Sunday, December 16, 2007

Does capitalism work in Thailand?

General News - Monday December 17, 2007

Bangkok Post


Does capitalism work in Thailand?

We have choices: stick with our economic system, make it better or perhaps switch to one of the failed systems


Is free-market capitalism suitable for Thailand? Many people think capitalism is a destructive economic system for Thailand and its people. It only seems to make the rich richer and the poor poorer. How can Thailand benefit from this economic system?

The kind of capitalism operating in Thailand is far from the ideal of free trade and true capitalism.

Ideally, the goal of economic systems is the same: to distribute and manage limited resources in the most efficient way and for maximum utility. The benefits and opportunities must be equally distributed to all.

It has been proven that free-market capitalism is the system that can best serve this goal. Although there is no perfect capitalistic system in the world _ one that is free from exploitation and manipulation, in many developed countries the rules and regulations are constantly improved for the sake of good governance.

Following the cases of Worldcom and Enron, for instance, which are rare cases, legal frameworks and market mechanisms as well as auditing and reporting systems were improved to safeguard against such malpractice. The guilty parties were punished and the operations of the companies were allowed to continue, as best they were able under competitive market conditions. In terms of consumer protection, market regulations are safeguards against extreme abuse and manipulation. Monitoring systems and agencies are in place to prevent monopolies.

The key to the success of capitalism, in comparison to other economic systems _ feudalism, socialism or communism _ is that capitalism operates on two basic principles: motivation and the market mechanism. Whoever produces more gets more of the rewards, but that is not all.

Most every country has a tax and state welfare system to distribute goods and services, build market infrastructure and provide assistance to the less fortunate in areas such as education, health care, etc.

In addition, capitalism protects the individual's right to both physical and intellectual property. Individuals are allowed to accumulate wealth as motivation for their productivity.

As well, under capitalism, if the market is governed by sound principles, mechanisms and regulations, with healthy access to information, it can distribute and manage resources for maximum utility.

For this reason, capitalism is also known as the market economy, which is the opposite of the centrally planned economy that is used in communist countries where the state owns and distributes all resources and determines what resources will be allocated to whom and for what purpose. When resources are changed into finished goods, it is also up to the state to distribute them.

After World War Two, the world was separated into two camps with two very different systems. The goals of capitalism are efficiency and utility whereas the goal of communism is equality.

After 40 years of separate development, it has become clear that capitalism is many times more productive than communism. This is the main reason for the near total collapse of the communist economic system. Almost every communist country has switched to capitalism, and this has led to the end of the Cold War.

I have discussed the concepts of capitalism at length so that we are clear on the philosophy and ideals of this system.

In Thailand, there has been little attempt to explain these concepts clearly, and capitalism is often accused of being a system that is driven only by profit and exploitation, that it worships consumerism and is unethical. It is important for society to understand the real principles of this system.

However, I must reiterate that capitalism as practised in Thailand is far from its ideal form. It is crony capitalism which benefits only select groups of influential people: those who control the resources and privileges and only think of ways for themselves and their friends to reap the benefits.

We are practising a superficial form of capitalism, which lacks the essence of the ideal philosophy or the potential for realising it. Thai-style capitalism is a distorted system designed to benefit only the privileged few and to deprive benefits from the weak and the less fortunate.

Perhaps I have not answered the question about whether capitalism is suitable for Thailand. Should we continue on with this system?

We need to think about what our options are. I believe there are four:

FWe can continue with the current distorted version of capitalism which promotes cronyism, fattening the privileged few, preventing free competition, keeping out foreign investors with more potential and efficiency by using nationalism as an excuse and ultimately placing the control of the state in the hands of the elite. This is the way things are right now, and problems have occurred as a result.

FWe could try to develop our economic system into true capitalism by promoting a correct understanding of the system and its principles, as well as strategically and systematically creating the necessary infrastructures, regulations and mechanisms to support the system. We can learn from the success of other capitalist countries and apply it to the Thai context while remaining true to the key principles of this system.

FWe could switch to other systems such as communism, although it has been a failure in countries where it has been practised, with severe problems of poverty and a low quality of life.

FFinally, we could try to come up with a new system, hoping there is a system out there that is specifically suitable to the Thai context. I think that those who are against capitalism seem to have this belief, although I have not come across concrete examples that are tried and tested.

I am quite confident that the second option is the best that we have today. The third and the fourth options are nearly impossible.

At the same time, if we do not choose the second option, it is quite certain that we will end up with the first _ to continue with distorted capitalism _ which will lead to even more problems and social conflicts, hindering our potential to develop and compete in the increasingly globalised economy.

Tomorrow : Moving beyond crony capitalism.

The author is chairman of Phatra Securities Plc. This article is part of a series of articles on the Thai experience with democracy, provided by the Sanya Dharmasakti Institute for Democracy, Thammasat University.

No comments: