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Easing the pain of multiple transitions in Myanmar

Our Principal Economist, Stevan Lee, discusses intergrating economic and political analysis to ease tensions between transitions in Myanmar

Myanmar faces a number of transitions, each transition representing a deep tension. There are complex interactions between the different transitions, so it is difficult to establish where to start and hard to make progress: the tensions connected to one transition get in the way of progress with another.

At OPM we work to integrate economic and political analysis, and we know well that the endogeneity of economic constraints and political settlements can often make technical economic solutions unworkable. This cuts both ways: economics can make political transitions difficult too. And the balance of economic and political conditions in a particular setting means that interventions and policy recommendations will work out differently in one place compared to the next: in Myanmar, some standard looking interventions and policies might have very unexpected and even adverse effects.

Longstanding tensions

Longstanding tensions and potential transitions in Myanmar include: a transition to peace in the multiple centre-periphery conflicts; a transition from military to civilian rule; a transition from authoritarianism to democracy and better respect for human rights (routinely grouped with military-to-civilian but not quite the same); a transition from a controlled economy to a more market based system and from poverty to better material well-being.

Since 2010, there appeared to be fast progress on at least peace, civilian rule and democracy. International actors tried to accelerate these transitions in various ways, including with humanitarian assistance and with capacity building for the state which inherited its apparatus from the long period of military rule.

On peace: there are civil conflicts in Myanmar that date back 70 years and there are deep systems supporting these. These involve Ethnic Armed Organisations (EAOs) which, in common with many long standing rebel groups around the world, e.g. Columbia’s FARC, have taken on some of the roles of a state, in terms of service delivery and justice, in order to maintain local support. Also, in common with such groups internationally, they meet the challenge of resourcing themselves in different ways, sometimes through devices more common to organised crime than a legitimate state: seizing high rent assets like mines and forests, smuggling, illegitimate businesses like drugs, extortion and protection.

In 2010 the government of Myanmar managed to mobilise just 3% of GDP in tax revenues, and this has increased to 7-8% of GDP today, which is still very low by international standards. This betrays a second reality which is that the Myanmar military, the Tatmadaw, has resourced itself in some similar ways to the EAOs, with enterprises in high rent sectors, especially in natural resources. These non-tax revenues remain important today.

For the Tatmadaw or the state to retain all its non-tax revenue interests is incompatible with progress on market economics and economic welfare goals. There has been a good dividend to the initial economic reforms, with raised growth resulting from increased trading and investment openness in combination with reduced sanctions. But protected high rent investment opportunities for the Tatmadaw, or other interests, are constraints on growth which will tell in the longer term.

The route to peace and economic growth

This means that there is a tension between the most obvious route to peace and the route to economic growth. Peace requires a compromise solution, between centre and periphery, on the zero-sum game of territory, which is difficult in itself. Control of natural resource rents and other high-rent interests is also a zero-sum game between centre and periphery, which adds to the difficulty of negotiations. But the route to peace through division or territory and rent “cakes” is in tension with economic reforms - a reforming civilian regime would want to limit or eliminate this sort of capture of rents because they are bad for growth.

One can imagine an endpoint which is superior and satisfactory for all actors, “Pareto-improving” in economic terms. This might be an endpoint where the state starts to resource itself from a broad tax base instead of via the profits from special “enterprises”, so the economy is more open-access and efficient and where the state is able to share this revenue to devolved government in parts of the national territory, which permits former EAOs to relinquish their own “non-tax revenues” and find a new, formal role in regional government. This endpoint could be stable – everyone might be better off than now – but sadly, the sequence of reforms that leads to this endpoint is not easy to work out.

An external actor who absorbs the importance of these interconnecting challenges might be best able to ease the path to the endpoint by (i) undertaking an integrated political settlement analysis and growth diagnostic or “Thicker Diagnostic”; (ii) presenting the dynamic gains from economic reform alongside the zero-sum elements of any peace negotiation; (iii) become part of a discussion about Pareto-improving endpoint(s) and the compensation that might be needed to ease the path to those endpoints.

We believe this approach would provide the best pathway to tease out those connected tensions and will be developing some of this analysis to help with future work streams in Myanmar. We can make a lot of progress with a “Thicker Diagnostic” for Myanmar, which should assemble the best possible information about political actors and their interests, and make links between these interests, including “non-tax revenue streams” and the impediments to growth identified in growth diagnostics and similar analysis. The most ambitious use of this analysis would be to further peace and prosperity aims – but by generating a positive analysis of the interactions of basic political and economic forces, the analysis can also be a basis for sense-checking individual project ideas. Some project ideas will need adjustments to have a chance of working in the Myanmar context. But we also need to be realistic that some interventions that work elsewhere won’t work at all.