The Road to Serfdom and Back: the
Process of Marketization in Laos
B. James Soukam
Dept. of City and Regional Planning
Southeast Asia Program
In the process of reforming its economy, in response to globalization and economic change, the Lao government has recently integrated into the regional grouping, ASEAN (Association of Southeast Asian Nations). As the country opens up to the world, its membership in ASEAN and incorporation into the world market present as many opportunities and possibilities as challenges and threats. Rich in land and natural resources, but lacking in technical skills and finance capital, Laos could conceivably become a key node in the development of mainland Southeast Asia. Nonetheless, the country remains at a cross-road. Surrounded by powerful neighbors in a dynamic and fast growing region, it is either well-positioned to benefit from economic integration, or regrettably isolated and potentially overwhelmed by more powerful economic actors. The economic necessity of trade, the small size of its economy, the dependence on limited markets, and vulnerability to natural disasters will invariably condition the country’s degree of openness. How has this government managed the socialist transition and capitalist incorporation, while maintaining some semblance of external sovereignty and internal legitimacy?
Relying on observations during my time on research assignment in Laos (May 2004-March 2005); interviews with government officials, members of the development and diplomatic communities; and a literature review of on the political economy of transition, this paper examines the process of marketization in Laos that began in earnest in the early 1990s. By and large, the socialist transition everywhere has involved the retreat of the state from direct management of the economy. Yet, marketization in Laos had entailed building a national economy, where fragmented and regional economies once dominated. In the transition process, a strong central government capable of regulating and enforcing economic governance has gradually eroded traditional autonomy of Lao provincial authority. Taking a Polanyian perspective on markets, I conclude that the contrast between markets and states tends to obscure the ways in which governments need to structure market relations. In Laos, consolidation of state power has gone hand in hand with the creation of a national economic space.