Economics in Asia goes back to rural roots

Alerted by the power of Asia's rural masses, governments are refocusing economic policy by emphasizing long-neglected agricultural development alongside the quest for ever more high-tech industrial and service jobs.

Developing Asia is not about to turn its face on export-led manufacturing. But rising commodity prices, fears in China and elsewhere of a widening town-country income gap and the power of the ballot box are all spurring policy makers into action.

Thai Prime Minister Thaksin Shinawatra came to office through the farm vote; Malaysia's Abdullah Ahmad Badawi preaches rural revival through crop diversification and yield-boosting biotechnology.

And India's Congress-led coalition, swept to power by the votes of millions of peasants who felt neglected by the country's urban elites, is expected to learn the lesson of the election by placing rural needs at the heart of its first budget tomorrow.

"Clearly everybody knows they need to leverage rural support to gain either political advantage or maintain political stability," said Daniel Lian, a Southeast Asia economist for Morgan Stanley in Singapore.

"Even China is starting to talk about it because they know they have suppressed the rural sector for far too long," he said.

Lian is a long-standing advocate of a more balanced growth model for Asia. Given what he sees as Asia's lack of pricing power in mass-manufactured exports, he believes developing rural communities is a key to any strategy to spur domestic demand.

The rural development challenge looms especially large for the new leaders of Indonesia and the Philippines, where 58 percent and 41 percent of people respectively live in the countryside.

Because they pay little if any tax, Asian peasants have traditionally been regarded by policy makers as a burden to be steered off the land toward industrial jobs in urban centers.

But Lian said neither Indonesia nor the Philippines could look forward to attracting much foreign direct investment anytime soon.

"The low-value generic mass manufacturing-based export model will not bring sufficient economic growth and the prosperity that are desperately needed to circumvent low growth, high debt and poverty traps," Lian wrote in a report.

Ric Shand, an expert on Asian agriculture with the Australian National University in Canberra, was scathing about what he called Jakarta's gross neglect of the farm sector.

"They've been running an economy which has robbed the outer islands of export revenue to pay for development programs in Java at the center," he said.

He singled out Malaysia as the emerging Asian economy that had most successfully balanced industrial expansion with a series of crop development programs based on strong research and agricultural extension support.

Industrialization has long been touted as the route out of rural poverty for developing Asia as it has been for the likes of Japan, South Korea and Taiwan.

But Jim Walker, chief economist at brokers CLSA, said Badawi's stress on reviving Malaysia's farm sector and Thaksin's efforts to recharge Thailand's rural economy should be welcomed as a step forward in economic thinking, not a step backwards.

"The value added that Malaysia can extract from properly exploiting its natural resources is much greater than the meager retained income from electronics compo-nents companies and multinationals searching for cheap labor resources," Walker said in a note to clients. "Too much is paid away in government subsidies for these bolt-on industries to make the step-up in incomes and wealth permanent."

In the case of India, Shand ran through a daunting list of obstacles in the way of reinvigorating a rural economy that he said had been all but ignored by both Congress and the Hindu nationalist Bharatiya Janata Party since 1991.

Villagers needed better roads to get surplus food to market and improved irrigation systems -- to say nothing of improving poor health and education levels.

Yet Shand said tackling these problems depends on the willingness of debt-ridden state governments to find the money.

"They'll have to bite the bullet at some stage on this," he said. "It's a really hard one. But unless they do, they're going to be severely handicapped in achieving what they need to in the rural areas."