It is often said that “failure leads to success”, and I am sure that readers would have met variations of the same phrase.  One thing that is conveniently left vague in that saying, however, is whose failure should lead to your success.  It is thus often assumed that it must be one’s own failure that leads to his later success.  Of course, one may also learn from the failures of others.  This is having your cake and eating it too, you learn the lessons without paying the costs of failure. This is what I am proposing that ASEAN does when it looks at the semi-unravelling of the European Union. Among the many mishaps the European Union made that dragged it through the mire, let us look at three which were, by no means exhaustive, probably the worst.

Do not try to mimic absolute freedom of movement

Don’t get me wrong, I’m a huge fan of freedom of movement on an individual level.  Everyone would like visa free travel when planning their vacation, or the flexibility of moving to a new job without byzantine application processes.  Additionally, there is evidence of economic benefit as a result of flexible labour markets.  But there can be too much of a good thing, and freedom of movement is an obvious example.

The European Union flirted with this idea when it established the so-called “four freedoms” of the single market, namely freedom in movement of goods, services, capital and labour.  For a while when the single market’s membership were of roughly similar living standards and economic growth, freedom of movement did not look like a big problem because there was not much impetus for people to move.  Circumstances in the citizens’ own countries were reasonably good, and they had little reason to uproot themselves to seek opportunities elsewhere. This started to break down in the late 2000s due to two reasons. Firstly, the admittance of new countries into the Union, mostly from the poorer regions of Eastern and Southern Europe, and the economic crisis of 2007 that ravaged most of the market.  Put together, these led to a influx of immigration into the richer economies of Britain, France and Germany. Freedom of movement in such a large scale had both economic problems, namely that certain segments of society suffered slightly despite the overall impact being positive, and social problems that we are now familiar with. These are significant contributors to the discontent towards the EU today.

We can expect similar behaviour if such a scheme is tried in ASEAN.  Far from the romantic ideal of Singaporeans seeking jobs in Yangon and Thais seeking opportunities in Phnom Penh, what is far more likely is that workers from the poorer economies will start entering the richer countries of ASEAN such as Singapore, Brunei and Malaysia in large numbers. ASEAN governments are far from being well-equipped to mitigate the drawbacks of immigration, and one should recall that most European governments failed to placate the locals, even with fairly generous social safety nets. So whilst I am all for liberalisation of migration rules to make it easier to move around for economic and social exchange, ASEAN should know where to draw the line.

Do not make decisions by unanimity

Not too long ago, the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada that took years to negotiate almost fell apart at the final lap because a Belgian region threatened to exercise its veto.  Whilst CETA was salvaged at the last minute, it confirmed the beliefs of many critics of the EU: slow in governance, institutional paralysis and ultimately, immune to reform.  Whilst one can understand the desire to prevent narrow majorities from bulldozing and imposing their will on the minority, requiring every single member to sign up to a decision before it can be implemented is a sure fire way of ensuring that you get little to nothing done.

Unfortunately, ASEAN has already committed this mistake, and in many ways made it worse by an additional policy of non-interventionism, or the so-called “ASEAN Way”.  It might be a great idea, but it really doesn’t work.  Far from encouraging consensus and coalition building, this method of operation has ensured that ASEAN remains a talking shop, unable to decisively act on the key challenges and issues that confront it.  Two recent examples illustrate this point: one can recall in mid-2016 on ASEAN’s failure to take advantage of the favourable judgment towards the Philippines from the Permanent Court of Arbitration in the Hague regarding its dispute with China over the South China Sea.  Instead of exploiting the legal space afforded to it to assert its rights, ASEAN merely issued a severely feeble statement, thanks to dissent from Cambodia and Laos to China’s benefit, thus ensuring that this problem will continue to fester for the foreseeable future.

A possibly more grotesque example is ASEAN’s failure to deal with the refugee crisis involving Myanmar and the Rohingyas. Instead of rallying regional cooperation to deal with what is a cross-border humanitarian issue, ASEAN’s rules of non-intervention basically amounted to prohibiting discussion and asking member states to go home and shut up.  If ASEAN wants to be taken seriously, it needs to eliminate the risk of meaningful, common-sense action being vetoed by erratic governments from its member states.

Do not try to establish a common currency

If future historians were asked what was the main cause of the European Union’s malaise, it would undoubtedly be the Union’s attempt at a common currency area. The euro helped ensure that the continent would struggle to recover from the crisis of 2008 (whereas countries outside the currency zone, most notably Britain and America recovered relatively swiftly), and the economic downturn led to other problems such as popular discontent in countries like Greece, and the mass migration into Britain that directly led to Brexit.

It makes sense to take a step back and ask why a common currency area is a bad idea.  The main reason is that countries joining the common currency lose a crucial mechanism for adjustment, which is a way to dampen the effects of a recession or some negative shock to the economy.  A typical country can respond to economic downturn in three ways:  fiscal policy, that is government spending money to boost aggregate demand; monetary policy, where central banks attempt to boost spending and investment by lowering interest rates, hence borrowing costs; and finally exchange rate adjustments, where the currency depreciates to give exports a leg-up.

By joining the Eurozone, countries essentially gave up control of all three, and hence left themselves vulnerable to the full brunt of the recession without any way to mitigate the damage.  Whilst countries outside the eurozone could employ both fiscal and monetary policy; and rely on a flexible exchange rate to react to the crisis, most European economies, in particular the Southern European economies such as Spain, Portugal and Greece, were sitting ducks when the crash hit them.  They have already lost currency flexibility, since the Euro was in effect a fixed exchange rate with the rest of the Eurozone.  They also lost the ability to set interest rates, surrendering that power to the European Central Bank as a necessary condition for entry into the Euro. And to make things worse, the ironically-named Stability and Growth Pact limited them from embarking on fiscal stimulus. The European Union deluded itself into thinking it could defy the laws of economics by sheer political will, and ASEAN should endeavour not to fall into the same trap.

ASEAN does have the potential to go far.  It has many advantages on its side: a demographic dividend, fast economic growth and relative peace compared to other regions of the world such as Sub-Saharan Africa or Eastern Europe. But all these can be squandered if ASEAN shoots itself in the foot, like many international organisations and blocs tend to. Future historians may either treat ASEAN as a shining example of international cooperation, or a laughing stock akin to the League of Nations. ASEAN can choose which option it wants to take moving forward into the 21st century.

 


Pent is currently working as an economist in the Malaysian public sector.  He graduated from University College London with a BSc Economics.  Pent has held a variety of leadership positions in the International Council of Malaysian Scholars and Associates (ICMS) and the Malaysian Students’ Global Alliance (MSGA).  His writing interests mainly cover economic topics, including labour and immigration.  He can be contacted at pent.lok@msga.my.

Disclaimer: All opinions expressed in this article are the author’s own and do not necessarily reflect the views of the ASEAN Economic Forum.