A State-run ‘Market Economy’

Without the rule of law, there are no guarantees the economy will be free of state interference under the 2008 Constitution

The economic aspects of Burma’s 2008 Constitution have been notably absent from the recent written analysis of its implications for Burmese society. Though constitutions are not primarily economic documents, Burma’s latest Constitution does contain clauses that have economic import, and it is worth looking at them carefully.

There is an important caveat, however, and this is that a regime that consistently honors the rule of law only in the breach and has many incentives (financial and otherwise) for maintaining the status quo is unlikely to change its behavior anytime soon; therefore, the Constitution may amount to little. Regardless of whether the military abides by its Constitution, however, the document can provide insight into the thinking of its drafters.

Employees of a Burmese bank count bundles of banknotes.

The most significant economic aspects of Burma’s Constitution are contained in Chapter 1, which details the “Basic Principles of the Union.” Articles 35 and 36 (included here verbatim) declare Burma to be a market economy:

(35) The economic system of the Union is market economy system

(36) The Union shall:

 (a) permit all economic forces such as the State, regional organizations, cooperatives, joint-ventures, private individual, so forth, to take part in economic activities for the development of the National economy;
 (b) protect and prevent acts that injure public interests through monopolization or manipulation of prices by an individual or group with intent to endanger fair competition in economic activities;
 (c) strive to improve the living standard of the people and development of investments;
 (d) not nationalize economic enterprises;
 (e) not demonetize the currency legally in circulation.

In great contrast to Burma’s avowedly socialist 1974 Constitution, the 2008 Constitution implies that Burma’s economic system will be market-based. Lip service is paid to cooperatives and the like, but the capitalist heart is otherwise, in principle, unequivocal. The references to monopolies and manipulation in Clause (b) are echoes of the colonial anxieties in modern Burma’s founding 1947 Constitution, and the clause should not necessarily cause problems.

Of great interest are clauses (d) and (e). Such negative pledges (declaring that the state will not do something) are not unusual in constitutional documents—the injunction in the US Constitution against the establishment of a state-supported religion is just one of the most famous—but these clauses evoke Burma’s tortured economic and monetary history.

In the past, to the great detriment of economic development and progress in Burma, the state nationalized enterprises, giving mostly inadequate or no compensation, and currency demonetization episodes became an infamous characteristic of the country. Whether these assurances in Burma’s latest Constitution can be trusted is open to doubt.

As already noted, the rule of law does not prevail in Burma, a country in which the right to private property is not respected. From the State Peace and Development Council (SPDC) leadership to petty officialdom, Burma’s military regime is hardly constrained by formal legalities, and there is little to suppose (given the obvious incentives otherwise) that this will change in the absence of any profound political reform.

In short, secure property rights, which in their de facto existence are the motor for economic growth in countries such as China and the Asian “tigers,” will not be established in Burma simply by constitutional assertion.

The expression “currency legally in circulation” in Clause (e) also gives pause. Does this allow room for interpretation? The 1964, 1985 and 1987 demonetization episodes were all founded upon legislation that withdrew legal tender status from certain specified currency denominations, after which such denominations in circulation were no longer legal tender. Some doubts must remain, therefore.

On balance, the provision of legal flexibility to allow for demonetization is probably not the intention of this clause.