The received image of emerging markets as being basically characterised by
pervasive and inefficient government controls on economic activity, lack of
competition, immature and imperfect capital markets and poor corporate
governance is far from being the whole picture. That is the broad message of
a series of research papers edited by Professor Ajit Singh and published in
the November 2003 issue of the Economic Journal.
Despite shortcomings in corporate governance in many countries, leading
emerging economies have vibrant product markets and display as much
intensity of competition as that observed in advanced countries. Furthermore,
despite capital market imperfections, stock markets in these countries have
been growing fast and contributing significantly to financing corporate growth.
The evolution of emerging countries’ product and capital markets provides a
solid basis for future advance. A central developmental issue is how to use
these social assets for promoting and completing the industrial revolution that
many developing countries embarked on in the second half of the twentieth
century.
Institutions such as competition, stock markets, banks and good corporate
governance are required not just for their own sakes but more as a means to
an end – the fast growth of these countries’ real economies, reduced poverty
and other developmental goals. The mere existence of these institutional
mechanisms is no guarantee of their being successfully harnessed for
economic development.
Singh’s introductory essay to the series of papers examines the relationship
between on the one hand, long-term economic growth, and on the other hand,
the intensity of competition and corporate governance. Overall on the basis of
analysis and evidence from emerging markets, as well as transition
economies, he concludes that:
· some competition is better than no competition;
· unfettered competition is not necessarily optimal;
· nations with highly imperfect markets can achieve fast long-term
economic growth;
· and many economically successful countries have followed policies
that combine competition with purposive co-operation. Nations need to
develop appropriate institutions in order to combine competition and
co-operation successfully.
Singh’s introduction argues that the issues of competition and corporate
governance are profoundly important both for the people of emerging
countries and for the world economy. Their international prominence stems
from the Asian crisis, which devastated some of the world’s fastest growing
economies in 1997-9.
As the crisis developed, an influential view of it emerged in Washington
policy-making circles, which asserted that the ‘deeper causes’ of the crisis
were structural and involved the normal day-to-day interactions of
corporations, banks and governments in these countries. Thus, in this view,
the fundamental reasons for the crisis lay in the ‘Asian way of doing business’.
As an explanation for the Asian crisis, the structural theory is by no means
adequate or accepted by most economists. It has nevertheless helped
concentrate minds on the nature of industrial structure and corporate
organisations in emerging countries. The growing significance of these
countries in the world economy, and the possibility of spill-over effects from
the crisis in these economies onto the global economy, led to calls in the late
1990s for a new ‘international financial architecture’ so as to avoid future
crises.
This discussion emphasises corporate governance and product market
competition as important areas of reform for emerging countries. But
compared with advanced countries, research on these subjects in developing
countries has unfortunately been minimal. The papers in the Economic
Journal are intended to advance knowledge on these topics in order to help
provide a sound intellectual and empirical basis for policy interventions
whether by governments or international financial institutions.
ENDS
Notes for Editors: ‘Competition, Corporate Governance and Selection in
Emerging Markets’, a series of papers edited by Ajit Singh is published in the
November 2003 issue of the Economic Journal.
Singh is Professor of Economics at the University of Cambridge.
For Further Information: contact Ajit Singh on 01223-350434 or 01223-
335200 (email: Ajit.Singh@econ.cam.ac.uk); or RES Media Consultant
Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email:
romesh@compuserve.com).