Simon Commander is Managing Partner of Altura Partners which provides strategic and economic policy advice to decision makers in governments and companies in emerging economies. He is also Visiting Professor of Economics at IE Business School in Madrid. From 1998 to 2011 he was Senior Adviser at the European Bank for Reconstruction and Development (EBRD) in London. He previously worked (1988-1998) at the World Bank in Washington DC. He has held faculty positions at London Business School where he was Director of the Centre for New and Emerging Markets and at Cambridge University. He holds a MA from Oxford University and a PhD from Cambridge University. His latest book – “The Connections World – The Future of Asian Capitalism” was published by Cambridge University Press in September 2022.

KEY TAKE-AWAY
  • While recognising variations across Asian countries, there are underlying and very significant common features. Namely the important role played by the two-way, highly transactional connections between politics (politicians/parties) and business.  In the recent decades of economic growth, Asia hasn’t espoused a market driven model. The state, both in terms of its size and its actions has been extremely important in the economic success of the region so far.
  • At the heart of this model, and across the region, lie the powerful and ubiquitous business groups and their relationship with those in political power. These BG entities differ from conglomerates found elsewhere, primarily because of features (eg cross-holding, pyramidal structures, obscure shareholding arrangements) outlawed or made impossible by corporate governance regulation that now applies in most advanced economies.
  • This system, its networks and interactions, “the Connections World”, has served the Asian economies well to date, but there are cogent reasons to suggest that the future effect might be different. There’s an excessive concentration of revenue in the hands of these business groups (hovering in excess of 11% of GDP in both China and India as compared to 3% in US).  This equates to disproportionate market power and ability to attenuate competition and by consequence innovation.
  • For Asian economies to continue to steam ahead more of the same won’t cut it, there must be a shift towards more innovation-based growth. This is not to say that business groups have not innovated in the past – they have and do.  But this has not encouraged (in fact quite the opposite) the flourishing of a more widespread ecology of innovation below and beyond the BGs’ sphere of influence and network.
  • BGs effectively suppress levels of entry and exit of other firms in the wider economy.  This reduces the rates of churning – and by implication leads to less Schumpeterian “creative destruction”.
  • The Connections World has not created good jobs. The formal sector has expanded little. Most jobs in Asia are still created within the informal economy and are low wage, low skilled and non-innovative. This prevalence of “bad jobs” and the resulting income inequality combined with rapidly burgeoning wealth inequality (Asian is now home to 720 billionaires) makes for an undesirable and potentially explosive political environment.
  • The Connections World is not a sustainable model for future development.  If the 21st century is to be Asia’s, then the region must come to grips with this entrenched power. This can only be done by adopting policy measures designed to encourage BGs to transform into more transparent, better governed entities, while also radically weakening the links between politicians and business.