The technocrats, the businessmen and the future

12 December 1998

Forget the nationalism. That’s smokescreen and short-term. The controversy over the economic bills highlights a much bigger debate. What are the roles of government and business in a catch-up economy in today’s globalised world? There are two main opposing positions: 1. We must develop local entrepreneurs, even if that has some costs. 2. We most open up to foreign capital, even if that has some risks.

This is not just a Thai debate. It runs round the world. It is not just an academic debate. The choices reflect very different visions of the future. In Thailand, the debate is rooted in history and coloured by one of the oldest and deepest social divisions in the world – old money versus new.

Since the second world war, Thailand’s urban economy has grown from virtually nothing. At the centre of that growth was a small group of Thai-Chinese business families. And at the centre of that group were the banks. They found a unique way round the capital shortage faced by all developing countries in that era. They scooped up the savings of hundreds of thousands of farmers and small businessmen, and shared out this capital among family members and friends. With the profits, they persuaded the rulers to protect their banks from foreign competition, and to offer other forms of protection through tariffs, licenses, concessions and favours.

Over two generations, the best of these Thai-Chinese firms matured. They sucked in managerial talent, purchased technology, and reduced the role of the family as a management structure. However they still look to the government for help, especially at times of crisis. We are the heart of the Thai economy now, they argue. It is our risk-taking and our foresight which makes the economy grow now. You cannot ignore us.

A very different view of the Thai economy has gradually taken shape among technocrats. Before the mid-1980s, senior economic officials were more technicians than policy-makers. But in the turbulent period of the 1983-5 crisis and the transition to a new export-oriented strategy, the role of the economic technocrats vastly increased. A small group of senior technocrats became privately influential and publicly prominent. At the core of the group was Dr Snoh Unakul at the National Economic and Social Development Board (NESDB). A network extended through the central bank and finance ministry, and out to senior executives in some state enterprises, and in the long-established companies, like Siam Cement and Siam Commercial Bank, which are part of an older corporate establishment.

This technocrat elite developed a very different interpretation of the role of the Thai-Chinese conglomerates in Thailand’s growth. First, they argued, these conglomerates have become too dominant. Their size and grip restricts the potential of competitors. Second, their driving entrepreneurship exacts huge costs from the people and the environment they exploit. Third, the protection they have won from government is borne by Thai consumers who pay above-world prices for below-world-standard goods. Fourth, the protected banking cartel is the core of the problem: shielded from competition, the banks charge too much, make huge profits, and favour their friends. In short, a few benefits at the expense of the many.

The answer, the technocrat elite argued, is to remove protective barriers and open up the banks and companies to international competition. In the late 1980s, when the World Bank stepped up its efforts to spread its liberalisation agenda in Asia, the Thai technocrats fell into alliance. Many of them did not agree totally with the World Bank’s extreme liberalisation plans, but they made common cause on three main points: 1. open up the financial industry to undermine the banking monopoly; 2. bring in more foreign firms to force the Thai-Chinese conglomerates to upgrade or die; 3. legislate to provide a better framework for social protection.

Since the mid-1980s, these two competing agendas have risen and fallen like the two ends of a seesaw. In the final years of General Prem, the influence of the technocrats vastly increased. After the election of Chatichai Choonhavan’s government in 1988, the seesaw tipped back. The NESDB’s role in making and monitoring economic policies was scrapped. Thai-Chinese companies surged into many new businesses (telecommunications, petrochemicals, infrastructure) protected by government concessions and favours. The Anand Panyarachun governments in 1991-2 pushed the seesaw the other way by launching financial liberalisation, levelling down tariffs, and scrapping some concessions. After 1992, Tarrin Nimmanhaeminda and Supachai Panitchapakdi continued this liberalisation trend in the first Chuan Leekpai government. The seesaw lurched back completely in the Banharn and Chavalit governments of 1995-6. The business agenda returned. Some technocrats were run out of office. Others fled. The return of Chuan has seen another reversal. Tarrin and Supachai are back. Many of the elite technocrats have been hauled back from the golf course to help with the restructuring of finance and government.

Nor is this seesaw just a Thai feature. The debate over Asian growth economics now ranges across the world. The World Bank’s famous Miracle study claimed that Asia proved the success of the liberalisation agenda: growth was caused by free markets, openness to foreign investment, and government non-interference. The Japanese, UNCTAD and many economists countered that Asian growth resulted from dynamic local entrepreneurship, supported and disciplined by government.

Nor is the political version of the seesaw only a Thai affair. In Malaysia, the Mahathir-Anwar struggle reflects the same divide. Mahathir is heavily involved with domestic businesses, and fiercely argues the need to protect and develop national capital. Anwar has come to represent the case for greater liberalisation.

In Thailand, the seesaw has taken on a special social complexion. All of the business leaders are of Chinese origin. Their roots in Thailand go back 2-3 generations. Their money still has the glint of newness. By contrast, many of the prominent technocrats come from aristocratic lineage. A few like Chatumongkol Sonakul and Pridiyathorn Devakul belong to court families. Others like Mechai Viravaidya are married into them. Rather more, including Tarrin and Anand, come from Thai-Chinese families which arrived in the nineteenth century and prospered first as tax-farmers and compradores, and later as administrators and professionals. With several generations of time, money and the right schooling, they have become more establishment. This split between businessman and technocrat can appear ethnic. Recently one of the Thai technocrat elite commented that the banking crisis offered an opportunity to loosen the Thai-Chinese grip on the capital market. But the ethnic part is misleading. The speaker himself is heir to one of the nineteenth-century Chinese tax-farmer families. The split is between old money and new money, establishment and nouveau, not between myths of origin.

While the economy boomed, the businessmen were heroes. The technocrats always had to compromise in face of their wealth and success. But in the bust, the businessmen become the villains. The conglomerates overdosed on foreign loans and real estate projects, and now they are on the ropes. The technocrats blame the crisis on their lack of discipline. And the technocrats now have the power to destroy them.

So forget nationalism. This debate is about what happens next, and what a future Thailand may look like.

The liberalisers admit that domestic enterprise spearheaded earlier growth, but they argue that era has passed. Thailand must now move ahead, and become a more modern economy. If many local businesses go under, that is regrettable but not disastrous. More will arise to take their place. A more open economy and more international competition, they believe, will increase both efficiency and equity.

The opponents argue that government should still play some role in nurturing and developing local capital. They believe that has been the secret of Thai growth and Asian growth. They wonder whether the liberal vision is all faith and theory, with no proven track record. They concede that government should be less protective than in the past. But they argue that change should be gradual. Too much liberalisation too quick (especially in such a crisis) will not only destroy bad companies but good ones too. Much of the inheritance of two generations of corporate growth could be quickly and cheaply lost. What then would the future be like? Maybe Thailand will move closer to the Latin American model, where a decade of neo-liberal policies has decimated domestic capital and deepened social disparities.

The technocrats are right to argue that the freedom and favour available to local businessmen has brought great social damage and has led Thailand towards this crisis. But is rapid liberalisation the only or best way to impose discipline on the local businessmen? Why do the elite technocrats believe that foreign firms will be any different? Is their vision affected by aristocratic disdain for the new businessmen? In other countries, the greed and waywardness of businessmen have been restrained by the rise of popular movements. Do the technocrats find this prospect even more frightening?