Nobel Prize-winning research highlights Cambodia’s history of extractive institutions

Earlier this month, Daron Acemoglu, Simon Johnson and James Robinson received the Nobel Prize in Economics for their work on how colonial institutions are a key determinant of whether countries become rich or poor.

The basis of their work is a 2001 article that led to a book by Acemoglu and Robinson, ‘Why Nations Fail: The Origins of Power, Prosperity and Poverty’, published in 2012. The essence of their argument is that the wealth and poverty of countries depends on the types of institutions they have. Inclusive institutions, which protect property rights and democracy, are more likely to achieve sustainable economic growth. Countries that rely on “extractive institutions” to concentrate wealth in the hands of a ruling elite are more likely to remain mired in poverty.

The period of European colonialism is seen as a key moment in the formation of these institutions. The model says that colonial institutions were more likely to be inclusive where European settler societies emerged, and more likely to be extractive where colonialism operated in the absence of large European settler populations.

The claims can of course be disputed on historical grounds, and some have expressed disappointment at the Nobel Prize exculpatory implications for at least some colonial regimes. It’s a reasonable objection. For example, try telling an Algerian, a black South African, or a Kenyan that European colonial settler societies often led to inclusive institutions and prosperity. However, the prize winners are economists and not historians. Their work provides (among many other models) an analytical model that historians can use. It is unlikely that a specific empirical case study fits the model exactly.

Cambodia during the colonial period fits the model well, but its trajectory since the Khmer Rouge period from 1975 to 1979 takes the country beyond the boundaries of the current development debate. France established a protectorate over Cambodia in 1863 and integrated the area into French Indochina in 1887. Cambodia, along with Laos, was a very low policy priority for the French colonialists. The number of French settlers in Cambodia was small, and colonial administrators vacillated between ignoring the territory and trying to find commercial advantages there. French efforts to improve healthcare and education in the region were heavily focused on Vietnam, which would most likely supply local colonial officials.

The Khmer Rouge period saw the birth of what was probably the ultimate extractive state, where citizens had unlimited responsibilities with no reward, other than possibly being allowed to live. The extractive nature of the system survived the demise of the Khmer Rouge. Research by Jean-Christophe Diepart and Laura Schönberger has shown that the modern system of economic land concessions that the Hun Sen regime has routinely used as a form of patronage, at the expense of those living on the land who had to be displaced, has French colonial origins. The French used the land concessions as a way to ensure that colonial forest leases could be maintained and rubber plantation production maximized. After the fall of the Khmer Rouge, Diepart and Schönberger discovered, the concession system allowed Hun Sen’s centralization and control of power at the expense of the opposition and rivals of the ruling parties.

Nobel laureates Acemoglu and Robinson argue in their 2012 book that economic growth is possible in countries with centralized extractive institutions such as Cambodia, Vietnam, Rwanda, Burundi and Ethiopia, but that growth will not be sustained. Of these five countries, Cambodia stands out as a particularly difficult case. The other four have clearly more functional states than Cambodia, although all are highly repressive. Rwanda under Paul Kagame was a central driving force behind the creation of the African Continental Free Trade Area. Ethiopia, which had its own communist revolution in 1974-75, has undergone partial financial liberalization under current Prime Minister Abiy Ahmed and is in the process of launching a stock market. Whether these initiatives will create prosperous and stable societies is still impossible to say.

Cambodia does not have such a signature achievement or bold reform programme. Forty-five years after the overthrow of the Khmer Rouge, the country remains a least developed country (LDC). The government’s long-standing goal of ending LDC status by 2025 has been pushed back first to 2027 and now to 2029. The country’s institutions have remained extractive, with land rights abolished under the Khmer Rouge never firmly restored . Hard land rights in Cambodia today are reserved for the ruling elite, while most citizens have only soft property rights that can be revoked at any time.

Whether highly centralized economies run by dictatorships can be reformed internally to create open and prosperous societies is an open question. Many historians would probably respond that no accurate generic answer is possible, and that outcomes in individual cases are likely to vary widely. The range of possible outcomes becomes even wider when an extractive state like Cambodia becomes dependent on organized crime for a large part of its national income.

The only growth industry in Cambodia today is coercive crime. The country’s extractive institutions have made Cambodia the ideal location for the cyber-scam complexes run by the Chinese mafia. The United States Institute for Peace has estimated that cyber-slavery connections generate at least $12.5 billion annually, or about half of the country’s official GDP, with the complicity of the Cambodian government. According to new research from the Cambodia Counter Trafficking in Persons (CTIP) project, by 2024 there will be a trend of cyber scam links moving from Myanmar to Cambodia, with criminals seeing the latter as the safer operating environment. The CTIP estimates that there are now at least 350 cyber slavery complexes in Cambodia, absorbing the “largely involuntary labor” of 150,000 people from at least 22 countries.

There are no policy books on how to deal with a state that allows mass coercive crime to flourish on such a scale. It is difficult to see how progress can be made on cyber slavery in Cambodia until China and the US agree to work together on this issue. Citizens of the two countries suffer more from cyber slavery in Cambodia and the region than anyone else. Chinese make up the bulk of people tricked into working in the compound wealthy Americans have emerged as targets for the scammers.

It may be unrealistic to expect the US and China to put aside their competing interests in Cambodia, especially given the alleged existence of a Chinese naval base in Ream. But until the two superpowers succeed in isolating the issue of Chinese organized crime in Cambodia from their broader strategic competition, Chinese, Americans, Cambodians and many others will continue to suffer the consequences.