Garmentos

With both countries growing so fast, it's tempting to view Cambodia as just a few rungs down the economic development ladder from Vietnam. One's heart longs to say, in fifteen years they'll be Vietnam; in 25, China; in 40, Japan. But this is one of the great fallacies of development economics.

The development in Vietnam is palpably organic. There are a huge number of bottlenecks, particularly ports, electricity, and human capital; but it seems clear that all these things are just a matter of time.

Cambodia's economic development, on the other hand, still feels distressingly fragile. It basically has one industry, the garment trade, which employs about 300,000 people (almost all of them young women), and probably supports about 10% of the population directly and indirectly. Almost everyone else makes their living in agriculture, with a small government elite, a smaller tourism community, and a tiny small business sector.

Most developing countries start with textiles, just as England did 200 years ago. But Cambodia's garment trade is incredibly dependent on special treatment from America, where it sells almost all its wares. Since the expiration of the Multi-Fiber Agreement in 2004, which imposed quotas on textiles in the developing world, countries like China and Vietnam have been subject to special, stopgap measures to dampen down the flood of textiles they can pour into Western markets. In exchange for enacting higher labor standards (and also for being really small and poor), Cambodia has been exempted from this treatment.

In theory, this is a bad thing; trade should go where the market dictates. In practice, it's hard to criticize something which is pulling a lot of very poor people into decent-paying jobs. And Cambodia's 14 million population can hardly be said to be doing serious damage to China, or even Vietnam.

No, the real problem is that those protectionist measures won't be in place forever. They're due to expire in 2008, though they may be extended, or something similar put in their place, by Congress (especially since we'll be in the runup to a presidential election). If they do expire, it's really not clear what happens to the Cambodian garment industry. Cambodia's infrastructure is in dire shape; its roads are poor, its ports are inadequate, and its power grid is direly underbuilt. Some factories here are setting up in special development zones near the Vietnamese border, so that they can bypass these problems by purchasing Vietnamese electricity and using the port in Ho Chi Minh City. If the quotas go away, it's not hard to believe that some of them will simply choose to eliminate the middleman and set up in Vietnam.

Of course, Vietnam, too, could use the industry; for all of Cambodia's need, it's hard to root against the needy of Vietnam. But Vietnam has an economy that is clearly (if slowly) building multi-sector organic capacity. Cambodia is just taking baby steps towards development. Hopefully, another ten years or so of US textile purchases will help them build some of that up.