The Cambodian Wild West Good economics can only do so much without good politics

That’s no recipe for long-term growth, the lesson being that political institutions like the bureaucracy and courts matter. Cambodia might be exceptional in the extent that it lacks institutions, but in the government’s current intent, there’s a whiff of the same attitude prevalent in other Asian capitals. Mr. Hun Sen wants to be likened to the strongmen of Asia who have lifted their nations into modernity, yet his own example shows why strongmen who focus on economics without bothering about creating accountable political systems might leave a poor legacy for their countries.

By ABHEEK BHATTACHARYA
Phnom Penh

Tiny Cambodia might seem like the most exciting place for business in Asia these days. Regulations are minimal and often non-existent. Income taxes are left simple. Returns on capital won’t get debased by the government, since the reigning currency is the U.S. dollar. Judging by sheer growth—Phnom Penh hit double digits often last decade—these sound like the right ingredients for a successful frontier market.

There are a lot of frontier men here trying to succeed too, including foreigners. Leopard Capital CEO Douglas Clayton, one such foreigner who runs a $34 million private-equity fund in Cambodia, reckons one of the reasons for the country’s success is that “it treats local and foreign investors the same.” Foreigners can own 100% of just about anything, which makes Cambodia “one of the only free economies in emerging Asia,” he says.

But on closer look, Cambodia isn’t free. It’s a free-for-all, where without proper rules, only the most well-connected thrive. The country may be prospering now, but over time, it will prove to be a reminder that even fast-developing societies can’t do without one key ingredient: political reform that helps enforce the rule of law.

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