing cotton, rubber, and bananas were established or rehabilitated.

While the Khmer Rouge gave high priority to agriculture, it neglected industry. Pol Pot sought "to consolidate and perfect [existing] factories," rather than to build new ones. About 100 factories and workshops were put back into production; most of them (except a Chinese-built cement plant, a gunnysack factory, and textile mills in Phnom Penh and in Batdambang) were repair and handicraft shops revived to facilitate agricultural development.

Cambodia's economic revolution was much more radical and ambitious than that in any other communist country. In fact, Khmer Rouge leader Premier Ieng Sary explained that Cambodia wanted "to create something that never was before in history. No model exists for what we are building. We are not imitating either the Chinese or the Vietnamese model." The state or cooperatives owned all land; there were no private plots as in China or in the Soviet Union. The constitution, adopted in December 1975 and proclaimed in January 1976, specifically stated that the means of production were the collective property of the state.

The Cambodian economic system was unique in at least two respects. First, the government abolished private ownership of land. The Khmer Rouge believed that, under the new government, Cambodia should be a classless society of "perfect harmony" and that private ownership was "the source of egoist feelings and consequently social injustices." Second, Cambodia was a cashless nation; the government confiscated all republican era currency. Shops closed, and workers received their pay in the form of food rations, because there was no money in circulation.

On August 12, 1975, fewer than four months after the Khmer Rouge had taken power, Khieu Samphan claimed that, within a year or two, Cambodia would have sufficient food supplies and would be able to export some of its products. To achieve this goal in record time, large communes comprising several villages replaced village cooperatives, which had formed in the areas controlled by the Khmer Rouge in 1973 and which had spread throughout the country by 1975. Unlike China and Vietnam, which had introduced collectivization gradually over several years, Cambodia imposed the system hastily and without preparation.

The Khmer Rouge, in line with the slogan, "If we have dikes, we will have water; if we have water, we will have rice; if we have rice, we can have absolutely everything," organized the workers into three "forces." The first force comprised unmarried men (ages fifteen to forty) who were assigned to construct canals, dikes, and dams. The second force consisted of married men and women who were responsible for growing rice near villages. The third force was made up of people forty years of age and older who were assigned to less arduous tasks, such as weaving, basket-making, or watching over the children. Children under the age of fifteen grew vegetables or raised poultry. Everyone had to work between ten and twelve hours a day, and some worked even more, often under adverse, unhealthy conditions.

On September 27, 1977, in a major speech celebrating the anniversary of the Kampuchean (or Khmer) Communist Party (KCP), Khmer Rouge leader Pol Pot asserted that, "Our entire people, our entire revolutionary army and all our cadres live under a collective regime through a communal support system." He then listed the government's achievements in rebuilding the economy and concluded that, "Though not yet to the point of affluence, our people's standard of living has reached a level at which people are basically assured of all needs in all fields."

Measuring the economic performance of the Khmer Rouge regime was impossible because statistics were not available, and no monetary transactions or bookkeeping were carried out. The economic life described by foreign diplomats, by Western visitors, and by Cambodian refugees in Thai camps ranged from spartan to dismal. Phnom Penh became a ghost town of only about 10,000 people. There were no shops, post offices, telephones, or telegraph services. Frequent shortages of water and of electricity occurred in all urban areas, and the government prohibited movement across provincial borders, except for that of trucks distributing rice and fuel.

Conditions in the cooperatives varied considerably from place to place. In some areas, cooperative members had permission to cultivate private plots of land and to keep livestock. In others, all property was held communally. Conditions were most primitive in the new economic zones, where city dwellers had been sent to farm virgin soil and where thousands of families lived in improvised barracks.

Cambodia made progress in improving the country's irrigation network and in expanding its rice cultivation area. Phnom Penh radio claimed that a network of ditches, canals, and reservoirs had been constructed throughout the country "like giant checkerboards, a phenomenon unprecedented in the history of our Cambodia." Still, rice production and distribution were reported to be unsatisfactory. Rice harvests were poor in 1975 and 1978, when the worst floods in seventy years struck the Mekong Valley. Even after the better harvests of 1976 and 1977, however, rice distribution was unequal, and the government failed to reach the daily ration of 570 grams per person. (The daily ration of rice per person actually varied by region from 250 to 500 grams.) Party leaders, cadres, soldiers, and factory workers ate well, but children, the sick, and the elderly suffered from malnutrition and starvation. There also were reports that the government was stockpiling rice in preparation for war with Vietnam and exporting it to China in exchange for military supplies. This diverted rice could have been one explanation for the people's meager rice ration.

At the end of 1978, when Vietnamese troops invaded Cambodia, the ensuing turbulence completely disrupted the nation's economic activity, particularly in the countryside, which once again became a war theater traversed by a massive population movement. Agricultural production was again a major casualty, with the result that there was a severe food crisis in 1979.


Please Read more!

សេដ្ឋកិច្ចខែ្មរ

Who benefits from Economics?
Posted on September 8, 2007 by KhmerScholars
In a world controlled by policies of the WTO and the World Bank, and a nation guided by the Federal Reserve, we might well ask the question. 5th in the series, “Is It Too Late.”
Since the end of the Cold War, there has never been a period where the destinies of so many nations and international organizations been guided by policies from the field of economics, as opposed to politics, morals, sociology or any number of other guideposts. From a sociological perspective, some economic claims are not only false but also benefit the most affluent individuals, enterprises, and countries.


Among the oldest errors are influential distortions of economic and sociological concepts proposed by Adam Smith. Almost as old is the ongoing bias against the tariff policies of Friedrich List which enabled the rapid industrialization of the United States, Germany, and many other undeveloped countries. Both very old and very new are the unnoted inequities of globalization. All pit sociology against economics.

Distortions

Adam Smith is renowned for his The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776). The former is viewed by sociologists as a notable forerunner of their field. Yet. it is often ignored by economists while the latter is considered a foundation of economics.

The first two chapters about “the moral sentiments” focus on sympathy, such as “the fellow-feeling for the misery of others” which appears in his first paragraph. To economists, self-interest, not sympathy nor “fellow-feeling,” is considered relevant to their studies. Justice was another important sentiment to Adam, also evident in the final 280 pages in the latter book on justice and government–often considered by economists as barriers to progress.

While ‘the “invisible hand” is mentioned only once in each book, it often appears linked by economists to “of the market place.” Not by Adam Smith. To economists, the market place is considered to be a self-regulating entity. That idea came about early in the 18th century when British evangelicals coined that phrase, later adopted by early economists.

Although “laissez-faire” and “free trade” are often attributed to Adam Smith, neither term appears in his books. He was critical of the limits on imports by mercantilists who believed only in exports as the only source of gold–their criterion of wealth.

While reducing wages and pensions is often recommended by economists to improve international free trade, Adam Smith had a different view. As he put it, “The liberal reward of labor…is the natural symptom of increasing national wealth.” Not apparent in contemporary economics is Smith’s contention that “Labour, therefore, is the real measure of the exchangeable value of all commodities.”

How Smith views entrepreneurs differs greatly from those of economists.To him, “People of the same trade meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public.” Nor are they likely to agree with his claim that “We rarely hear of the combinations of masters, though frequently of those of workmen.”

Contemporary “combinations of masters” are far more powerful than those of workers. Today’s most influential “masters” are not individuals but enormous conglomerates. According to Fortune 500, in 2006 America’s largest corporation Exxon Mobil had revenues of $340 billion and Wal-Mart stores had revenues of $315 billion.

In these many ways. modern economics has quite different interpretations of Adam Smith than that in his major lengthy biography by Ian Ross who described Smith’s aim “to help us to aspire to virtue rather than wealth.” These misrepresentations of Adam Smith clearly benefit business and wealth while harming workers and the less affluent.

Bias

Half of the textiles once made in the United States now are produced in China. Industry owners and workers contend that the remainder will vanish unless our textiles are protected by tariffs. Free trade advocates oppose tariffs as outdated and harmful. Still, American tariffs created the textile industry and many others during a century of protectionism. Those tariffs enabled America’s rapid industrialization. Friedrich List played a major role in the use of tariffs for the modernizing of the United States.

When List arrived in the United States from Germany in 1825, a few tariffs existed on imports. Soon afterward, he wrote his famed Outlines of American Political Economy. The “American system.” as List described it, could “grow powerful only by fostering the manufacturing interest.” For that purpose, he suggested that tariffs were necessary to the well-being and the future of the United States.

With the assistance of Henry Clay, Charles Ingersol, and Mathew Carey, he traveled about and lectured on the need for tariffs to build up American industry. Those efforts helped bring about more and larger tariffs and new factories. Large tariffs on industrial imports were retained for about a century in the United States. The last large but unneeded tariff was approved by president Herbert Hoover and rejected by his successor president Franklin D. Roosevelt.

In 1832, List was appointed American consul to several German cities. While there he wrote The National System of Political Economy. In it, he wrote that: “The power of producing wealth is therefore infinitely more important than wealth itself.” List argued that economics cannot be separated from politics, which deals with matters of state and nation. Not so, according to modern economists.

His efforts soon resulted in the unification of the separate German states, the elimination of state tariffs, and creation of national tariffs to protect the development of the new German nation. Their adoption soon put that country on the way to becoming rich and powerful. His ideas gradually spread to many other countries.

Although Germany highly honors Friedrich List with books about him and memorials to him., he is barely known in the United States. His ideas about the importance of tariffs are either neglected or derided. Instead, free trade is the dominant idea of contemporary economists.

Yet, a 2000 study by Kevin O’Rourke has disclosed that ten nations had benefitted from tariffs between 1875 and 1913. They were Australia, Canada, Denmark, France, Germany, Italy, Norway, the United Kingdom, and the United States. The author concluded that “Tariffs were positively correlated with growth in these countries.” Such reports confirm the ongoing importance of Friedrich List.

In the 2004 edition of Governing The Market, Robert Wade described how east Asian governments aided the industrialization and modernization of their economies. This was by blocking free trade through tariffs placed on imports, especially of manufactures. Winning an award in political economy, the book offers a stinging critique of free market theory.

The bias against tariffs and Friedrich List is prevalent in contemporary economics. That bias is evident in American politics and policy. Its dire consequences mostly effect workers and small business owners. They are most beneficial to multinational corporations and their control by the wealthiest shareholders.

Inequities

In The Life of Reason, philosopher George Santayana wrote; “Those who cannot remember the past are condemned to repeat it.” Friedrich List based his recommendations for tariffs on careful historical research. Modern economics is ahistorical, basing its policies on theories. Also, the
economic case for globalization has ignored the costs, damage, and inequities of an earlier globalization.

Especially harmed during 16th to 18th century globalization were millions of slaves brought from Africa to the Americas. That slave trade has been called Globalization of Forced Labor, the subtitle of a 1996 book on colonization. Slave trade and profitability took place under a system called mercantilism. Not free trade, but barring imports and acquiring gold, were believed to be the main source of wealth. Slavery was a major source of such wealth and a major cause of America’s Civil War.

Marc Ferro’s Colonization: A Global History describes a several-centuries-old globalization process. It is a detailed, analytic report of colony founders, nature, eras, and outcomes. In its “First the Portuguese,” he points out their early colonization efforts, soon followed by Spain and Great Britain. Ferro’s book contains much data about the damaging effects of colonization upon many nations. For the United States, only its early revolution and tariff protections avoided their many losses.

Many of the first media reports about today’s globalization were quite favorable. Still, the objections began early with demonstrations by environmentalists and unions. Then, serious criticisms were raised by journalists and especially by such books as Globalization in Question, Globalization and Its Discontents, and The End of Globalization.

When contemporary globalization was said to have begun its sudden increase in the 1980s, governments, corporations, and economists were its prime advocates. Their viewpoints and goals played a dominant role in the globalization process. Yet, its advocates paid scant attention to prior globalization with similar founders and their interconnected actions.

A 1998 book on corporate crimes notes that multinational corporations are being transformed into transnational corporations which are “everywhere abroad and nowhere at home…have no specific national identity.” The 1999 book Globalization in Question states that the TNCs “would be genuine footloose capital without specific national identification.” Or oversight. Another 1999 report on “The Globalization of Crime” reports that it takes “the form of fraud, environmental pollution, market interference, corruption, occupational health and safety offenses, or tax evasion.”

The bestseller The World is Flat by journalist Thomas L. Friedman makes the misleading claim “How the World Became Flat,” the title of his over 200 page first chapter. It lists ten “flatteners” equalizing nations which begins with his experiences at a golf course in India. He described many buildings and other signs of American enterprises, scant evidence for flattening. In his mentions of the World Bank, he does not cite their data about the dozens of stagnant nations and the harmfulness of modern globalization.

World Bank reports, ignored by economists and Friedman, reveal the international damage that has resulted from a mere twenty-odd years of this free trade globalization. According to its 2002 report, 3l out of the 42 countries designated as “heavily indebted poor countries” have failed by the HIPC process standards. That applies to about two billion people “becoming marginal to the world economy.”

That comprehensive report dealt with conditions responsible for the hazardous future of nearly one-third of the world’s total population. As the World Bank has been a strong supporter of this current globalization movement, their estimate is not likely to be an exaggeration. In addition to such billions of people, however, are job and income losses in affluent nations also being marginalized by ongoing free trade globalization.

Many of the marginalizations and civil wars are taking place among the former colonies of the prior globalization. Typical of both is Bolivia, a Spanish colony for 300 years. As an outcome of past, as well as of current free trade, Bolivia remains among the the poorest countries in South America. Yet, it obeyed the stringent, and apparently harmful, requirements of the International Monetary Fund.

In Africa, 3 million people are believed to have died from recent civil wars and related diseases in the Democratic Republic of the Congo. Another former colony, that nation lost over five million lives during the early 20th century under the control of Belgium. It also has been bypassed by the last twenty years of contemporary globalization.

The benefits of globalization have not been the poorer nations or the low paid workers of industrialized nation. Rather, the profitability of free trade has gone to rich nations, corporations, and individuals.

Conclusion

Economists are responsible for many distortions, omissions, biases, and inequities about economic matters. Those misconceptions have benefited the wealthiest and harmed the rest. Economists strongly endorse the unregulated, uncontrollable hedge funds and private equity funds which mainly benefit the very rich while recommending reduced wages and pension funds for workers.

Who benefits most from globalization? The free trade agreements that are favored by economists mostly harm the poorest two billion human beings for the benefit of the more affluent ones. The evidence is substantial and incontestable.


Please Read more!