Preface                                                                        3  
Acknowledgments                                                                4  
Chapter 1: Introduction                                                        5  
Chapter 2: Theories of Economic Growth                                        10  
Chapter 3: A Brief History of Cambodia's Antebellum                           24  
Economy                                                                           
Chapter 4: The Post-Sihanouk Cambodian 
Economy                                 46  
Chapter 5: Conclusion                                                         63  
Bibliography                                                                  70  

When I began to work on this thesis, some two semesters and a summer ago, I was afraid that I would find far too little to fill the following pages. On reflection, I was wrong.

The following is a working draft of my thesis, that is to say, a work that is by no means finished. I know this is so, because there are numerous things left untouched and many books still unopened.

However, one of these glaring omissions will be remedied in the next iteration following the submission to the department of economics of this particular draft. On March 16th, 1995, I acquired a copy of Remy Prud'homme's L'economie du Cambodge (1969). The draft which you are reading does not contain changes and additions which I plan to make in the next major revision. It is, therefore, a work written in the absence of Prud'homme's colossal contribution to the study of Cambodia's economy under Sihanouk.

A serious student might refrain himself or herself from releasing this working draft before having made these important changes; yet, strangely, having read through L'economie du Cambodge these past few days, I feel that the major conclusions reached in "Cambodia's Economic Development and History: A Contribution to the Study of Cambodia's Economy" (dated March 22, 1995) would not be radically altered or substantively changed. Of course, there would have been added tons of new and relevant statistics, not to mention the wonderfully telling words of Prud'homme himself in this draft, but again, the general conclusions drawn in the fifth chapter of this thesis echo, quite independently, some of the same conclusions he drew twenty-six years ago, in 1969.

In chapter 20, the conclusion of his book, Prud'homme concludes, among "a" through "h", the following:

"c) Au cours des dix dernieres annees [depuis 1959] est nee une industrie au Cambodge ... d) Le Cambodge jouit d'une monnaie saine mais menacee ... g) La situation des finances publiques [l'infrastructure et l'education] n'est pas sans poser quelques problemes ... h) L'economie du Cambodge s'est developpee depuis l'Independance a un rythme saitisfaisant, mai qui semble avoir tendance a diminuer. [trans. c) For the last ten years [since 1959] an industry was born in Cambodia ... d) Cambodia enjoyed a sound but menaced currency ... g) The situation of public finance [infrastructure and education] is not without its problems ... h) Since independence, Cambodia's economy has developed at a satisfactory rhythm, but with a tendency to diminish.]"[1]

It is hoped that the reader will see these findings reflected in my own conclusions nearly three decades after the fact.

Sophal Ear

March 22, 1995

The genesis for research on this thesis was a vision in cyberspace. The idea of using the Internet to search the entire world's localized networks was one which I had wanted to try ever since subscribing to Mr. Parker's Southeast Asia list "Seasia-L." I am eternally grateful to the dozens of individuals on Seasia-L who made research for this paper so much more exciting and rewarding. By sending e-mails of both encouragement and help, I could not have asked for more. Their faces I have never seen and may never see, but it is to their illimitable minds I shall always feel obliged.

For help with archival research, I would like to thank Steve Denney of the Indochina Archive, Donald Donato of the World Bank's Indochina division for information gathered on my behalf at the Bank, Craig Etcheson of CORKR, and Virginia Shih at the South-Southeast Asia Library here at UC Berkeley. For information on to the Cambodian educational and banking system in the 1960s and 1970s, I am grateful to Mr. Peth Lim.

For the theories of economic growth chapter, I especially thank Professor Alain de Janvry for our office hour discussions and his exceptional economic development class from which I learned so very much.

Saving the very best for last, I would like to thank my advisor Professor Martha Olney, the one person whose time and effort went into mentoring me, proof-reading drafts, and making numerous suggestions for this thesis. Without her invaluable help steering my work, I would not have so enjoyed researching and writing the following pages. I'm certain that the final product would have otherwise been nothing short of catastrophic.

Sophal Ear

Oakland, CA

Le Cambodge ne veut pas mourir . . . Le Cambodge ne doit pas mourir. [trans. Cambodia does not want to die . . . Cambodia must not be allowed to die.]

--Jean Delvert, 1983

Ever since the first Industrial Revolution in Britain, economists have endeavored to model how countries develop. With economic development comes a longer life-expectancy, better education, a higher standard of living, and generally speaking--progress. Beginning with Adam Smith, who believed that the division of labor would cut production costs and give workers dexterity, to Karl Marx who saw industrialization in a Hegelian synthesis and, therefore, as a necessary part of history, the study of economic development continues to chart new chapters in our understanding of how and why countries industrialize. While there are striking similarities among the successful few, namely land, socio-political, and institutional reforms, following an agricultural revolution in which surplus labor is released into industry, the varying factor endowments, political culture, timing, and strength of institutions all make each country's industrialization experience somewhat unique. Relative economic backwardness and timing in development, notions first introduced by Alexander Gerschenkron in his ground-breaking book of essays Economic Backwardness in Historical Perspective (1962), tell us that for France, Germany, and Russia in the 19th century, the process of development took different degrees of state intervention which depended upon such factors as the presence of financial institutions, and how late they were to industrialize. But what of the Kingdom of Cambodia in the 20th century?

Today, numerous former European colonies in Asia and Africa that were given independence in the aftermath of the Second World War seem to fill the ranks of the poorest countries in the world, deemed to be "underdeveloped" by some, and "less-developed" by others.[2] Srok Khmer, Cambodja, the Khmer Republic, Democratic Kampuchea, the People's Republic of Kampuchea are only some of the past and present names a small former French colony better known as Cambodia has been called in the last two millennia. Cambodia can today be counted among the least developed and poorest countries in Asia, or for that matter the world. Cambodia's economy is more agrarian today than it was in 1968. With less than $200 in per capita gross national product (GNP), Cambodia ranks 115th out of 122 countries. Faring hardly better in the composite Human Development Index (HDI) which uses educational attainment and life expectancy, in addition to income, Cambodia ranks 96th out 122 with only 49.7 years in life-expectancy.[3]

This thesis attempts to answer the following questions: According to standard theories of economic development, namely the Harrod-Domar and dual sector economy models, what factors led to Cambodia's failure to industrialize in the 1950s and 1960s? What could she have done? And what can she do today, given her economic history?

The factors that contributed to Cambodia's failure to industrialize range from the level of saving to the role of agriculture. Accordingly, the thesis attempts to demonstrate their presence or absence during two periods in Cambodia's economic history: (1) the Sihanouk years of 1953 to 1970 and (2) the current period (1979-1994).

In the center of Southeast Asia, bordering Thailand on the west and Vietnam on the east, Cambodia is a country slightly smaller than Oklahoma.[4] Unlike her two giant neighbors whose populations have reached 70 million each, Cambodia's population is small, with only ten million people mostly of Khmer ethnicity. Cambodia's economy is characterized by the myriad of small plots which cover the 16% of arable land she has. Rice, the staple food of most Asian diets, has long been Cambodia's primary agricultural output. The economy, like that of many backward countries, is entrenched in agriculture, which controls 80% of its labor force. Any industrial progress made before 1975 was destroyed when admirers of China's chairman Mao Zedong took power and agriculturally collectivized the Cambodian economy. From 1975 to 1979, money was officially banned,[5] banks were closed, private property was illegal, and the official year for 1975 was zero.

Although most of her contemporary history would suggest otherwise, Cambodia was not always an economic and political disaster area. Broadly speaking, the history of Cambodia's economy can be divided into three parts: (1) the Khmer pre-colonial period (prior to 1884), (2) the French Colonial experience (1884-1953),[6] and (3) the post-colonial aftermath (1953-present).

In the third period, Cambodia has undergone a number of upheavals including a Vietnamese occupation, a coup d'etat, and a bloody Maoist revolution that is estimated to have killed anywhere from 750,000 to 1.5 million Cambodians. During that time, and to this day, five different regimes have governed the country: (1) King Norodom Sihanouk's "Kingdom of Cambodia," from 1953 to 1970; (2) Lon Nol's "Khmer Republic," from 1970 to 1975; (3) Pol Pot's "Democratic Kampuchea," from 1975 to 1979; (4) the Vietnamese Occupation in which the country was re-named "The People's Republic of Kampuchea," from 1980 to 1989; and (5) the current period (following the State of Cambodia which lasted from 1989 to 1991) of Royal co-governance with two Prime Ministers and a democratically-elected parliament. However, political disorder, as even the forefathers of the American Constitution understood in 1789, has never been known to foster an environment in which property rights could be preserved or where economic growth might be sustained. Likewise, in Cambodia.

The chapters on Cambodia's economy divide her history into two major periods: (1) before 1970 in which Cambodia was at peace (Chapter 3: A Brief History of Cambodia's Antebellum Economy) and (2) after 1970 in which her economy was devastated by war and revolution (Chapter 4: The Post-Sihanouk Cambodian Economy). The emphasis placed in these chapters is on giving the reader an idea of where Cambodia's economy stood in each period (using figures on education, microenterprises, and agricultural output) and to a lesser extent on strict macroeconomic data which, even if available, lack validity. For instance, two original sources used in this thesis are propangadistic publications of the early 1970s, Cambodge and Khmer Republic.⁷ They are offered in conjunction with secondary sources of more definite origins.

Many books have been written about Cambodia, but few have been on her economy. In the late 1950s, a young Cambodian student named Khieu Samphan wrote an economics dissertation in which he argued that Cambodia's problems of industrialization were the direct consequence of exploitation by the "imperialist" industrialized world.[8] This World Systems approach, forwarded by the Egyptian Marxist economist Amin Samir (1957), resolved that only autarky from the world system would result in the industrialization of the Third World. This theoretical framework combined with Maoism (especially in the aftermath of the Cultural Revolution) became the bedrock for a revolutionary movement called the "Khmer Rouge," or Red (communist) Khmer. Although everyone today agrees that what Samphan called for in his doctoral dissertation, namely autarky in the form of "self-conscious autonomous development," never became the actual master plan for the bloody and murderous reign of the Khmer Rouge (of which he had become second in command behind Pol Pot), his thesis still remains the most famous work of Cambodian economic development by any Khmer.[9]

To be sure, this thesis uses more conventional theories of development while at the same time qualifying these with the mention that they do not entirely "fit" Cambodia's special circumstances and cannot therefore be taken prima facie. The theory chapter which follows this introduction serves as an indicator of what factors are important to economic growth, especially for Cambodia, and how the models themselves function. Equally important is the examination of the literature in economic history chapters (3 and 4).

Work on the post-settlement situation and the rebuilding of Cambodia has flourished in the aftermath of the Paris Peace Accord of 1991 in which Vietnam agreed to withdraw from Cambodia. The World Bank published a country survey on Cambodia in 1992, almost twenty years since it last examined the country. Most recently, the Royal Government of Cambodia issued a policy outline titled National Program to Rehabilitate and Develop Cambodia (1994). In addition, some non-governmental organizations (NGOs) have teamed-up under the umbrella group named Cooperation Committee for Cambodia to write sectoral position papers which were delivered at the second meeting of the International Committee on the Reconstruction of Cambodia in Tokyo in early March 1994.

It is within this context that my work begins. The prospects for Cambodian economic development cannot be achieved until more Cambodians take part in the process of studying the Cambodian economy and its problems of industrialization just as Samphan's dissertation attempted to do for Cambodia in 1959. The Cambodian economy is still very marred by over two decades of war and destruction, but since the departure of Vietnam's troops from Cambodia, and a subsequently successful democratic election sponsored the United Nations Transitory Authority on Cambodia (UNTAC) in 1992, Cambodia's economy has the potential to finally "take-off."

In sum, this honors thesis presents a brief history of Cambodia's economy contained within a review of the literature and data in chapters 3 and 4. Chapter 2 reviews the cornerstone theories of economic growth and their application to Cambodia. Finally, though not intended to directly critique Khieu Samphan's dissertation, my conclusion (chapter 5) attempts to juxtapose our contrasting assumptions and theoretical framework.

The overriding objective of the Royal Government is to achieve a fair, just and peaceful society and, through accelerating the rate of economic growth, to raise the living standards of all Cambodians. In short, the Government is striving to achieve sustainable growth with equity and social justice.

National Programme to Rehabilitate and Develop Cambodia, February 1994

In the course of economic development, industrialized countries have taken many twists and turns. It would be tempting to characterize development as merely path-dependent, "historical" or unique for all countries. But this simply isn't the whole story. To be sure, there are innumerable differences in how countries industrialize--just as there are similarities. For Cambodia, this will not be different. With the exception of OPEC countries (Saudi Arabia, Kuwait, Brunei, etc.), the role of natural resources has paled in comparison to labor, capital and technology, because most countries are simply not natural resource gold mines. The industrialized countries of the world have undergone transformations which have taken them from agricultural to industrial economies. And from there, it would seem, the move to services has already taken place for the United States. This is not to say, however, that America is no longer agricultural (one need only look at Kansas and Nebraska).[10] Forward, backward, and final linkages are indubitably important since the agricultural, industrial, and services sectors all contribute to one another.[11] This chapter intends to draw a brief outline from the theoretical works of a number of development economists in order to set the foundation for the application of these theories to the case of Cambodia in both the past and the present context (see chapters 3 and 4).

The Agricultural Context

We begin our analysis with an evolutionary model of the path of agriculture's contribution to economic growth by presenting Peter C. Timmer's "The Agricultural Transformation" (1988). Timmer's conceptual framework integrates four economic "environments" from Mosher's to D.G. Johnson's. "The four phases in the agricultural transformation call for different policy approaches. In the earliest stage of development the concern must be for `getting agriculture moving', to use Arthur Mosher's vivid phrase [Mosher (1966)]."[12] In the Mosher environment, a country begins to develop by investing heavily into agriculture, a process colloquially called "priming the pump." This means investing into the agricultural sector cost-saving and efficiency-improving technologies and capital in order to increase the production output and/or decrease agricultural labor capacity (i.e., to free workers from the countryside) later. During this phase of development, agriculture experiences reduced resource extraction because resources are funneled into it instead. Although Timmer notes "A significant share of a country's investable resources may well be extracted from agriculture at this stage . . . this is because the rest of the economy is so small. Direct or indirect taxation of agriculture is the only significant source of government revenue."[13]

The agricultural build-up's purpose is to produce an agricultural or green revolution, following which the agricultural sector undergoes resource extraction. Like an industrial revolution, a green revolution does not happen overnight. But when it does happen, a country becomes relatively efficient and self-sufficient in at least the production of food and other agricultural products. In this latter phase called the "Johnston-Mellor environment," agriculture becomes a "contributor" to industry and thus economic growth. Timmer cites agriculture's establishment of market linkages with industry.[14] We shall see the case of Cambodia to be a peculiar one, for that country may have regressed to a less developed economic state after 1970. For the 1950s and 1960s, the country experienced the beginnings of a "Johnston-Mellor environment," because public, private, and hybrid industrial enterprises (industries, per se) were forming in a sea of rice, rubber, and other agricultural products. Today, Cambodia may actually be back to the "Mosher" phase once more (when "priming the pump" of agriculture takes place). There are few precedents for this, and fewer instances still of successful development (this late in the game). Therefore, the main analytic emphasis will be placed on the past because things were then less complicated or mired for Cambodia. Were there to have been no starvation, war, or revolution in Cambodia during the 1970s, the bulk of this paper would have likely focused its attention on these years instead. The theories of economic growth examined next all relate to an economy past the Mosher environment (beyond the green revolution). The implications for which include the possibility for industrialization and rapid economic growth.

Three Growth Theories

Theories of economic growth abound.[15] Modern theories have divided themselves into three types, stressing one of three factors: (1) civil institutions, (2) the State, (3) the market. This thesis examines three cornerstone economic models that have wide-ranging implications for the market and the State, and to a lesser extent for civil institutions. They are the Harrod-Domar, the Solow growth, and the Dual Sector Economy models (which includes classical and neoclassical components). Although the mechanics will be stressed, it is the economic and policy implications that will be central to our analysis of Cambodia's economy, past and present.

The Harrod-Domar Model

Developed by Roy F. Harrod and Evsey Domar in the late 1940s, the Harrod-Domar model follows a Keynesian framework that emphasizes factors believed responsible for economic growth (among them, the capital stock, investment, the marginal propensity to save and so forth).[16] The variables in the model are defined as follows:

Variabl  Definition                                  
e                                                    
Y        output                                      
K        stock of capital                            
k        capital-output ratio, also called the       
         incremental capital output ratio or ICOR    
I        investment                                  
S        level of savings, which equals investment   
s        marginal propensity to save                 
g        rate of growth                              
[[Delta  "change in"                                 
]]                                                   

The structural form of the model consists of four equations:

Equation       Explanation                                                         
1)             Change in income is proportional to the change in the stock in      
[[Delta]]Y=(1  capital divided by the capital output ratio.                        
/k)[[Delta]]K                                                                      
2)             is the ICOR (incremental capital output ratio) and is constant if   
k=[[Delta]]K/  output is proportional to the stock of capital                      
[[Delta]]Y                                                                         
3) S=sY        The level of saving in the economy is equal to marginal             
               propensity to save multiplied by income. Since there are assumed    
               to be no taxes, all income is disposable                            
4)             The level of saving in the economy is equal to the level of         
S=I=[[Delta]]  investment, therefore, all investment comes from saving, which is   
K              all used to increase the capital stock. The economy is at this      
               point assumed "closed" to the rest of the world and without a       
               government sector.                                                  

The reduced form of the model follows:

g = [[Delta]]Y/Y = 1/k ([[Delta]]K/Y) = 1/k (S/Y)= 1/k (s Y/Y) = s/k

The rate of growth in income is the ratio of the marginal propensity to save over the capital output ratio.

The Harrod-Domar model is very simple. Among its assumptions are the following: (1) the economy in question is closed to foreign capital flows and has no government sector and (2) the capital-output ratio, k, remains constant. The incremental capital output ratio or ICOR is the incremental capital needed to increase output by one unit. The ICOR contains the fundamental relationship between capital and output, and plays a central role in determining the rate of growth "g" (as defined by Harrod-Domar). The lower the ICOR, the higher the growth rate will be. The ICOR is therefore very important because it tells policy-makers that the intensity of labor in production should be high.

Economic And Policy Implications

The structural form of the Harrod-Domar model where growth equals "s/k" tells us that in order to accelerate the rate of growth, "g", either one of two things or both must happen: "s", the marginal propensity to save must increase, or "k", the capital-output ratio must decrease. In other words, the rate of saving must increase, thereby increasing the amount invested; and/or less capital should be used in production of output (i.e., capital is more productive). In order to increase the marginal propensity to save, saving must be incentive compatible (or made to be such). Real interest rates should be high enough to induce individuals to save, but not so high as to shift investment away from productive capital.[17] At the same time, if wealthier people are likely to save more than those who are less wealthy--since they can afford to do so--this means concentrating wealth in their hands.

In order for any investment to take place, financial institutions must be present. Farmers, for instance, hold most of their wealth in the form of livestock.[18] This prevents the funds, which would potentially be saved in banks, from being invested into other sectors. Therefore, in developing countries, private or public financial institutions must be created. In Japan, the Postal Savings System was created for the purpose of increasing the level of saving. For Japanese investors, Postal Savings is the only tax-free investment available, making it the "world's biggest repository of private savings and a model for capital hungry industrialisers throughout the world."[19] Other incentives to promote savings should likewise include tax-free interest earnings (thus increasing the effective interest rate). In Cambodia, a persistent problem since the inception of the Banque Nationale du Cambodge, the BNC (Cambodia's central bank) in the early 1950s has been the low level of saving (as observed in ubiquitously shrinking BNC deposits) and conversely, the tendency for high consumption (as observed in chronic trade deficits).[20]

Civil Institutions to the Rescue?

Because of high transaction costs, the market for credit can be heavily distorted. The presence of traditional institutions such as alternative lending societies throughout Asia have proven effective in situations of credit scarcity. These associations are unregulated, but are well-known to exist in Taiwan, South Korea, and even the Chinatowns of American cities where small to medium enterprises have difficult access to credit.[21] These institutions serve the purpose of increasing the amount of credit available for lending and promote the economic activity that the Harrod-Domar model postulates will produce economic growth.[22] These institutions must be allowed to exist (if not encouraged to proliferate) in Cambodia despite their imperfections, since the establishment of credit banking takes time and investor confidence (especially outside the Capital, Phnom Penh).[23] Like banks, alternative lending associations offer gains from intertemporal borrowing to all whose net present value today from doing economic activity "x" (including consumption) is higher than it would be in the future at a prevailing interest rate "i".[24]

Capital and Labor

In order to switch from capital-intensive to labor-intensive manufacturing, capital equipment must increase in price relative to wages (i.e., alternatively, a reduction in the wage level accomplishes the same outcome). Since "K" and "L" are assumed to be substitutes here, an increase in the price of capital would induce producers to utilize less capital (as opposed to labor). If the production function used is of a variable nature, where coefficients are in fact not fixed, the intensity of factor utilization will vary according to the price of the factors themselves. As in most developing countries, Cambodia likely suffers from underemployment,[25] or surplus labor, at least in the agricultural sector. Underemployment in agriculture implies low productivity per worker which means lower agricultural wages. It is important to note, though, that the labor which one expects to fill these labor-intensive jobs with will be unskilled. Gerschenkron was first to shatter the myth that backward countries necessarily industrialized by taking advantage of abundant and cheap labor:

Sometimes...the cheapness of labor is said to aid greatly in the process of industrialization. The actual situation, however, is more complex than would appear on the basis of simple models. . . [The] overriding fact to remember is that industrial labor, in the sense of a stable, reliable, and disciplined group that has cut the umbilical chord connecting it with the land and has become suitable for utilization in factories, is not abundant but extremely scarce in a backward country. Creation of an industrial labor force that really deserves its name is a most difficult and protracted process.[26]

To further reduce the use of capital intensive manufacturing techniques in favor of labor intensive ones, employers should maximize the efficiency of the capital stock they do have, i.e., reduce excess capacity. This can be accomplished in several ways: for instance, moving production from a single shift to two or three shifts thereby employing as many workers as possible, or alternatively, simply substituting labor for capital.

Prices and Wages

Lastly, the reduction of price distortions is essential--where there is an overvaluation of the currency, importing cheap capital goods from abroad becomes incentive compatible. In addition, the problem of high wages due to the institution of minimum wage laws, unionism, and the efficiency theory of wages (ETW) distort the neo-classical labor market equilibrium wage, where real wage equals the marginal revenue product of labor. Minimum wage laws and unions are classic economic distortions in a supply/demand schematic (causing a wage floor and monopoly, respectively) but ETW is less well-known. The efficiency theory of wages argues that employers have an incentive to pay workers more than the equilibrium wage because it will motivate that worker to put into his/her work effort that he/she might otherwise forsake.[27] The alternative to paying slightly above the market wage is supervision and coercion, both of which are costly and one of which is very morally questionable.

Harrod-Domar and Cambodia

In the last analysis, is the Harrod-Domar model realistic for Cambodia? As regards the interest rate and ICOR, Harrod-Domar does a decent job of prescribing internally consistent policies which will produce results that the model predicts. However, the facts that wage repression, the elimination of price distortions, and the creation of more savings are very difficult, if not impossible for Cambodia, makes the Harrod-Domar model a hard-to-swallow prescription. In areas where other models have flourished, Harrod-Domar fails completely because it does not address three major dilemmas for LDCs like Cambodia:

(1) the availability of foreign exchange

(2) the provision of public resources, i.e., public goods like schools, defense, infrastructure

(3) the creation of effective demand--not mere "want" without the wherewithal

Harrod-Domar's deficiencies are numerous in this light, but the policy implications do offer valuable insights into how Cambodia should have leaned towards during the 1950s and 1960s and must lean today with respect to interest rates, prices and wages, and the use of capital intensive manufacturing.

THE SOLOW GROWTH MODEL

In 1956, economist Robert Solow of MIT developed a classic model of growth.[28] The model, which had implications for balanced growth and technology, can be presented in at least two ways: (1) using a Keynesian national income identity function along with the critical condition that net savings equal net investment[29] and (2) using a capital, labor, land, aggregate production function (in which case factor shares must be econometrically estimated).[30] For the purpose of this thesis, the second method will be used (albeit without the empirical backing necessary) since it incorporates elements which are directly relevant to observations and data on the Cambodian economy in the Sihanouk Era.

In that case, income is made to equal a Cobb-Douglas (C-D) aggregate production function. Output is a function composed of factor endowments which equals national income.

Where, Y = F (K, L, T, A) in which:

Y = national income

F is a function (of the Cobb-Douglas variety)

K = capital stock

L = labor stock

T = land stock (and natural resources)

A = increases in the productivity of factors

A generic C-D function is:

Y = A K^[[alpha]] L^[[beta]] T^{(1- [[alpha]] - [[beta]])}

Where "A" is a coefficient attached to the productive capacity of capital, labor, and land. "[[alpha]]" and "[[beta]]" are the factor shares for capital and labor, respectively. Land's factor share is the remainder (1- [[alpha]] - [[beta]]). Each factor share, represents in laymen's term, the importance of each factor to growth per se, relative to the other factor shares.[31]

Taking the natural log of this Cobb-Douglas function yields the following:

ln Y = ln (A K^[[alpha]] L^[[beta]] T^{(1- [[alpha]] - [[beta]])})

= ln A + [[alpha]] ln K + [[beta]] ln L + (1- [[alpha]] - [[beta]]) ln T

In which case one can implicitly differentiate with respect to income (Y) and arrive at a rate of change format for the equation. Income growth becomes a function of factor shares times the contribution of each factor, that is, its rate of change:

%[[Delta]]Y = %[[Delta]]A + [[alpha]]%[[Delta]]K + [[beta]]%[[Delta]]L + (1- [[alpha]] - [[beta]])%[[Delta]]T

From this equation, all factors in the original function are accounted for, but there is what Solow calls an "unexplained residual" in %[[Delta]]A known as total factor productivity. This is precisely where technological change comes into play. Solow's empirical analysis finally proved something most had known or suspected since the invention of the wheel: technology matters! Technology has improved the productivity of labor, capital, and land in unimaginable ways. Agriculture is made many times more productive when fertilizers are used. Computers have liberated white-collar workers (some would say imprisoned them) and so on. There is little that technology has not yet touched or revolutionized. Not only were land, capital and labor to be the ingredients to the broth of economic growth, but such had become the impact of technology.

Economic and Policy Implications

The Solow Growth model's application to third world countries like Cambodia is not lost in its original design as a model for developed nations. One need not think of technology as merely computers, but as tractors and fertilizers. To be sure, technology isn't everything, but policies meant to improve technological growth and productivity for Cambodia, in the form of technological transfers, education in basic science, etc. are all to be understood as contributors to growth. By plotting a longitudinal growth curve that has on one axis real GNP or GDP and the capital stock on the other axis, Solow was able to show that increases in the capital stock would produce growth that was larger than expected. Solow's explanation: a residual which he concluded was mostly due to technology. Changes in each factor should, therefore, explain changes in the growth of income.[32] Solow's growth model heightened the importance of technology for both advanced and less-developed countries. For Cambodia, where technology stood in the 1950s and 1960s is one aspect of its failure to grow in those decades.[33]

THE DUAL SECTOR ECONOMY MODEL

The dual sector economy model is actually two models in one. The first is the classical or Lewis dual sector economy model.[34] The second is the neo-classical dual sector economy model. Both models fall under the rubric of "dual sector economy" because they use the same variables and have to do with the same two sectors: agriculture and industry. Both models differ in only one respect: whether they assume the economy to be initially fully employed or underemployed. The Lewis turning point marks the instant at which an economy becomes fully employed, and separates the classical from the neo-classical model.

The basic assumptions of the dual sector classical economy model (a.k.a. Lewis model) are that (1) the agricultural sector exhibits surplus labor. This means that people are idle or working part-time only (in sum, "low productivity"). (2) That the marginal productivity of labor in agriculture is declining because stock of land is fixed (alternatively, the production function exhibits diminishing returns).[35] And (3) that wages in agriculture are determined exogenously. Because there is surplus labor in agriculture, the price of agricultural goods is not expected to increase until the marginal product of the last worker employed cannot be replaced with another identical worker of equal cost. Thus food prices will remain constant so long as there is underemployment in agriculture.

The Growth Mechanism

In both the classical and neoclassical models, the growth mechanism is triggered by increased industrial output which in turn increases profit and therefore investment. This investment, both models assume, is sent back into the stock of capital in industry. The loop is completed when that capital creates more demand for workers from agriculture.[36]

In the neo-classical model, full-employment is assumed. The wages offered to induce more workers into industry must increase, and so too must the wages of the agriculture sector. Why? Because the neo-classical dual sector model begins where the classical model ends (that is, past the Lewis turning point), full employment is assumed, and any labor transfers from agriculture to industry will cause a shortage in agricultural labor. That is, the cost of replacing the worker who has left for work in industry is no longer replaceable at the same subsistence real wage which once prevailed in agriculture. Wages there and in industry must go up.

Contrasting Assumptions and Logic

In order to understand the differences between the two models, their logic must be contrasted. The classical model assumes surplus labor in agriculture, a declining marginal product of labor in agriculture, and exogenously determined agricultural wages. The neo-classical model assumes a fully-employed economy which is at or beyond the Lewis turning point (the point at which full employment has been reached).

As was stated earlier, wages in agriculture are no longer exogenous in the model since they can now increase with the transfer of workers from agriculture into industry. This has implications for both the price of food and other agricultural products since the labor costs are going to increase under the neo-classical framework. Whereas the classical model relies on repressed wages to create the profit necessary to invest in more capital, the neo-classical model turns instead to technological change in agriculture. By increasing the productivity of agriculture, food prices can continue to decrease, thus minimizing pressure for nominal wage increases and keeping real wages (W/P) constant.

Policy And Economic Implications: Economic Growth versus Equity

The implications for Cambodia according to the classical dual economy model is that any repression of the wage in agriculture will increase the level of employment in industry which will help it reach the Lewis turning point more rapidly. This is what some have referred to as the welfare paradox, namely the fact that things must get worse before they get better for a country to industrialize. Income inequality which is low in agrarian economies (hence the oft-used phrase "poverty of equality") gets worse during industrialization. The Kuznets inverted U shows that virtually all industrialized countries have gone from relatively low inequality to higher inequality (where the inverted U is maximized) and back down to less inequality in the post-industrial phase. This is true of the newly industrializing economies (NIEs) of East Asia: Korea, Taiwan, Hong Kong, and Singapore, which have reached the threshold of inequality and are turning the corner towards less inequality today. For Cambodia, according to Etcheson, land holdings were becoming more concentrated until 1975. Such increasing inequity would indicate, perhaps, that Cambodia was only following the Kuznets inverted U and had not yet reached the maximum.

The neo-classical model is problematic in its assumption of full-employment, especially since most Third World countries like Cambodia have surplus labor,[37] but does offer a less severe solution than repressed wages: technological change in agricultural production. Since technology alleviates both the increase in real wages in agriculture and the price of agricultural output (especially the price of food), thus allowing continued transfer of labor from agriculture into industry without the necessity to increase real wages in either sector.[38]

How realistic is each model for Cambodia? From a purely ideological standpoint, the classical dual economy model has been relatively successful in capturing trends in both capitalist and communist countries. Countries from England to America have all undergone periods of primitive capitalist accumulation for economic growth to take place. The Second World (composed of the former Soviet Union and other socialist countries) renamed primitive capitalist accumulation the Law of Primitive Socialist Accumulation.[39] Evgeny Preobrazhensky invented the scissors under which Soviet labor (resource) was extracted from agriculture and transferred to industry--resulting in rapid economic growth for a few years.[40] In Soviet Russia, agriculture was squeezed by the State in more than one way: high prices for capital equipment, low prices for agricultural output, combined with collectivization. In non-totalitarian countries like Taiwan and South Korea, land reforms were instrumental in shifting labor to the cities (and so too were the enclosures movement in 18th century England to play a similar role). For Cambodian economic history, there were no such sweeping land reforms until 1975.

The neo-classical model is less draconian in its approach especially with the advent of the green revolution in industrialized countries. As Timmer's agricultural development path shows, one singular event stands out: the fact that all countries which have industrialized have undergone a green revolution prior to an industrial one (with approximately 50 years in lag, but that has shrunk considerably with respect to the East Asian NIEs). The catalyst for an agricultural or green revolution comes when technology significantly increases the efficiency or extent of arable land as with the use, for instance, of fertilizers and modern implements (which make possible higher yields with fewer workers).

Whether the policy implications are realistic matters only if the assumptions made by the neo-classical model are realistic themselves. To be sure, full-employment is not realistic for Cambodia past or present, but then so too are repressive labor tactics. In the last analysis, these models outline "ideal types" in ideal theoretical worlds. But the value of dual sector, Harrod-Domar, and Solow models within Timmer's greater agricultural context is in their outline of what one can expect given a reduced multitude of factors: L, K, T, and A. Although their simplicity betrays their actual usefulness, the importance of the factors and conditions they elucidate continues to grow still. As the next two chapters on Cambodia's economic development and history will show, critical factors such as the level of savings, investment in public goods and purchasing power (as it relates to the real wage) were inadequate during the short few years (1953-1970) in which Cambodia's chances to industrialize were highest. For, as will become evident, these years have been few and far between for Cambodia.

There are no four-lane highways through the parks of industrial progress. The road may lead from backwardness to dictatorship and from dictatorship to war. In conditions of a "bipolar world" this sinister sequence is modified and aggrandized by deliberate imitation of Soviet policies by other backward countries and by their voluntary or involuntary incorporation into the Soviet orbit.

--Alexander Gerschenkron, 1962

The contemporary history of Cambodia's economy has been detailed in few major books or scholarly dissertations since the 1960s.[41] As an understudied subject of economic development and economic history, it is no wonder that most books on Cambodia are contained within the realm of political science and history proper. The pioneering works of such "Cambodianists" as Ben Kiernan and David Chandler have exposed the tragedy of recent Cambodian history by shedding much light on the Khmer Rouge movement which took control of Cambodia between 1975-1978.[42] Economists like Remy Prud'homme and Achille Dauphin-Meunier who have focused on Cambodia's economy are few and far between. Works by Robert J. Muscat (1989), the Economist Intelligence Unit's highly regarded Country Profiles and others have marked the literature on Cambodia's current economic situation. It is within the context of this literature that my analysis of the history of Cambodia's economic development begins.

As was explained in the introduction, this thesis is concerned with the examination and application of standard theories of economic growth on Cambodia. This means, for the most part, examining Cambodia's past for clues on the presence or absence of factors contributing to economic growth. In so doing, the theories themselves can be tested against historical evidence (various statistics, trends, etc.).

Before delving into the history of Cambodia's economy, a word on Cambodian semantics. The use of the word "Khmer" describes more than ethnicity (though 90% of Cambodians are ethnic Khmer); it is also the Cambodian word for a Cambodian citizen and the language Cambodians speak. In the Cambodian tongue, Cambodia itself is called "srok Khmer" meaning "land of the Khmer." Therefore, Khmer and Cambodian will be used interchangeably.

The Angkorian-Khmer Empire (9th to 15th century)

Cambodia is the last trace of a once grand Khmer Empire which spanned parts of Thailand, Vietnam and Malaysia. The home of one of the largest man-made monuments in the world, the temple-complex of Angkor Wat built in the 12th century; "The Khmer people trace the origins of their state to the 3rd century AD and the emergence of a rich, coastal power known internationally as Funan."[43]

A Hydraulic Economy

Historians have called the Khmer Empire, which was based around the city of Angkor, a hydraulic economy because of its advanced irrigation system and the many canals leading into the water ways of the Mekong delta which runs throughout Cambodia and Vietnam.[44] All this until "The prodigious conquests and construction efforts of the Angkorian kings came to a somewhat mysterious end in the 15th century. The Kingdom's vast and intricate canal system silted up due to disuse and lack of repair, an indication of sudden labour losses in warfare or from epidemic disease."[45] In the half century before French entry into the region, the rustic economy of Cambodia never had more than a population of one million. Leading Cambodia scholar David Chandler has written of the period spanning 1794-1848,

Nearly all the people of [Cambodia] were ethnic Khmer, who occupied themselves with rice farming and with the monastic and official life. Commercial and industrial tasks were handled by minority groups. Marketing, garden farming, and foreign trade for example by Chinese or by people of Chinese descent. Cattle trading, weaving, and commercial fisheries were controlled by a Muslim minority composed partly of immigrants from Malay archipelago... The Kui people in the northern part of the country smelted Cambodia's small deposits of iron ore.[46]

To be sure, Cambodia is a deeply Buddhist country, perhaps the most Buddhist per capita. Until France made of Cambodia its protectorate in 1863, the Khmer Empire had all but waxed and waned into oblivion from the 15th century onward. Becoming the alternating suzerain of its neighbors Siam (Thailand) and Hue (Vietnam), Cambodia was on the verge of national extinction in the early 19th century.

The French Colonial Period (1863/83-1953)

Ironically, it was because of this French presence that Cambodia was saved from extinction.[47] French domination, despite its transformative impact, stabilized the region by creating clearly defined borders which protected Cambodia from further encroachment by Thailand or Vietnam.[48] When Cambodia became a full-fledged colony of France in 1883, it was from Hanoi, Vietnam that a French governor oversaw it in addition to Vietnam and Laos. The three countries together were called "Cochinchina" or "Indochina."

A Story of Retarded Development

The contemporary history of Cambodia's economy begins with her colonization in 1883; yet little happened for quite some time because France's development focus was on Southern Vietnam, where most tax revenues from Cambodia were sent.[49] "By 1945, [Cambodia] boasted only two lycées [secondary schools], a skeletal road network and no modern industry of importance other than one large rubber plantation. All external economic relations depended on [the Mekong] river transport to Vietnam."[50] Any substantive economic development would have to wait for another decade following Cambodia's subsequent independence in the postwar period.

An Agrarian Economy to Begin With

We see from Alain de Forest's doctoral dissertation, Le Cambodge et la colonisation Française (1980), that Cambodia had begun efforts to modernize and develop under French guidance. He cites the evolution of property rights and the taxation of rice paddies, tobacco, cotton, sesame, sugar cane, indigo, and other foodstuffs.[51] During this same period, Forest boldly notes the end of patronage and the birth of representative institutions in its place. He is mistaken in that respect, because patron-clientelism has not subsided to this day. He writes, "Depuis 1890, l'institution du patronat est en perte de vitesse. Elle va disparaitre dans les annees 1891-1905... [trans. Since 1890, the institution of patronage is quickly fading. Disappearing in the years 1891-1905...]"[52] By the 1930s, little progress on developing Cambodia's economy had been made. According to Craig Etcheson,

After seventy years of struggle to establish their authority over the proud Khmer Monarchy and peasantry, the French colonial authorities began in the 1930s to plant the first of the great rubber plantations... Developed primarily by French and Belgian capital, rubber production was geared almost exclusively to the export market. The plantations quickly came to dominate the primary sector, and hence the bulk of pre-industrial Cambodian economy. Because of the low productivity of Khmer workers, the French preferred to import Vietnamese labor to tend the plantations.[53]

France's need to import labor from Vietnam, according to Etcheson, was due to the low productivity of Khmer workers. Such observation regarding low productivity relative to one's potential heightens chapter 2's notion of underemployment. It is a problem tackled in the dual sector classical economy model with ominous wage repression. Because labor was instead imported from Vietnam, intersectoral labor flows (from agriculture into industry) for Cambodians was hampered. Was this a setback for industrialization? Not a big one compared to what the general economic policy vis-à-vis Cambodia had been: ignore Cambodia for the most part, get raw materials out of it, and focus on developing Southern Vietnam. On April 25, 1941, French-chosen Norodom Sihanouk-Varman was crowned King of Cambodia at the age of 18. He was described recently by Michael Leifer of the London School of Economics as "the most remarkable political survivor of the post-colonial era."[54]

The Sihanoukist Period (1953-1970)

As the Second World War wrapped up, the United States urged its allies to decolonize and retire from imperialism. This was not an altruistic demand--freeing up colonies everywhere would offer America's unscathed and booming economy access into the domestic markets of previously closed and protected colonies. In the postwar years, Cambodia's economy remained strictly non-industrial: fishing, agronomy, spice cultivation, and (rubber) plantations.[55] The economy continued to export rice and rubber to France, while the latter sent high value added goods (i.e., luxury imports) to the upper echelons of Cambodian society.[56] In the aftermath of Japan's defeat, Sihanouk began to talk of Cambodian sovereignty (for the second time; he had earlier been unsuccessful). The French defeat at Dien Bien Phu, Vietnam in 1954 marked the end of French presence in Indochina, but was not the final conflict for that region. A year earlier, however, Cambodia had been granted independence peacefully at the Geneva Conference of 1953. Finally, after centuries of national decline, asymmetric interdependence and tutelage, Cambodia was allowed to govern itself. In the following years, Sihanouk made a number of critical choices which would become the determinants of economic development for Cambodia during the 1950s and 1960s.

Hard Choices Ahead

"To govern" John F. Kennedy once said, "is to choose." Sihanouk, as will become evident, made some poor choices for Cambodia's economy, when he did make them. But for the most part, it seems, he failed to govern with forethought.[57] For instance, schools proliferated under his reign, but they were seriously deficient. Graduates could expect few worthy opportunities for their hard work.[58] In most instances, according to Mr. Peth Lim, a Cambodian who studied past the baccalaureate level (just about the best one could do while in Cambodia), the few jobs for graduates had all to do with State employment (teaching with tenure, civil service employment, or military service).[59] The number of available jobs were, additionally, insufficient for the growing number of graduates.[60] The educational scheme was simple: study at the tertiary level to become a professor and teach (pyramid schemes work that way too).

Furthermore, the chronic current account deficits were emblematic of a spendthrift morality. Had Sihanouk foreseen the chaos that would envelop Cambodia after 1970, he might have recognized the need to educate more scientists, technologists, and engineers first and foremost. In addition, fiscal austerity, currency devaluation and extensive agricultural modernization would have helped spurt economic growth from the 1960s onward.

A Central Bank of One's Own

The Sihanoukist period was interrupted for five years on March 2, 1955, when Sihanouk announced to a shocked Cambodian public that he would step down as King in order to run for public office under the newly promulgated Cambodian constitution (based on France's own). To replace him, Sihanouk's father, Norodom Suramarit, took the royal throne. Between 1955 and 1960, A. Dauphin-Meunier notes, Cambodia's first state-led push for economic expansion and modernization began.

There had been no Cambodian currency under French colonization. Until 1945, the three countries of Indochina: Vietnam, Cambodia, and Laos, had monetary policy placed in the hands of France. A monetary union later created in 1950 called L'institut d'Emission des Etats associe d'Indochine stood for the equivalent of a central bank of Indochina.[61] But under King Suramarit and Sihanouk, now duly elected chief of state while simultaneously prince, Cambodia began to issue currency of its own, called the "riel," under the Banque Nationale du Cambodge (BNC). The riel was pegged to gold at 23.3905 milligrams, additionally, the BNC was backed by 13 million non-tradable French francs and an additional 4 million in France's own treasury, the Tresor.⁶² Initially, according to Dauphin-Meunier, the riel appreciated in value each year thereafter because of an expanding economy that had increased foreign exchange reserves. These days of plenty would be numbered, as BNC deposits slowly shrunk to lower and lower levels in following years.[63]

Cambodia Dabbles with Socialism

At about this time, Sihanouk became head of the government with an astonishing 99.8% of the votes for his political party Sangkum Reastr Niyum or Popular Socialist Community. He quickly embarked on a mission to free Cambodia from superpower spheres of influence (which he believed were the cause of Cambodia's debilitating national decline). Like Egypt and India, Cambodia took a socialist and Non-Aligned Movement (NAM) road to development that was marked by the use of agricultural cooperatives (e.g. public collectives), state-owned enterprises, and numerous construction projects. The "socialism" in Cambodia was one that, according to Dauphin-Meunier, arose not from "scientific socialism" in the Marxist tradition, but from Buddhism. He writes,

Essentielement pragmatique, il [le Bouddhisme socialiste] s'inspire directement de principes religieux, preche l'entraide et l'action sociale dans un souci de depassment de l'homme en lutte contre le mal et les injustices sociales, implique un grand respect de la personne humaine. [trans. In actuality, the socialist Buddhism directly inspires the religious principle, preaches for people to help one another and the social action for the advancement of humankind in struggling against corruption and social injustices, stressing on the great respect for humankind.][64]

As became fashionable during the 1950s and 1960s, Cambodia issued numerous economic plans. The first two-year plan, promulgated in 1956 and renewed in 1958, emphasized the development of infrastructure. The creation of a port at Kampong Som named "Sihanoukville" for maritime traffic eased the burden placed on the Mekong River (which had, until then, been the only pipeline for transport to and from Vietnam into Cambodia). ⁶⁵ For the next decade, five-year plans were promulgated under Sihanouk's Planning Ministry for 1960-1964, 1964-1968, and 1968-1972. The transportation system, largely undeveloped under the French, received much needed attention from the mid-1950s onward. The number of kilometer of roads more than tripled from 4,805 in 1955 to 16,697 in 1969.[66]

Practical Propaganda?

Much of the data on education, industry, and health-care, for the years in which Sihanouk reigned as head of state before the 1970 coup d'etat in which he was deposed, were gathered from a pictorial book titled Cambodge (1970). The book's purpose was to attack the Lon Nol regime which replaced Sihanouk in March 1970 (Sihanouk was the regime as is common in autocratic states). It contains the most detailed breakdown of economic progress made from 1955 to 1968, but ought to be taken with at least some reservation. As a secondary source, Milton Osborne's recent unauthorized biography of Sihanouk, titled Sihanouk: Prince of Light, Prince of Darkness (1994) cites similar statistics on education facilities, though without references as to where they originated, in its concluding chapter.[67] Overflowing with images of a happy and modernizing Cambodia under "papa" Sihanouk, Cambodge is the unqualified mouth-piece of a defeated leader wanting a return to power.[68] On one page, a caption below a picture of President Richard M. Nixon giving a televised speech on the secret U.S. bombings of Cambodia reads: "L'homme `civilisé' qui soutient le régime sauvage de Lon Nol. [trans. The `civilized' man who sustains Lon Nol's savage regime.]" It is with this qualification that I offer the following statistics.

Cambodia on Education 1955-1968

The growth of Cambodia's educational system between 1955 and 1968 is indicative of a pattern of economic expansion and modernization. The primary and secondary school system, which served the population of 5 to 18 year olds, increased significantly between 1955 and 1968.

Table 3.1: The Cambodian Educational System Under Sihanouk

                                           1955     1968       
Primary Schools                            2,731    5,857      
 Number of Students                        311,000  1,025,000  
Secondary schools (Junior High and High    12       180        
Schools)                                                       
 Number of Students                        5,300    117,000    
Technical and Professional Schools         5        99         
 Number of Students                        334      7,400      
Universities                               0        9          
 Number of Faculty                         2        48         
 Number of Students                        347      10,800     

Educational Quantity Versus Quality

Underneath this facade lurked the problem of quantity versus quality. What Sihanouk had achieved was an increase in the number of students at all levels of education, but the quality of their education was always in doubt. Milton Osborne writes:

In looking back at his years in power, both Sihanouk and his defenders have made much of his efforts to transform and expand the Cambodian educational system. The claim invites debate, because there is no doubt that educational opportunities expanded in Cambodia, particularly during the 1960s. But at the same time there was an ever-growing gap between the numbers of pupils and students processed through secondary and tertiary institutions and the availability of jobs for those who had completed their education.

The issue of education... is given further interest by the prince's own ambivalent attitude to formal learning... Publicly he could boast that he determined Cambodia's economic policies without caring `a rap about political economy, political science or other subjects', and without having read any books on these subjects. But hand in hand with these views went his determination to found schools, colleges and universities... [Yet] standards in most of these newly established faculties were deplorably low, not least because there were simply not enough trained university teachers.[69]

Equally disturbing, according to Osborne, was that science was not singled out as desirable field to enter, at least not when compared to the humanities and arts. To be sure, there were faculties in all fields imaginable, but incentives to steer students into the more socially beneficial engineering and scientific fields were summarily missing.

The most disquieting claim by Osborne regarding the job potential of graduates was affirmed by my own conversation with Peth Lim. According to Mr. Lim, who studied at the university level during the 1960s, graduate students had one avenue of employment: to become professors themselves. There were curiously few opportunities in the private sector, where education was not highly regarded. The artificial creation of both demand and supply by the government might have worked initially. As thousands of students entered the newly built Universities, however, fewer than half could expect to be employed for the extent of their educational attainment. Openings for professorships were highly competitive, and each year many graduates were turned away.[70]

But still, how much quality could one expect from a country that in 1945 had but two high schools? The Economist sums it up: "In 1960 only 31% of those over 15 could read or write, a legacy of inadequate attention to education dating from colonial rule. Important advances were made during the 1960s, but instruction came to a halt during the war in the early 1970s."[71]

Dual Sector Economy and Solow Growth Models

Using a factor important to both the Dual Sector Economy and Solow Growth Models--technology as derived from research, education, etc.,--one can see firsthand the disturbing effects that poor quality in education would have upon technology. If education in the sciences is an endogenous growth variable, a determinant therefore of technological change, its importance is all the more increased. The explicit link with the Solow Growth Model is apparent in the unexplained residual which Robert Solow deduced was technology. Conversely, if investment in technology-producing education is inadequate, the rate of economic growth expected in the following years will be diminished.

What of the dual sector neo-classical economy model? The dual sectors model has a technological component with respect to agriculture. Technology in agriculture works to lower the cost of food, thus eliminating the need for increases in the real wage for industry. Later, when agricultural production is examined, a murkier picture of modernization will appear. In the last analysis, however, the absence of a sound educational system was a detriment to Cambodian economic growth then and for the following years.

Health-Care Boom

In addition to education, a number of health-care facilities were added to serve the Cambodian population of over 6 million (in 1968). The number of hospitals tripled from 1955 to 1968, while clinics and pharmacies proliferated. This no doubt resulted in longer life-expectancy and lower infant mortality. On this point, Sihanouk's reign succeeded admirably.

Table 3.2: The Cambodian Health-Care System Under Sihanouk

                                         1955    1968    
Hospitals                                16      59      
Clinics (Infirmaries, maternity wards,   103     553     
etc.)                                                    
Pharmacies and related establishments    24      358     

With Respect to Industry

Industry, which until 1955 had been inconsequential, grew rapidly in these years. By 1968, there were more than five times the number of small to medium enterprises in Cambodia than there had been in 1955.

Table 3.3: Cambodian Industry Under Sihanouk

                                                      1955    1968     
State-owned factories                                 0       28       
Joint-venture factories (private and public           0       29       
ownership)                                                             
Small and medium private factories                    650     3,700    

Source: Chantrabot, La Republique Khmere (1993), p. 95.

By 1968, Cambodian industry had made considerable headway. Depending on where one lived, the degree of industrialization might be as different as light and day. In 1960, 11% of Cambodia's population lived in cities.[72] Phnom Penh, for instance, was fairly concentrated, with at least one half million residents, a central market mall, Pochentong international airport, and bustling streets with cars from all over the world. By 1968, as the pie chart "Economic Activity in 1968" shows, industry held less than 12% of all Cambodian economic activity. To be sure, Cambodia looked like a country steeped in agriculture, but coming of age with respect to industry and certainly commerce. Using the elements in dual sector economy model, what would have been the factors needed for industrialization? Recalling from chapter 2, they were: repressed wages and/or agricultural modernization.

Were Cambodia to "take-off," to use Walt Rostow's famous metaphor, she would have continued to extract resources from agriculture for the purpose of developing industry. Recalling for a moment Peter Timmer's development path for agriculture, Cambodia would have (by the 1970s) passed "priming the pump," or the Mosher environment and begun significant agricultural resource extraction as described in the Johnston-Mellor phase. By the time resource extraction begins, a green revolution or agricultural revolution has taken place. Before that, investment in agriculture must take place (modernization of farming) and self-sufficiency via exports of agricultural products is one indicator. Priming the pump first allows agriculture to be exploited for the sake of industry. As the following statistics on rice production show, Cambodia seemed on the verge of a green revolution (if not beyond it) when the Second Indochina Conflict erupted in neighboring Vietnam (the first one had ended in 1954 at Dien Bien Phu).

Rice: The National Product of Cambodia

Rice has always been the center of Cambodian life. As in most Asian societies, one can be asked "how are you?" with "have you eaten rice today?" Rice gave Cambodians their daily diets, of course, and an occupation. According to statistics available on rice production and exports, Cambodia was self-sufficient in rice production from 1956 to 1966. "In the 1960s [Cambodian] national self-sufficiency in rice production was achieved as a result of the steady expansion of acreage worked by samllholders [sic] who sold surpluses alongside the state-supported development of a modernised, commercial sub-sector centred on Battambang province."[73] Since Cambodia exported rice, it can only be deduced from this that she did not need rice from abroad. Observed from the graph titled "Rice Production and Rice Exports (1955-1966)," 1959, 1962, 1965 and 1966 appear to have been relatively low output years, but that on the whole, rice output was increasing nominally (that is, without considering per capita yield).

Source: Etcheson, The Rise and Demise of Democratic Kampuchea (1984), p. 22.

It was not until the early 1970s--a time of extreme turmoil for Southeast Asia--that Cambodia suddenly found herself in the unusual position of importing rice via American food aid.[74] Etcheson's data on rice production refer only to aggregate output, not per capita production. His density index calculations, with respect to rice production, indicate that land use was increasing. Cultivation was extensive as well intensive. From 1913 to 1965, the area of cultivated land increased from 2,508 square miles to 6,398.[75] Rural population density grew 41% in that time span, which may indicate that rice output increased not from modernization techniques but from increasing the area of arable land used.[76] As was stated earlier, longitudinal data in general has been sparse and untrustworthy, a point which Etcheson has personally emphasized to me.[77]

Current Account: A Spendthrift Economy?

The trade balance was almost always negative for Cambodia during the 1950s and 1960s. With the exception of 1964 and 1965, the balance of trade was in deficit each year. Trade deficits indicate macroeconomic adjustment to either (1) an overvalued exchange rate, and/or (2) the absence of domestic substitutes, and/or (3) deteriorating terms of trade. It appears that what trade policies there were in 1963 tariff legislation did not provide effective trade protection policies for exporters.[78] The loss of foreign exchange reserves each year should have forced the government to devalue in order to prevent the loss of foreign exchange. Yet it does not appear such devaluation either took place or worked to keep imports down and promote exports.[79] The following graph titled "Balance of Trade with Linear Trend Line (1955-1966)" shows the trade balance from 1955 to 1966. The trend line indicates a worsening deficit in the trade balance and terms of trade.

Source: Etcheson, The Rise and Demise of Democratic Kampuchea (1984), p. 22.

The Rate of Growth Itself

From 1954 to 1966, the rate of economic growth for Cambodia was uneven. Using national income figures from Etcheson, it was crude matter of extrapolating the rate of real growth (with the 1965 riel as base currency). In 1955, according to the chart titled "Cambodian Economic Growth (1954-1956)" Cambodia lost 11% of its national income, but in 1957 real income grew by 13.3%. The average rate of real growth for Cambodia's economy was 6.68% from 1954 to 1966. From 1960 to 1966, growth hovered 6% to 10%. Although the trend line for 1954-1966 is sloped upward, signs of a general slowdown starting 1964 were apparent. This was of course at about the time the Gulf of Tonkin Incident occurred, prompting the expedition of American troops into South Vietnam.

Note: Using the nominal national income figures, price index, and population statistics, I calculated per capita real income for each year as nominal national income divided by the price index, and divided by population.

Source: Etcheson, The Rise and Demise of Democratic Kampuchea (1984), p. 20.

The Application of Harrod-Domar

The 1960s were perhaps Cambodia's most promising years, believe it or not. For it was in this period that economic growth could have taken hold amidst "relative" political stability and military security. To be sure, growth could not have taken place in the middle of a war that would soon erupt both inside and outside Cambodia's borders, but the economic policy choices made under Sihanouk were halfheartedly carried out, with little foresight. Had the deterioration in the trade balance been halted--through austerity measures with a devaluation as its center piece--Cambodian industries could have benefited from some breathing room during the 1960s.[80] Expenditure switching and reducing measures would have eased internal and external debts by creating a healthy domestic manufacturing sector and tax base.[81]

Consumption Is Preferred

Most emblematic of the Cambodian economy was a total disregard for the future. It seems consumption as opposed to saving was favored by its citizens.[82] Such improvident decisions have serious implications for the rate of future economic growth according to the Harrod-Domar model. National Bank deposits which reflect the reserve holdings of public and private commercial banks declined from 1959 to 1964, never to reach 1963 levels again.

Source: Etcheson, The Rise and Demise of Democratic Kampuchea (1984), p. 22.

In a Keynesian framework, the "saving equals investment" that is Harrod-Domar's third structural identity function can be very useful. Without saving there are fewer sources for capital and therefore fewer possibilities still for industrial expansion.[83] Since investment provides the wherewithal (both for capital equipment and capital per se) necessary for industry to expand, the lack of saving cuts into future economic growth.

This sad pattern of economic activity was perhaps due to or the result of the erosion of purchasing power from 1953 to 1966:

Food shortages and high prices, falling purchasing power, high interest and rents, rising taxes, declining productivity and land availability, increasing population density--all these problems plaguing peasants in the post-World War II period were but symptoms of a general economic malaise. Except for a few very narrowly defined fractions of the urban elite (e.g., bankers, landlords, and importer-exporters), Cambodians did very well between 1954 and 1967 if they simply maintained their standard of living at a stable level; however, most experienced significant declines. Thus in general, the urban elite suffered along with the rural masses.[84]

According to Etcheson, this decline was a "prelude to pandemonium" in the 1970s. He cites, for instance, the 350% rise in food prices between 1950 and 1970. Using UN and UNESCO statistical data replicated in Table 3.4, Etcheson has created the most detailed account of an economy in decline, during the Sihanouk years. Per capita national income increased, but most of that was withered away by an inflated CPI. Purchasing power was thus shrinking.

Table 3.4: Leading Economic Indicators Under Sihanouk

      National  Populati  Per     Consumer  Purchasing  
                on                                      
      Income              Capita  Price     Power       
Year  Millions            Income  Index     (PCI)/(CPI  
      of                                    )*          
      1965      (million  (PCI)   (CPI)     100         
      riels     s)                                      
1953  11.6      4.2       2.76    100       2.76        
1954  13        4.3       3.02    108       2.79        
1955  11.5      4.4       2.61    127       2.05        
1956  12.8      4.5       2.84    127       2.23        
1957  14.5      4.6       3.15    127       2.48        
1958  14.3      4.7       3.04    135       2.25        
1959  14.6      4.8       3.04    141       2.15        
1960  16.1      5.4       2.98    151       1.97        
1961  17.6      5.4       3.25    161       2.01        
1962  19.1      5.7       3.35    164       2.04        
1963  21.4      5.9       3.62    174       2.08        
1964  23.2      6.1       3.8     177       2.14        
1965  24.7      6.1       4.04    183       2.2         
1966  26.2      6.2       4.22    181       2.33        

Following are two graphs titled "Purchasing Power Erodes (1953-1966)" and "GNP, Population, PCI, CPI (1953-1966)" representing the Etcheson data from Table 3.4. The claim of eroding purchasing power is not debated here simply because additional or contrary longitudinal data was not found. The 1970 coup d'etat on Sihanouk is interpreted by Osborne (1994) as having been "in response to growing dissatisfaction in the army officer corps and among the urban elite who had come to see Sihanouk's policies as politically and economically ruinous. [emphasis added]"[85] Etcheson, who forwards the claim, adds,

The Low demand generated within the tiny, depressed Cambodian economy provided little capital for investment, and structural problems grew unchallenged. And as radical Cambodians hastened to point out, imported goods supplied many urban needs, thus transferring the multiplier effect abroad.

Another complication within the Cambodian private sector was the rise in the late 1950s and early 1960s of a species of speculators. Dealing in currency, gold, land, rice, alcohol, opium, salt, beef, tobacco, or any other commodity that offered a chance to make a quick buck, speculators helped catalyze inflation, create supply crises, imbalance foreign accounts, and deprived the government of revenue.[86]

The Sihanouk Years in the Context of Cambodian Economic History

The Sihanoukist period possessed the elements needed for economic growth, but instead the 1950s and 1960s proved to be disappointing years for Cambodia. Although the agricultural sector produced sufficiently to export, there was an unrelenting flow of imports from abroad that resulted in chronic trade deficits with the rest of the world. In addition, while an educational system was being built from the ground-up, quite literally, quantity not quality was the government's goal. Jobs for graduates of the educational system were scarce, and in any case artificially created by the government. Much of the prosperity gained in those decades was in fact illusory. The erosion of purchasing power from 1954 to 1955 and 1957 through 1960 pushed the standard of living well below that of 1953.[87]

It would be easy to characterize these years as "relatively good" given what Cambodia's economy underwent in the 1970s and 1980s, but they were actually lost opportunities. In retrospect, the failure to increase the level of saving and control consumption by the Cambodian government resulted in anemic growth years. Aside from the everyday corruption which plagued all levels of government, the economy suffered from a spendthrift malady. Were there adequate incentives to save, for instance? With hindsight, clearly not.

During the 1950s and 1960s, Sihanouk and the powers that be were too concerned with superficial statistics that would impress the international community rather than the substance of the educational system they were building. With his hands busy in NAM and geopolitics, Sihanouk lost sight of the tell-tale signs of a troubled economy. Economic growth was compromised perhaps because he did not "give a rap" about economic policy and theory.[88] The three factors relating to the three growth theories covered in chapter 2 which were found to be absent or scarce during these years include: (1) a high marginal propensity to save, (2) a high emphasis on technology via the creation of a quality educational system and employment opportunities, (3) eroding real wages. These factors, combined with others such as (1) ineffective trade policy resulting in chronic trade deficits and eliminating incentives to produce at home, (2) pervasive corruption, and (3) minimal taxation resulted in the lackluster growth of the economy.[89]

Survive le peuple cambodgien!

Jean Lacouture, 1978

The Khmer Republic (1970-1974)

Year  Nominal GNP90  
1971  69,454,000,00  
                  0  
1972  82,305,000,00  
                  0  
1973  172,034,000,0  
                 00  
1974  472,956,000,0  
                 00  

Discussion of the Sources

In late 1972, elements Lon Nol regime published a pictorial book called Khmer Republic, not unlike Cambodge, which was published in 1970. In fact, these publications were responses to one another; volleys, if you will, in a match to proselytize. Limited statistical data from the World Bank's STARS database on the GNP and net factor income of Cambodia are shown in the nominal GNP table above. Cambodia was, for all intents and purposes, at war with Vietcong soldiers within her borders. Comparisons of this period with the subsequent one are impossible given the near hyperinflation of the economy and the total absence of macroeconomic data for Cambodia from 1975 to 1986. M. L. Burstein's 1976 economics essay "Economic Theory and Political Strategy--Cambodia" placed the "mv = pq" accounting relationship used by monetarists on the Khmer inflationary process. Unfortunately, Burstein's conclusions and recommendations became inapplicable because 1976 Cambodia had no need for an internal currency.

The War Economy

Of note in Khmer Republic is the new regime's imposition of a 60% value-added tax on cigarettes, and BNC's expansion of the money supply by twenty percent in order to finance a budget deficit in 1972 despite 24.8 million dollars reported in foreign reserves.[93] The war effort against both North Vietnam and the increasingly belligerent Khmer Rouge in the province of Siem Reap had paralyzed the economy. Described as "bloodless" by Ros Chantrobot, the first half of the 1970s in Cambodia saw the degeneration of an economy due out of control to inflationary speculation and corruption. In Khmer Republic's chapter on the economy, the authors write:

A la veille de la chute de l'ancien Chef de l'Etat Norodom Sihanouk, l'economie du Cambodge etait deja dans une situation tres difficile. Mais les consequence de la guerre ont cree d'autres difficultes majeures. La production a ete reduite substantielement creant des penuries de denree essentielles et effrondrement des recettes d'exportation. En fait, les troupe nord vietnamiennes et vietcong ont vise, des les premier jours de l'agression ouverte en 1970, la destruction de l'infrastructure economique du pays. Elles ont commence par paralyser nos principales plantation d'heveas, detruire nos route, ponts, chemins de fer et autre moyens de communication. [trans. From the eve of the fall of former chief of state Sihanouk, the Cambodian economy was already in a difficult situation. But the consequences of the war have created other major difficulties. Production was substantially reduced creating a shortage of basic goods and export revenue. In fact, north Vietnamese and Vietcong troops intended, from the first days of aggression, the destruction of the economy's infrastructure. They began by paralyzing our principal rubber plantations, destroying our roads, bridges, railways and other means of transportation.][94]

This description of the Cambodian economy is corroborated by Ros Chantrobot. He points to transportation problems as the main cause of economic strangulation for Cambodia.[95] Thus condemning the Cambodian provinces, according to him, to autarkic economies and further exacerbating food shortages in Phnom Penh and other cities.

Inflationary expectations fueled by species speculation, combined with massive shortages in basic commodities, engendered the first signs of high inflation in 1971. There was, in addition, a massive influx of refugees entering Phnom Penh from 1970 to 1975. The population of the capital city had been 600,000 in March, but by the beginning of 1975, the number of residents had reached more than 2 million.[96] The reason was simple: The war between Lon Nol's forces and those of the rising Khmer Rouge guerrillas combined with the carpet bombing of northern Cambodia by the U.S. in 1973 displaced large numbers of rural citizens.

Agricultural Production Shrinks Precipitously

Rice production declined substantially from 3.8 million tons in 1970 to 2.7 and 2.1 million tons in 1971 and 1972, respectively. There were consummate decreases in rubber, corn and palm sugar output, due to the war with the North Vietnamese who had made several incursions into Cambodia. Table 4.1 on agricultural production is reproduced from a Finnish inquiry's report titled, Kampuchea in the Seventies (1982), and depicts the ubiquitous decline.

Table 4.1: Agricultural Production (1968-1974)

                   1968/69    1969/70    1970/71    1971/72    1972/73    1973/74    
Rice               2,503      3,814      2,732      2,138      953        762        
Rubber (m tons)    51         52         13         1          15         12         
Corn               117        137        121        80         73         n/a        
Palm sugar         n/a        34         23         n/a        n/a        n/a        

Source: Kampuchea in the Seventies (1982), p. 12.

Three years of secret bombing by American B-52s brought international attention to Cambodia (not to mention took their toll in human lives and damaged property) and forced Nixon to televise a speech in which he explained to the American people why he had defied Congressional prohibition. As military incursions into Cambodia were halted by Congress and the Pentagon Papers made their way to the New York Times, the Nixon-Kissinger strategy became one of retreat with "honor," followed by dwindling economic and military aid. Even before the 1973 Paris Peace Accord which called upon the withdrawal of American troops from South Vietnam, causing the eventual collapse of that country, America's involvement in Laos, Cambodia, and Vietnam had already shrunk dramatically.[97]

As Cambodia's economy began to further deteriorate, Sihanouk created an alliance with the revolutionary Cambodian communists known as the Khmer Rouge under the banner of "FUNK" (a French acronym for Khmer National United Front). Calling for an armed uprising against the Lon Nol government, Sihanouk's fireside chats reached millions of Cambodians by way of radio. By early 1974, the increasing attacks on the Lon Nol regime had all but caused pandemonium in Phnom Penh. In the final days of the Khmer Republic, Phnom Penh had become the final stand. Between 1970 and 1974, the price index for commodities ranging from food to clothes jumped by more than fifty percent.

Source: Bulletin Mensuel (April 1974), p. 40.

The food index with base 100 in 1949 for working individuals in Phnom Penh was 338 in March of 1970; by April of 1974 it had reached 8117.[98] For most of the Khmer Republic's life-span, prices were relatively stable until 1973, when food went into hyperinflation. From the end of 1972 to April of 1974, the general index on consumption prices for both working and middle class individuals increased 500% from a little over 1000 to well over 5000.[99] Individuals stocked-up on durables in order to preserve their wealth.[100] Indications point to an increase in the (nominal) money supply (for war financing), partially due to the 500 million dollars in USAID infusions into the economy between 1970-1975. This influx of aid resulted in what might be characterized as a specie-flow mechanism or a major case of Dutch disease. Burstein notes that "[since] a major source of government revenue was based upon the sale of fungible aid-dollars, exchange depreciation could be viewed as an increase in the level of excise (indirect) taxes. Depreciation of the riel abetted fiscality."[101]

The economic destruction expressed itself in industry, where the manufacturing index which had been 100 in 1960 fell to 73 in 1972.[102] Accordingly, less than 50% capacity utilization was reported due to difficulties in obtaining raw materials and replacement parts.[103] In agriculture, as was discussed earlier, the Khmer Republic saw a dramatic decline as well. From a self-sufficient net exporter of rice, SONEXIM (Cambodia's National Import-Export Society) reported imports of 309,214 tons of rice, 5,633 tons of cotton fiber, 1,614 tons of cotton linen, 2,043 tons of tobacco leaves, 30,740 tons of wheat, and 20,720 tons of flour using American economic aid by March 31, 1974.[104] Burstein explains that,

In the Khmer Republic, c. 1974-5, the small export sector absorbed resources largely irrelevant to home goods production and, as the writ of the Lon Nol government became more and more confined to Phnom Penh, exportation became less and less significant... One reckons that import demand probably was inherently inelastic: (1) the bourgeoisie did not make serious choices, surely not at the margin, between home goods and imported goods for consumption.[105]

Within one year, Cambodia would no longer accept American or humanitarian aid in any capacity, for a new regime would control the country.

Democratic Kampuchea (1975-1978)

In this [the Sihanoukist and Khmer Republic periods] we lost all sense of soul and identity. We were completely enslaved by the reactionary, corrupt, and hooligan way of thinking, by the laws, customs, traditions, political, economic, cultural, and social ways and lifestyle, and by the clothing and other behavioral patterns of imperialism, colonialism, and the oppressor classes.

Official Khmer Rouge Announcement (FBIS IV, April 28, 1977:H1)[106]

After the cessation of U.S. incursions into Cambodia in 1973 and the Paris Peace Accord with North Vietnam in that same year, the political and military situation in the Khmer Republic had so disintegrated as to make eminent the victory of the communist forces against the pro-American Lon Nol regime. On April 17, 1975, the Khmer Rouge guerrillas who had for the last five years amassed virtually all Cambodian provinces entered the capital. Few economic statistics are available because gathering data was not a high priority for the new government. This has left us little to study by way of statistics and official documents.

From the point at which they smelled victory, it seems, the Khmer Rouge had planned the evacuation of all cities for the purpose of revolution. Charles Twining writes,

An extraordinary [Cambodian communist] party congress held in February 1975, reportedly presided over by Khieu Samphan, is generally thought to have made the decision to evacuate cities and abolish all currency after the takeover. The fact that the cities were all emptied within several days of the fall, with the people knowingly directed to spots in the countryside where they camped at least temporarily, does not give the impression of a sudden, knee jerk action. This had all been organized before hand.[107]

If not the most radical, the Cambodian communist revolution was surely the most deadly per capita. Estimates of the death toll range from a low of 750,000 (associated with Michael Vickery) to a high of 3 million (associated with pro-Vietnamese elements) resulting from disease, starvation, forced labor, and execution (i.e., unnatural deaths). At 1.5 million, the proportion killed out of a population of over 7 million in 1975 amounts to over 20%.

For the next few days after April 17th, Phnom Penh's two to three million residents were told to leave the city in order to seek refuge from an impending U.S. bombing of the capital (so the Khmer Rouge had said). There were, of course, no such bombings. As the world has come to learn from the plight of the Cambodian refugees who now reside in America and elsewhere, what transpired next was far from a liberating revolution.[108] A Khmer Rouge broadcast in May 1975 states:

Upon Entering Phnom Penh and other cities, the brother and sister combatants of the revolutionary army . . . sons and daughters of our workers and peasants . . . were taken aback by the overwhelming unspeakable sight of long-haired men and youngsters wearing bizarre clothes making themselves undistinguishable [sic] from the fair sex. . . . Our traditional mentality, mores, traditions, literature, and arts and culture and tradition were totally destroyed by U.S. imperialism and its stooges. Social entertaining, the tempo and rhythm of music and so forth were all based on U.S. imperialistic patterns. Our people's traditionally clean, sound characteristics and essence were completely absent and abandoned, replaced by imperialistic, pornographic, shameless, perverted, and fanatic traits. (FBIS IV, May 15, 1975:H4)[109]

The economy underwent massive restructuring; all money was virtually banned and banks were closed. Markets were all but destroyed. All who had lived in the cities were now to work in the countryside. The Khmer Rouge leaders were following in the footsteps of Mao Zedong's Cultural Revolution in which he proclaimed that from agricultural backwardness China would become the most industrialized country in the world. The leaders of the Khmer Rouge movement Saloth Sar (better known to the world by his nom de guerre as Pol Pot)[110] and Sorbonne educated economist Khieu Samphan, to name but two, sought to recast Cambodia anew; perhaps into a brave new Democratic Kampuchea. Many books have detailed the creation of Democratic Kampuchea, among them Jackson (1989) and Etcheson (1986). The Khmer Rouge's goal was simple: the rustication of an economy.

Soon after the end of the fighting on 17 April 1975 and the entry of the revolutionary forces [Khmer Rouge] into Phnom Penh, virtually the entire population was ordered to begin moving out of the city into rural areas. Excepted from the general order were some factory workers and some skilled employees of technical services, such as municipal water and electricity plants. The evacuees were given of such reasons as the danger of American bombardments, and were told that the evacuation was only for three days, after which they would be able to return...

Whatever the validity of the pragmatic reasons given for urban evacuation, there was also an ideological reason, derived from the Cambodian communists' peculiar class analysis of their society, which also determined the position in which the evacuees found themselves once they reached the rural areas.[111]

According to Vickery (1986), three classes were created: "Full Rights, Candidate, and Depositees." Most of the city dwellers were positioned in the lowest class (Depositees). "This meant that virtually all workers or petty bourgeois were placed in that lowest and socially disadvantaged group and the poorer peasants were de jure as well as de facto the privileged class."[112] The revolution was thus complete.[113] Those who had been unfortunate enough to have been well-to-do or in any way part of the ancien regime (especially with respect to the Lon Nol regime) were placed at the bottom of the totem pole where they were to lead a hand-to-mouth existence. On the other hand, those who had been subsistence farmers, cliques and Khmer Rouge devotes were to become the new elite. The economy of Democratic Kampuchea can be compared with very few others in the world, even those inspired by the Sino-Soviet experience. Like the People's Republic of China, Cambodia became a collectivized economy. Vickery writes,

Economic activity was entirely managed by the state apparatus. There were no markets, no currency, no independent exchange; in most places no private garden production or independent food gathering, and by 1977 there was even a policy, ever more strictly enforced, of communal cooking and eating. Movement outside the basic unit, village or co-operative was forbidden without written authorization, which was rarely granted...

With the entire population transformed into poor peasants, education beyond that which a poor peasantry would need was neglected, and even classes in basic literacy functioned only in a few more prosperous and well-run districts. Medicine was also at a very primitive level, both because over half the doctors had emigrated before April 1975 and medicines were not available, and because the DK [Democratic Kampuchea] authorities often refused to deploy medical personnel among the `new'[Depositees] people.[114]

In sum, the Khmer Rouge devolved Cambodia's economy by perhaps fifty years. By undertaking radical social engineering, the Khmer Rouge reversed the social order, destroyed traditional notions of family, and ruined an entire country. Wealthy families were to become poor, in an instant, and the economic focus of a nation now turned like a laser beam onto agriculture. Whereas the 1950s, 1960s and early 1970s saw poor quality schooling, the late 1970s would see virtually none. Needless to say, basic education (with the exception of accusatory indoctrination sessions) was not a priority under the Khmer Rouge.

Agriculture and in particular the production of rice, rebounded to pre-war levels by 1976, but at what human cost? Surely few others but the Khmer Rouge leadership and those having full rights ate well. The role of rice was not insignificant to the Khmer Rouge. Rice was at the core of their plan to develop an industry that would serve agriculture.

Rice is the basic crop of our people as well as the basis of Cambodia's new economy. If we have plenty of rice, we have plenty of everything. (FBIS IV, July 16, 1975:H1) If we have rice, we have everything; our people can eat their fill and we can export it for hard currency. The more rice we produce the greater potential we have for export. The more we export, the better we can afford to buy equipment, machines, and other instruments necessary for building our industry and communications lines and for rapidly changing our agriculture. (FBIS, July 25, 1975:H3) [Emphasis is Jackson's own.][115]

The late Malcolm Caldwell followed the course of rural development in Cambodia with his posthumously published book, Kampuchea; Rationale for a Rural Policy (1979). In a chapter titled "Economic Development, 1975-1978 and Prospects," Caldwell writes,

Despite all the exultant Western forecasts of famine and starvation to follow the alleged "bloodbaths" of liberation, the first figures for the main season harvest of 1975 were excellent, showing yield up to twice the pre-war average at over two tons per hectare, and exceptional yields of seven tons where new high yield strains were already in use. The total crop amounted to 3.25 million tons of paddy (2.2 of rice), permitting 250 grams of rice per meal per adult (350 of the production force)--a recovery from the dark days of the late 1960s and the war to the levels recorded for the 1950s....

The policies pursued by the Khmer Rouge leaders while still in the guerrilla also bore fruit in the shape of greater diversity in the diet. Meat eating was boosted by countering Buddhist reluctance to take life and by encouraging the raising and slaughtering of livestock, particularly pigs (... "pork is allotted on the basis of one pig every two weeks for each production solidarity group of ten people.")[116]

Caldwell's claims of adequate nourishment are mistaken for at least parts of Cambodia (hence why would there have been starvation to begin with?). Twining's account of the situation before complete victory by the Khmer Rouge is less favorable,

[Before 1975,] In Siem Reap province, [already controlled by the Khmer Rouge] for example, the communists brought to the area an excess of violence, massacring people for reason or no reason, breaking children's heads open, showing that they were the masters... The emphasis then was on work, and more work, all in groups.[117]

Furthermore, Twining writes of the situation afterwards:

One feature that distinguished Democratic Kampuchea from the rest of the world was the absence of money. In April 1975, stories of Cambodian riels blowing in streets or being used in fires, with nothing to replace them, stirred the imagination... Self-sufficiency was the principle throughout the land. Rice was grown for consumption by the populace and for export outside the local area. Each cooperative had one rice pounder to remove the husks from the kernels of rice... An individual was allowed to have two basic possessions of his own: a bowl and spoon.[118]

On January 5, 1976, the new Constitution of Democratic Kampuchea was promulgated. Article 2 of the Constitution, regarding the economy, declared that, "All important general means of production are the collective property of the people's State and the common property of the people's collectives. Property for everyday use remains in private hands."[119] Borrowing an essentially socialist credo on private property, Democratic Kampuchea, however, was not one's typical Sino-Soviet inspired economy. Quoting the Swedish ambassador to China, Kaj Bjork, Caldwell writes, "[The Kampuchean Revolution was] more radical and more far-reaching than either the Chinese or the Russian revolutions," adding "there were no small private plots such as those to be found in Russia, China, or North Korea."[120]

In so doing, the Khmer Rouge years set Cambodia's economy backward developmentally and continue to create problems for Cambodia's development.[121]

The People's Republic of Kampuchea (1979-1989) and the State of Cambodia (1989-1992)

In December 1978, the Vietnamese invaded Democratic Kampuchea. "[Cambodia] has the doubtful distinction of being the only [country] where the Marxist regime (Pol Pot's) was overthrown by another Marxist government with the help of a Marxist neighbour (Vietnam)."[122] What was left of Cambodia's economy was further ravaged by war in this, the Third Indochina Conflict. The People's Army of Vietnam (now unified) refused to withdraw from Cambodia for a decade, which meant that for these ten years the U.S. Embargo on Vietnam now applied to Cambodia as well. The embargo (whether justified or not) made it impossible for the economy to receive significant aid from the international community. As a devoutly Socialist state, the People's Republic of Kampuchea's (PRK) trade with non-Marxist states was discouraged. Cambodia's major trading partners and patrons were Vietnam and the Soviet Union with some help from relief agencies such as UNICEF and the Red Cross.[123]

Money and Wages Are Re-introduced

Since there had been no Cambodian currency from 1975-1978, transactions in post-Democratic Kampuchea were made using gold, the Thai Baht, or the Vietnamese Dong.¹²⁴ The PRK economy was state-controlled and goods were rationed according to salary. Salaries themselves were determined by the state, a sampling in Table 4.2 represents 1984 wages per month. At the beginning of 1984, the official exchange rate was seven riels per dollar; by October of 1988 it had devalued to 142 riels per dollar, officially.¹²⁵

Table 4.2: 1984 Official State Salaries

Profession               Salary                                                    
Teachers                 from 160 riel for a new teacher to 482 for a principal    
                         of a secondary school ($22 and $68, respectively)         
Doctors                  300 for a medical doctor ($43)                            
Pharmaceutical           170-200 (specialized worker), 370 for the factory         
employees                director, plus allowances (e.g. children) ($24-$29 and    
                         $53, respectively)                                        
Tire factory employees   140 (unskilled worker), 4000 for the director, plus       
                         allowances ($20 and $571, respectively)                   
Textile factory workers  140 (unskilled worker), 230 for semi-trained, 300 for a   
                         fully-qualified machine operator ($20, $33, and $43,      
                         respectively)                                             

Prices for certain commodities such as kerosene, cigarettes, soap, rice, sugar, and condensed milk were subsidized by the State.[126] Throughout the 1980s, Cambodian officials devalued the riel such that by April 1990, 380 riels would be exchanged for one dollar (when in 1984 it had been seven riels to one dollar).[127]

Agriculture Revisited

While the "ultra-collectivization" of the Democratic Kampuchea period had been left behind, attempts to forge ahead with agricultural collectivization failed because, "the system did not bring much to the peasants and [due] to the lack of efforts from the Government in implementing it."[128] In 1979, land utilization for the production of rice was less than 30% that of the prewar level.[129] For the new government, "development of a collective economy was the goal, family (i.e. individual private) economy should be encouraged and expanded in order to aid the collective economy."[130] Under the PRK regime, land ownership was nationalized, as in most socialist countries. Restitution and reparations were out of the question, but individuals who had farmed in the area could continue to do so, without harm. The lack of draft animals such as water buffaloes and cattle[131] combined with what Viviane Frings calls "individualistic peasant culture" made agricultural collectivization a failure.

Rice production since 1984 improved with the exception of one setback in 1988. Total rice output from 1984 to 1993 reached the nominal total for 1957 to 1966. However, per capita output (real output where total output is divided by the population of Cambodia) had not yet recovered. Cambodia still imports rice to this day. The persistent need to import rice for the whole decade shows that self-sufficiency is still elusive.[132]

Rice Still First, But for How Long?

Timmer's agricultural development path outlined the phases of economic development and their impact on agriculture. Where does Cambodia stand today with respect to agriculture? The Economist's Country Profile sums it up:

The war economy of the 1970s and 1980s made the country dependent on food imports and food aid, however, while depriving it of opportunities for modernising agriculture. Thus, while output and production took off in neighboring Thailand and Vietnam, Cambodia's comparative advantages have declined. World bank specialists suggested in 1992 that Cambodia's largely rain-fed rice economy have to be replaced by a more diversified food crop and export crop economy, especially in view of the threat posed to water supplies by rapid, uncontrolled deforestation. The total land restored to [agricultural] production in the 1980s was substantially less than the amount worked in the 1960s (about 1.8m ha compared with 2.5m ha in 1969)... Controls on the prices of rice and other food crops further discouraged peasant production of surpluses as did multiple forms of taxation.[133]

Must Cambodia undergo another green revolution? Average yields for rice as measured by tons per hectare (t/ha) show that from 1987 to 1992, Cambodia remained at about 1.28 t/ha without any sign improvement. Cambodia's agricultural sector still has a long way to go before returning to 1960s production levels. Total recovery is not assured anyhow since the devastation of two decades of war, revolution, and starvation have left much of the land unsafe because of landmines. There is today at least one landmine for every two Cambodians. But with help, Official Development Aid (ODA) from multilateral and bilateral sources, Cambodia can utilize many of the efficiency increasing technologies used elsewhere.

Table 4.3: Paddy production

                  1987    1988    1989    1990    1991    1992    
Output (`000      1,814   2,400   2,200   1,700   2,400   2,400   
tons)                                                             
Area (`000 ha)    1,418   1,801   1,700   1,460   1,800   1,840   
Average yield     1.27    1.33    1.29    1.16    1.33    1.30    
(t/ha)                                                            

Dual Sectors Agricultural Modernization

An indicator of agricultural modernization is the use of tractors. In 1986, 1,000 tractors were reported in use by the PRK ministerial report; in 1987, it increased to 1,200 and the following year reached 1,600.[134] By 1992 however, the number of tractors used was estimated to be 1,200. On that level, at least, it does not appear that Cambodian farmers are converging on the use of such technology as would be advisable under the dual sector neo-classical economy model of economic growth. The Economist's Country Profile cites "inefficient techniques, such as the Khmer preference for ploughing with a pair of yoked oxen or buffalo rather than a single animal"[135] as an example of a backward agricultural practice still prevalent today.

Agricultural production outside of rice since 1967 has not recovered with respect to corn and vegetables. However, root and oleaginous crops (which includes sweet potatoes and soybeans) have rebounded. Most of the 1980s saw this type of recovery, at times remarkable. For instance 369 thousand tons of root crops were produced in 1980, more than ten times the level of 1967 and more than three times 1984, 1988, and 1992 levels.[136]

Table 4.4: Secondary food crop production (`000 tons)

              1967          1980          1984          1988          1992          
Maize (corn)  149.5         122.7         59.3          46.9          70            
Root crops    35.8          369.0         81.7          77.9          80            
Oleaginous    63.1          14.2          35.6          36.9          76            
Vegetables    430.0         282.8         139.9         266.5         ...           

Industry: A Slow Re-birth

Industry, which had minimally survived under Pol Pot was slow to recover under the PRK. 57 plants operated with an employment of 154,000 in such fields as textiles, chemical, soap, etc., under the Ministry of Industry's control.[137] Reasons for slow recovery, aside from state ownership and nationalization, according to Vickery (1986) stemmed mainly from the lack of raw materials and power. Shortages abound, the only two products which satisfied "both demand and plan [were] cigarettes and soft drinks."[138] By 1988, the composition of manufacturing output was two-thirds state-controlled. The percentage share of the private and handicrafts sectors was high for textiles, chemicals (including rubber), mechanical, construction, and light industry.[139]

Table 4.5: Manufacturing Output, 1988

                              Value     % share   % share of         
                              of        of        private/           
                              output    state     handicraft         
                              (riels    sector    sectors            
                              m)                                     
Food processing  of which:    1,747.2   67.6            32.4         
cigarettes                    1,064.5   100.0            --          
textiles                      255.4     13.7            86.3         
chemicals (incl. rubber)      213.2     39.2            60.8         
Mechanical                    138.4     33.8            66.2         
Light industry                90.2      31.2            68.8         
Construction                  45.6      9.9             90.1         
Ministries of Industry and    23.8      100.0            --          
transport                                                            
Total incl. others            2,518.3   ...              ...         

Year  Nominal GNP140  
1987  98,890,000,000  
1988  195,560,000.00  
                   0  
1989  247,300,000,00  
                   0  
1990  594,800,000,00  
                   0  
1991  1,396,800,000,  
                 000  

According to statistics gathered by the United Nations Transitional Authority in Cambodia (UNTAC), "[estimates] for 1987-1992 reveal that the services sector was expanding rapidly while the share of wealth produced by agriculture steadily declined."[141] Real economic growth rates have been uneven, but mostly positive, going from a high of 16.2% in 1988 to -0.1% in 1990. Table 4.6 shows that in 1992 industry accounted for 16% of GDP, while agriculture took 45%.

Table 4.6: Sectoral Origin of Gross Domestic Product

              1987    1988    1989    1990    1991    1992    
Agriculture   106.8   106.2   113.2   112.2   131.5   135.6   
Industry      31.7    40.9    41.3    40.3    43.7    49.7    
Services      69.3    94.4    92.8    94.5    105.0   117.5   
Total GDP     207.9   241.5   247.3   247.0   280.3   302.8   
Real growth   ...     16.2    2.4     -0.1    13.5    8       
%                                                             

Source: Country Profile, Indochina: Vietnam, Laos, Cambodia 1993/94 (1993), p. 99.

Trade Balance: In Deficit As Always

The current account of Cambodia during the late 1980s continued to be in the red--though without worsening by too much. Because the State of Cambodia was part of the CMEA countries, most trade occurred within the CMEA zone. Its principal exports were rubber crepe, unprocessed timber, red maize, soybeans, sesame and tobacco. The expansion of exports occurred amidst equally increasing imports. Trade with countries that had convertible currency, such as Thailand, has worsened considerably since cross-border trade was established in 1989 "with Thailand and Singapore via Koh Kong and Kampong Som ports."[142]

Table 4.7: Trade Imbalance (1987-1990)

                     1987    1988    1989    1990    
CMEA zone (Riel m)                                   
Exports              22.5    23.0    26.8    42.0    
Imports              -113.0  -120.0  -110.9  -132.5  
Balance              -90.5   -97.0   -84.1   -90.5   
Convertible zone                                     
($ m)                                                
Exports              4.7     12.0    17.4    16.6    
Imports              -8.4    -10.0   -24.1   -37.6   
Balance              -3.7    2.0     -6.7    -21.0   

Rebuilding Post-Sihanouk Cambodia

Although it would be easy to call the People's Republic of Kampuchea a total failure, with hindsight, "the political, economic, and social system of Democratic Kampuchea [during its 1975-1978 reign] was... an absolute disaster for the people of Cambodia."[143] To their credit, the PRK and later SOC leaders chose to accept official development aid (ODA) instead of the "grin and bear" policy of Democratic Kampuchea's politburo. Bilateral and multilateral aid has poured into Cambodia since 1986, though modestly. Since 1989, the year in which the Vietnamese army began to leave Cambodia, ODA doubled. In 1991 it tripled. In 1994 the total amount of ODA committed to Cambodia (both in soft and hard loans and transfers) at the second International Conference On the Reconstruction of Cambodia (ICORC) in Tokyo garnered over 800 million dollars through 1996.

With Sihanouk, the Khmer Rouge, and Beyond

Presently, the Cambodian economy faces deflationary price pressures due to UNTAC's dismantlement. The Khmer Rouge still control portions of Cambodia and recently murdered a number of foreign tourists from England, the U.S., and other countries. It is imperative that for any serious economic push to take place, the Khmer Rouge security threat must be neutralized. For now, Cambodia's agricultural sector must be rebuilt and modernized once more. 1995 Cambodia is still in the Mosher phase (modernization and investment in agriculture) if it is there at all, and there can be no industrial movement before agricultural subsistence is at the very least achieved. The following chapter concludes this thesis by recasting the economic analysis regarding Cambodia in the 1950s and 1960s alongside Khieu Samphan's 1959 dissertation and its aftermath.

Universities are based on the illimitable freedom of the human mind. For here we are not afraid to follow truth wherever it may lead, nor to tolerate any error so long as reason is left free to combat it.

--Thomas Jefferson

As we have seen in the last two chapters, Cambodia has traveled many roads to and from economic development. The post-Sihanouk years proved that a country could move backward, and very quickly and brutally at that. To use the question posed by Michael Vickery's 1992 article by the title: "The Cambodian Economy: Where has it come from, where is it going?" One could say: Cambodia's economy has come full circle, from backwardness to the cusp of development and back again. Returning to the years in which Sihanouk was in power (1953-1970), one can see a period in which Cambodia's economy could have benefited from a higher level of saving (from an improved marginal propensity to save), better education and investment in agricultural technology to create sustained economic growth. This thesis has emphasized that the absence of factors such as these contributed to mediocre economic growth during those years.

Vickery is somewhat cynical in his assessment of Cambodia's development potential in those years when he writes, "Cambodia in the 1960s gained a misconceived reputation as a small country rich in natural resources, which left to itself, could enjoy infinite progress."[144] Yet his cynicism is not too far off base. Why Cambodia's economy failed to take off in the 1960s was due largely to improvident decisions which left the economy weak after 1970. Vickery's analysis places most of the responsibility on the State rather than the market, and correctly so:

Cambodia became independent in 1953-1954 with a weak state and weak economy. There was little attempt by the state to mobilize domestic capital for development, or even to collect taxes which were legally due. The lack of endogenous financing for the state was made up by large foreign aid contributions, in particular, until 1964, from the United States, which contributed from 10% to over 20% of the budget... Major project