Economics and democracy

17 October 1997

The biggest threat to Thai democracy now is the politicians’ failure to manage the economy.

In recent weeks, an eerie gap has opened up between party politics and public politics. The party politicians are locking horns over a reshuffle, and making the preliminary pre-election lunges. The in-fighting is skilful, intense, intrepid. But to outsiders, this is just another round of horse-trading between the old familiar faces. It won’t make any difference to anything. You can shuffle a pack of jokers as many ways as you like, but it’s still a pack of jokers.

In the public politics outside the party circle, businessmen, academics and pressure groups are baying at the prime minister to step down, and thrashing around in search of a successor regime which could do a better job. A national government? The "Anand solution"? Some intervention by the King? The return of Chatichai, the buffet host? But all of these options would undermine parliamentary democracy. Impasse.

The appointment of Korn Dabaransi as head of the government’s economic team has highlighted the credibility gulf. In the eye of an economic crisis, the appointment of a new economic czar (and anointed heir of a powerful political dynasty) ought to attract some interest. But Korn’s elevation has been greeted by a tidal wave of apathy.

This credibility problem is not just short term. It’s convenient to blame Chavalit and the current cabinet for the economic mess, but it’s not realistic. Chavalit can rightly be accused of not understanding the problem, failing to get good people to help him, allowing influence to get in the way, and sowing confusion. But he did not cause the crisis. The failure to manage the economy is deeper, broader, longer. Replacing Chavalit may be cathartic, but it won’t be a cure.

The business of economic policy-making and economic management is a long-term matter. It involves some big decision points, like those this week. But it is also about implementation, and crucially it is about knowledge, analysis and foresight. In retrospect, it is easy to see what went wrong over the last five years. We encouraged too much foreign money to come in. We didn’t control where it went. Hindsight is wonderful. But why didn’t someone spot these problems when they were just emerging? Or if they did, why didn’t they have the power to do something about them? Other countries had made the same mistakes and found solutions.

To manage the economy well, we need not only good people, but a good institutional base. The economic environment changes very fast. We need systems to read the trends and problems, and to translate the readings into policy shifts.

In the mid-1980s, we had such a base. The Bank of Thailand managed macro policy with some independence. The Finance Ministry was run by technocrats who had a tradition of working in concert with the central bank. The JPPCC served as a formal channel for business lobbying. The NESDB provided some central coordination across ministry plans and projects.

Since then, the task of economic management has become a lot more difficult. Industrialization and financial liberalization have made the economy much more complex. A lot more things can go wrong. Globalisation has increased the penalty for error.

At the same time, the institutional base has fallen apart. The technocracy has been drained of talent. Good potential recruits have been drawn away to the bright lights and big salaries in the private sector. Good old hands have been head-hunted away by big firms. Many who remain are young and inexperienced. They don’t have the status and prestige to withstand meddling. They are vulnerable to ‘influence’.

But the problem is not just a brain drain. The economic policy institutions have been deliberately shredded by politicians. The NESDB was actively marginalised to allow ministers more untrammelled control over budgets and projects. The JPPCC was allowed to wither in favour of cronyist ties. The Bank of Thailand has come under increasing political pressure. The balance of power has swung from the technocrat institutions to the ministries. The top-level officials in the ministries have been heavily politicised.

There is no longer any independent monitoring and analysis of the economy for shaping major policy decisions. The Bank of Thailand’s statistics and projections became shaped by political agendas. Those inside the Bank who dissented were silenced.

There is no central coordination. Policy-making has been scattered across various ministries and boards, often under the control of rival parties in a coalition government.

The finance ministry has assumed a central role. But by 1995 the finance ministry had come firmly under political influence. The ministerial post is now a good career prospect only if you are planning to put in a lot of work on your golf swing in the near future.

More and more of those involved in economic policy-making (as ministers and advisers) are bankers and financiers not economists. This is not surprising. Over recent years, lots and lots of economists have become bankers and financiers. But there is a difference between the two species. Economists have been trained to think about the economy as a whole. Financiers think about the finance industry. Often they fall into believing that the finance industry is the economy, and that their own interests are those of the whole society.

What to do about all this?

Plans are being laid to overhaul the technocracy. Committees are looking into the restructuring of the Bank of Thailand. The crisis has forced the politicians to revive the NESDB and increase its role.

But brushing up the technocracy is only part of the solution. Any prospect that we will return to the technocrat rule of the 1980s is only a dream. In the eye of the crisis, the politicians need the technocrats to get them out of a hole. But once things improve, the balance will swing back. Tuesday’s theatrical performance, with the three good doctors holding forth and the prime minister playing emcee, will play for a strictly limited season.

Economic policy-making and economic management have become heavily politicised. This fact will not be reversed. It is an integral part of the political changes since 1988. Like it or not, from now on politicians and political parties will be making economic policy.

The problem is, at the moment they have no machinery for doing so. Before an election, most parties hire a handful of academics to throw together a manifesto. Predictably these documents are all bland and similar. Elevated to an economic ministry, politicians call up academics, bankers and assorted friends to serve as advisors. Such teams are largely show. From mid-1995 to mid-1997, when the economy slid from slowdown to crisis, there was no economist in shouting distance of those in power. Dr Virabhongse is there now, figuratively speaking, at gunpoint.

The Democrats are only a little different. They have the team of Tarrin Nimmanhaeminda and Supachai Panitchapakdi. At the last election and the next, this team will be the basis of the Democrats’ appeal for the urban vote. But it is a pretty thin basis. These two are a pair of lonely gunslingers. If they shoot and miss, there are no troops to back them up with covering fire.

If the political parties want urban support, they need to convince the urban electorate and public opinion that they can manage the economy. That means attracting good people. It also means investing in study, research, monitoring, backup.

If they don’t, they will always run into the same problem. When the economy turns bad, their credibility will evaporate, criticism by press and public will rise, ministers will retreat into the siege mentality now displayed by the Chavalit cabinet, and people will question whether parliamentary democracy comes at too high a cost.

The current crisis is another political lesson for the public. The dove-tailing of the constitution issue and the financial crisis has taught a lot about the close connections between economics and politics. Public attitudes are being educated to a new level of sophistication. The politicians and political parties are not moving ahead at the same rate. Day by day, they look more dated, more jurassic, more part of the past.

Now the people are learning politics fast, the politicians will have to learn some economics.