Hamish McRae: Corridors of power: regional co-operation helps South-east Asian peninsula prosper

Phnom Penh - what do you do with a region where the economic rationale points to a large measure of integration but political and historic divisions keep the place apart?

Phnom Penh - what do you do with a region where the economic rationale points to a large measure of integration but political and historic divisions keep the place apart?

Europe has found one answer to that and shown that up to a certain point at least there are very large economic gains to be had by encouraging ever-greater integration.

South-east Asia has been wrestling with a similar problem and just over a decade ago came up with an intriguing solution. It is now rethinking how to press further forward.

The history of the South-east Asian peninsular is about as tortured as you could get: the Vietnam War, genocide in Cambodia, extreme poverty in landlocked Laos and a continued military dictatorship in Burma, also known as Myanmar. British attention has been focused on the success of the former colonies of Singapore, Hong Kong and Malaysia but they are physically on the fringe of the region. Of all the core countries in the South-east Asian peninsular, only Thailand has achieved a real economic take-off and even so, its progress has been uneven.

The idea of creating the Greater Mekong Subregion came together in 1992 under the wing of the Asian Development Bank. It comprised of those five countries above, plus the Yunnan province of China, which is physically the top end of the peninsular and whose trade routes would naturally head north-south along the river systems rather than east-west across the mountains to the rest of China. Self-evidently the region is always going to be a loose economic association, far looser than even the early vision of a European common market, let alone the present EU. But it is big - 250 million people - and it is fascinating to see what can be achieved by well-judged economic co-operation without any political sub-text.

The growth in output since 1992 is shown in the graph. Now that is an index, and it flatters the countries that started from a very low base. The best performer is the Yunnan province, though it remains poor by comparison with the booming coastal regions of China. The worst is Thailand, but then it started as the richest country in the region and remains so. Burma has done well, again from a very low base.

All this ranks as a reasonable achievement. But it has been driven basically by the different countries doing what they had already been doing rather better. Inter-regional trade has shot up but the real drivers have been international trade and an end to destructive economic policies. Thus Thailand has grown not by trading more with neighbouring Burma but by attracting inward investment and exporting to the rest of the world. Cambodia has grown by having a civil constitution and a market economy. Vietnam has grown because, rather like China, it dumped the communist central planning system while retaining the political system. To say this is not to belittle the idea of the Greater Mekong Subregion. It is to point out that simply ending destructive economic policies and letting market signals show through can pull things along a great deal.

Yes, regional co-operation has helped but it would be wrong to attribute all the growth in the graph to its benefits.

What happens next? Well, having got so far, I suspect that we are at the stage where inter-regional co-operation could become a much more important driver of progress. The Asian Development Bank has just started a new plan, built around the idea of economic corridors that run across the national boundaries, along new or at least radically improved communications routes. They are sketched on the map.

Corridors are fascinating. Why should economic development so frequently happen along strips between cities as well as in cities themselves? Why do cities that are linked by such corridors seem to do better than ones that are isolated? We have corridors in the UK, along the M4 for example; the north-east of the US is an almost continuous corridor from Boston to Washington.

The practical element of these corridors are good all-weather roads, power transmission lines and high-capacity telecommunications backbones. There will eventually be a road to Mandalay (in central Burma), or rather via Mandalay, that will link the region to Bangladesh and India. But the two that will probably have the most immediate impact will be the east-west one from Hue in the middle of Vietnam to Moulmein on the Gulf of Martaban in Burma, and the southern one from Bangkok to Ho Chi Minh City via Phnom Penh.

The east-west one is interesting because there really isn't much trade along this axis at the moment. There is economic activity but it is all north/south. The southern one is interesting because it links two capital cities - huge Bangkok and much smaller Phnom Penh - and one former one, Ho Chi Minh City, the place we used to call Saigon. It also connects Cambodia to the rest of what was once its own economic region, the Mekong delta. All that is happening is that links that would naturally be there had political history been different are being recreated. Obvious, but it needs a concept such as an economic region to put it in place.

The other two elements of the plan - the electricity and telecom grids - are important in a different way. Power matters because there is a great regional shortage of it. Rapid growth inevitably eats up power. Rapid growth on what is pretty much a western model - motor cars, air-conditioning - is especially power-hungry.

But the timing of power demand varies from country to country and creating a regional grid is a rational way of distributing what there is. As for telecoms - it is not very difficult to set up a regional high-capacity network. But it does need to be done and in practice in a region where there are several different national entities, that needs an external agent, in this case the Asian Development Bank, to push it along.

Looked at from the perspective of the countries in the region, the task is to help make the laggards on this peninsular as competitive and prosperous places as the rest of South-east Asia, and thereby tackle the obvious problems of extreme poverty that continue to exist. There are considerable road-blocks, of course.

I don't think much more can be expected of Burma until there is regime change there. And sadly the usual problems of corruption and environmental degradation are pretty widespread too. But equally it is very hard to see too much downside from the development of these corridors of economic activity, provided at least that the environmental concerns can be coped with.

From the outsider's point of view, though, this is more than a story about the benefits of regional economic co-operation. It is an experiment about what really matters in economic development: if you put in good road communications, good power supplies and telecom links into five different countries and the province of a sixth, you can begin to see which set of economic policies within the region work best.

This is not a level playing field for they start from different positions. Still, if for example Yunnan continues to outpace the rest of the region, that will say something very important about Chinese policy. And if Burma picks up, well, I'm not too sure what we think about that.