Entrepreneurship Lifts Cambodia from the Clutches of Extreme Poverty in a Single Generation

  • Source: FEE.org
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Lim Pengkhun was born in 1980 near the Cambodian-Vietnamese border. The possibility he’d one day manage his own business would have been quite literally beyond imagination for his parents at the time.

Just five years prior, the Khmer Rouge, led by communist revolutionary Pol Pot, had seized absolute political and economic control of Cambodia.

Following the examples of Stalin and Mao, Pol Pot brutally murdered more than one million Cambodians in the infamous Killing Fields of 1975-1979 as he implemented his vision of communist utopia. He abolished private property, money, prices, commerce, and even cities—a full descent into barbarism.

In total, the government-sponsored genocide killed 1.7 to 2.5 million people in a nation of only eight million.

Death sentences were levied against any number of “class enemies.” Simply being a former civil servant, student, artist, or capitalist of any variety—including a “street noodle vendor or a motorcycle taxi driver”—was enough to earn a spot in one of Pol Pot’s mass graves.

Recovering from Communism

Lim Pengkhun narrowly missed the Khmer Rouge, but the world he entered did not seem much brighter. By the time he was born, the Vietnamese had invaded Cambodia, toppled Pol Pot's regime, and imposed their own version of a Marxist–Leninist government in the People's Republic of Kampuchea.

For the first 15 years of Lim Pengkhun’s life, Cambodia was a command economy controlled by communist and socialist policies and remained one of the most impoverished nations in the world.

Like most of the labor force, his parents were rice farmers. In 1985, agriculture accounted for 90 percent of Cambodia’s economic output. Mr. Lim spent the first half of his life working long, hard days in the rice fields. He still has the scars on his hands and fingers to show for it.

After a day of harvesting, Lim Pengkun would often drive an ox cart 10 kilometers to the village. Transporting the heavy load proved dangerous on dirt roads, especially at night. He bears another scar above his right eye from one of several times his ox cart overturned.

Subsistence farming was the means of survival—for millions in Cambodia, it was the only option. There was little prospect that conditions would improve, no matter how hard Mr. Lim and his parents worked. The reality of grinding poverty seemed inevitable. But something changed.

The Entrepreneurial Spirit Unleashed

Today, like many in Siem Reap, Cambodia, Mr. Lim works in tourism. He drives a Lexus SUV on paved roads. He buys groceries from a thriving local market, and his daughters go to school. His brother owns a pharmacy in Phnom Penh. Another brother is a nurse at a major hospital.

I recently had the pleasure of spending three days with Lim Pengkuhn learning about his life, his country, and the meteoritic rise in the standard of living that Cambodia has experienced in just the last 15 years.

According to the World Bank, Cambodia sustained an average growth rate of 7.7 percent between 1995-2017, making it the sixth fastest-growing economy in the world.

These economic gains have perhaps been most significant for those who started with the least. The poverty rate had fallen to just 13.5 percent by 2014, compared to 47.8 percent in 2007.

When I asked Mr. Lim what factors accounted for this great rise in recent years, he replied without hesitation, “Peace, education, technology, and the entrepreneurial spirit of Cambodian people.”

Indeed, there are entrepreneurs everywhere—and not just in the big industries of textiles, tourism, and construction. I witnessed family-owned coffee shops, restaurants, general stores, and roadside markets. It seemed every street was filled with the bustling commerce of small businesses.

These micro-establishments play a significant role in the Cambodian economy. The Brookings Institution reports 92.1 percent of businesses in Cambodia had fewer than five employees as recently as 2011.

Today, young employees start out with the mindset of saving money so their family can start a business of their own. There is a shared hope and optimism for a better future. They see the opportunity available in the marketplace—and everyone wants a piece of the action.

It was especially striking to witness the newness of the buildings, cars, and businesses around the country. Cambodia has such a long and rich history, yet when it comes to commercial areas, it is apparent most everything we see today was built in the last 10-15 years. There just wasn’t much in the way of capital goods until recently.

Mr. Lim explained that one of the major challenges facing his parents’ generation was the lack of hope for a better future. There was no way to get ahead, so they couldn’t even dream of a better life.

As Cambodia’s economy opened, people began to see that greater prosperity was possible. This gave rise to an entire generation of young entrepreneurs waiting to be unleashed—as soon as the conditions were right.

Private Property, Sound Money, and Peace

By all accounts, Mr. Lim’s generation was starting from scratch. Until 1953, Cambodia was a French colony exploited for agriculture, and there was little industrial investment. The Khmer Rouge nationalized or destroyed all private capital only to be followed by a Marxist regime installed by the Vietnamese government that continued to cripple the economy for the first nine years of Mr. Lim’s life.

In 1989, as the final remaining Vietnamese troops left the country after nearly a decade of occupation, Cambodia began to implement reform policies to transition from a command economy toward an open market. Private property rights were introduced as state-owned enterprises were privatized, and companies were allowed to engage in foreign trade for the first time.

As part of the agreement in the 1991 Paris Peace Accords, the government of Cambodia relinquished the role of economic rehabilitation to the United Nations. The UN invested in health, education, and transportation infrastructure. Entrepreneurship and private sector development were promoted to prepare for Cambodia’s entry into the global marketplace as a free economy.

The government deficit was slashed, and inflation fell from 26 percent in 1994 to only 6 percent in 1995. The national currency stabilized, enabling long-term saving and capital investment.

Despite these economic gains, civil war and political instability persisted in Cambodia throughout much of the 1990s. Finally, in 1999, the remaining Khmer Rouge forces surrendered, and Cambodia enjoyed the first full year of relative peace in three decades.

Three necessary factors for entrepreneurship to flourish were finally in place: private property, stable currency, and peace.

Cambodia is a shining example of the miraculous economic growth that is possible, even in economies that are starting from ground zero, when the right institutions are in place. When entrepreneurs are left unhampered, they become engines of wealth creation for themselves and society.

Each year, the Fraser Institute studies the relationship between economic freedom and economic prosperity around the world. They find the countries with the strongest economies are also the countries that limit the size of government, have the lowest regulatory burdens, have the highest freedom to trade, have sound money, and have a legal system that consistently secures private property rights. It is no coincidence these are a few of the main conditions that also enable entrepreneurs to start and grow businesses.

The Fraser Institute’s most recent Economic Freedom Ranking lists Cambodia as the 64th freest economy in the world. While there is still work to be done, especially in the area of political corruption, this puts Cambodia ahead of the neighboring countries of Indonesia (65), Laos (81), Thailand (84), Vietnam (112), and Myanmar (151).

Relative economic freedom opened the opportunity for entrepreneurs to create wealth. In a single generation, Cambodia has gone from one of the poorest countries in the world to one of the fastest-growing economies.

Rising to New Heights

As a young man, Mr. Lim received a ration of a single duck egg with fish sauce before working an entire day in the rice fields. Today, his two daughters don’t have to work in the fields. They study in school. They enjoy hearty meals of seafood, chicken, fruits, and vegetables. He teaches his daughters to be thankful for the opportunity they have, and he expects them to go to university. (He told me he is hopeful they will earn a scholarship to study in either Japan, Singapore, or Australia.)

Mr. Lim is currently saving for his dream of opening a bed and breakfast of his own. One of the motivating forces in his life from a very early age has been to set a good example for his brothers and the children in his hometown. He wants to show them what is possible through getting an education and developing skills that are valued in the marketplace.

This is the story of a single man, but I witnessed similar stories throughout my travels in Cambodia. There is an entire generation of entrepreneurs—Cambodia’s first in decades—who are setting the example of the prosperity that is available in an open market economy as long as you have a growth mindset.

This January marked the 40th anniversary of “Victory Day” over the Khmer Rouge. Cambodia is now remarkably close to eliminating the extreme poverty that still plagues roughly 10 percent of the population. In only a single generation, they are seeing the accumulation of real savings that will become capital investment for the next generation of entrepreneurs. So long as there is peace and political stability in Cambodia, the future is looking bright for this growing economy.
Source: FEE.org

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