3.1 Rapid growth is only weakly contributing to poverty reduction (3.1.2)

3.1.2 Limited economic liberalisation and an authoritarian state

Laos has completed its transition from a peasant socialist political economy to market capitalism. The state has been gradually redefined as a force for coordination, modernisation and stability, rather than of revolutionary transformation and post-war reconstruction. [7] Since 1996, the regime has structured its claim to legitimacy around promises of ‘graduation from poverty’ and ‘a rule of law state’ by 2020’.

The Party-State hegemony is based on its ability to deliver employment and benefits to the civil servants who form its social base, to certain networks in society that are closely linked to the regime (veterans, religious leaders) and to the largest foreign and domestic investors, who provide much of the direct tax as well as significant informal financial support to the regime.

The majority of the population are somewhat alienated from the state: they receive few benefits except for stability and some expansion of state services and infrastructure, but in exchange they are lightly taxed, and although they must systematically bribe officials, these payments are mostly directly connected to their economic activities, and since levels are relatively low and predictable, these can be perceived as a “pay as you go” form of taxation.

Many Lao may be somewhat receptive to the Party-State’s justification of itself as ‘a strong state that excludes political rights, so to avoid state capture by private and particular interests’.[8] However, this depends on the concealment of the extent of state capture by elite families and top civil servants, [9] and on the regime’s ability to displace popular frustrations towards external targets. This would seem to be increasingly challenging: the regime’s Cold War anti-western rhetoric seems increasingly archaic, and the regime would face geo-political complications and risk social unrest if it allowed or encouraged expressions of public resentment against the most visible foreign investors, who are arriving from the regime’s closest allies China and Vietnam.

[7] See Lao PDR PEA February 2013, p. 110, ‘Modernisation rhetoric to justify economic reforms and market transition’.

[8] See Lao PDR PEA February 2013, p. 110, ‘Modernisation rhetoric to justify economic reforms and market transition’.

[9] For an illustration of how modernisation may generate gains for personal other political interests, see the policy of turning land into capital and eradicating upland rice cultivation, Lao PDR PEA February 2013, p. 111, ‘Modernisation rhetoric to justify economic reforms and market transition’.


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