Demonopolise, decentralise to recover

Demonopolise, decentralise to recover

The lion, the emblem of the Interior Ministry. Thailand has a swath of laws stipulating decentralisation but more must be done. 
The lion, the emblem of the Interior Ministry. Thailand has a swath of laws stipulating decentralisation but more must be done. 

Thailand is staggering back to life. The public health system has done a superb job. But the rest of the world is still in a mess. And that affects us.

What if the tourists don't come back, at least not in the same numbers, and not for a long time? Air travel becomes more expensive. People prefer to take their holidays closer to home. Faraway places seem more dangerous.

What if exports do not pick up, at least not back to the old levels, and not without a long delay? All round the world people have less money to spend. International trade may drop down a step because of trade wars and protectionism.

What if foreign investors stay away, at least most of them? In the rich countries, governments urge their corporates to bring production back home. Companies remap their supply chains to be simpler and more secure.

Almost 40 years ago, Thailand switched to a strategy of relying heavily on the outside world for the stimulus to make its economy grow. For over half the time since, it worked well. Despite periodic crises, the country grew much richer. But in the second half, the strategy has worked less and less well. The growth rate has dwindled. Governments have not invested enough in infrastructure to keep Thailand appealing. Political conflict has become disruptive. Neighbours have become attractive, especially Vietnam and Indonesia.

If the outside world no longer provides the spur, Thailand has to look inside. That should not be a problem. The country has people who are prepared to work hard, a tradition of entrepreneurial flair, and enormous reserves of creativity. It has invested a lot in skills and education. Just look at today's under-40 generation compared to their counterparts two decades ago. The problem is that the potential of these resources is repressed. By monopolies. By over centralisation. By inequalities of income and wealth.

So the strategy must be: demonopolise, decentralise, distribute.

The most famous monopoly is in the liquor industry. The laws and rules ensure that almost all the profits go to just two families which are fabulously wealthy. Everyone else is denied the opportunity to participate. Similar monopolies can be all around the Thai economy. The power business. Land. There are many other monopoly situations created simply because the big corporations get their tentacles everywhere like giant octopuses. Thailand has had a Trade Competition Act (an anti-monopoly law) since 1999. It was so ineffective that a new act was passed in 2017. The law has improved, but is still not much better.

The central government likes to control everything. After 1997, some power was devolved to local government bodies, and elections introduced. At the same time, several provincial cities began to develop, easing away from Bangkok's enormous shadow. Despite still being repressed and often short of funds, many local governments took strong initiatives and improved local livelihoods in areas such as welfare, water management, trash disposal, infrastructure and education. Local groups began to demand more freedom in development policy and more funds. They wanted to build their own infrastructure, float bonds, make their own rules. The military-dominated central government reacted by killing the trend towards decentralisation. There have been almost no elections to local bodies for almost a decade.

In Thailand, the distribution of income and wealth are both very skewed. The rich save more of their income, and spend a bigger percentage on imports. The bigger the share of income going into the pockets of the rich, the less is being channelled into local consumption to spur the economy.

These past trends mean there is a great opportunity to revive the economy by reversing them, by unlocking the potential that is currently suppressed.

Demonopolise. Decentralise. Distribute.

Cancel the obvious monopolies like liquor and power, to allow SMEs to flourish. Persuade the Competition Commission to make the new Trade Competition Act work. Perhaps more important than legislation, persuade the politicians, bureaucrats, and judges to stop favouring big companies just because they are big.

Restore the system of elective local government, and transfer real administrative and fiscal power so these bodies can make their own local development policy.

Make sure the rich pay their taxes properly, and spend the increased revenue on productive infrastructure that benefits everyone. Assess all major government economic policies: are they equalising or disequalising?

There is one catch. Those who have been in power for the last six years have done the exact opposite. They have allied with the monopolists, reversed decentralsation, and promoted policies that skew income and wealth.

But after the big stimulus has all been spent, if exports, tourism, and foreign investment show no sign of revival, the Thai elites will have to do something to save themselves.

Demonopolise. Decentralise. Distribute.

Pasuk Phongpaichit is Professor of Economics at Chulalongkorn University. Chris Baker is an independent scholar. In 2017 they jointly won the Fukuoka Grand Prize.

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