Thursday, March 12, 2009

Putting It in Perspective

Recently, the IMF came out with a new prognostication revising their previous estimate of Cambodia’s economic growth from 4% to a contraction of .8%. Of course, this is a direct consequence of the dismal developments in the countries that contributed heavily to Cambodia’s growth in the past 8 years, the U. S. foremost among them.

Now that the U. S. has shed 4.5 million jobs in the past 18 months alone and unemployment stands at 8.1 %, the conventional wisdom is that garment exports will go down substantially as the U. S. is the main market for Cambodia. The current figures appear to prove it, with a 27% decrease in exports for the month of February alone. Last December it was 30%. The only ray of hope is that Cambodian garments are mostly low-end that are typically sold at discounters like Walmart. It is noteworthy that in this recession Walmart still manages to post sales and profit increases.

Likewise, tourist arrivals show a 2.9% reduction over the same month last year. And mind you, this is the high season. Tourist arrivals should at least be the same or even rise somewhat. According to the latest statistics the construction sector is holding sort of firm, although it was reported that some 3,000 to 5,000 jobs were lost there too.

Prime Minister Hun Sen finds fault with all those predictions, saying that all those number are altogether not that important. What’s important is that peope won’t go hungry in Cambodia. All those factory workers that lost their job can go back to their native village where they will find a rice paddy to cultivate, and a family that will take care of them. Surprisingly to his critics, he is not far from the truth. He may have oversimplified the problem, but in general this is exactly what people are doing.

Let’s look at few approximate numbers – I say approximate because in the end it doesn’t matter whether it’s 60% or 65%. Roughly 70% of Cambodia’s population lives in rural areas. Of those, a good 60% live on subsistence farming. In concrete numbers, this translates into 6.3 million people. I know a perfect example in my own family. My wife’s family comes from a small village in Kratie province, right next to the place where tourists go to see the dolphins. Of the about 100 families there, nearly 90 just live off their fields. If they produce a surplus they sell it on the market.

So the garment factory girls come back and find their wooden houses, a functioning family structure, and food to eat. They don’t have problems with heating or air conditioning. For power they use a battery, which is re-charged for a small charge at the home of someone who owns a generator. They wear simple clothes. There is one communal cell-phone which provides contact to the outside world. Yes, this is a simple life, and Westerners can only look on with widened eyes wondering how people can live like this. But let’s face it - this is reality, not only in Cambodia, but in most of SE Asia. And rural areas are exactly where the majority of the factory workers come from.

Of course, it would be nice if the share of subsistence farming would be reduced and that agriculture would contribute much more to exports and the GDP. We know the GDP is the value of the production and services of a national economy. And no, subsistence farming is not included, as by its very nature it does not contribute to the national economy but only serves to provide for the basic needs. So in that sense Mr. Hun Sen is right, but then, there are established criteria for measuring the GDP, and we can’t just change those for Cambodia’s sake.

Mr. Sam Rainsy calls for government support of agriculture to help those already suffering farmers. It’s easy to call for support when you are not in the government and don’t have to raise the money through taxes and import duties. Additionally, that support would most likely be a waste of money if you can’t sell your products. Just look at the cassava farmers. They are hurting. In the rubber industry at least the production can still be sold, albeit at much lower prices than a year ago. And size matters too. Cambodia cannot be compared to, say, Thailand. And Cambodia is 30 years behind in its development. Cambodia needs to be looked at with Cambodian eyes, not with Western eyes and a Western mindset. Of course, a lot of progress needs to be made to bring the country from its current level into to the middle section of the development scale. But when times are tough patience must reign.

So the fact that people can go back to their village is actually a boon for them. Yes, they are poor but they have to eat. And in this context let’s not look at the social problems, e.g. lack of health care and fundamental edcuation. This is for another, hopefully not too far off, time.

The Western alternative is no laughing matter. People losing their jobs, lose their homes, their savings along the line, their health care, practically their freedom. In my view it’s much more dire in the West. Recession hits people in the industrialized world much harder.

We all wish for those incredible growth rates to return. But let’s be a little more realistic with our expectations. This country has survived much worse times, and will also survive what will turn out be a little bump in the course of its history.


Albeiro Rodas said...

Yes, the impact of global recession would be worst in industrialized countries used to high standard of life and expenditures. At the same time, Third World nations have the virtue of more resistance learned by reduced economies. This element is an opportunity for small economies like Cambodia if the nation prepares itself to face the financial crisis under such awareness. In this case the best example is Latin America, the region of the world with the best conditions to face the crisis due to the policies it is implementing: promoting investment, talking of social responsibility in time of crisis, generating other markets not to depend in a single one (USA?) and others.

Anonymous said...

Funny that you've changed your tune so quickly. I could have sworn that you just wrote at DAS that: "One just has to look behind the banana stalks talk to see that there is some truth to his statements, as unwelcome as it may be in some quarters."
And didn't reply to my comment that: "I’m not saying people won’t won’t go back to subsistence agriculture - of course they will, as there’s no other choice. In fact, saying that “GDP should include the figures for all that subsistence farming,” is a contradiction in terms because the word “subsistence” means there’s no surplus to be sold, thus it adds nothing to GDP. Countries can’t simply make up their own rules for GDP calculations to move the goalposts. Otherwise we could count dogs taking a crap on the streets as “organic production” and add it into projections. Perhaps KJE should take another look at economics 101…"

Perhaps you are moving your own goalposts...

KJE said...

Ok, so you're the guy posting under 'mulester'. My dear friend, please read articles more carefully before you post comments. And there is no contradiction between my DAS comment and this article.

"...there is some truth to it..." referred to the people returning to their native villages; and above I clearly stated '....And no, subsistence farming is not included... in that sense Mr. Hun Sen is right (that it is not included) but we can't change criteria, etc.....

So I am wondering what your problem is. I like a good discussion with contrarian viewpoints but they need to make sense. After all, it seems we have the same standpoint here.

Anonymous said...

Is that why you blocked my IP from further comments? (had to post this through IP generator)

KJE said...

I don't block comments; the posts are not moderated. But I'd be interested to know why your IP-was blocked. Can you contact me by this site's email?

Norbert Klein said...

Dear KJE, some hours ago, at 3:00 in the night local time at present in the USA, I posted my last Sunday writing:

in which I quoted with appreciation your "Putting It in Perspective" - sorry for not asking for your prior consent. I think it is an excellent analysis, looking into detailed conditions and not into far away theories. - Are you sometimes coming to Phnom Penh? I hope to be back soon.

KJE said...

Dear Mr. Klein,

I am currently not in Cambodia either but will be back in July. Please contact me at my email-address of this blog.