The trouble with the tycoon state

 13 dec 2005

The constitution of 1997, crisis of 1997, and election of 2001 began a new period in Thailand. Business owners who survived the economic crisis of 1997 succeeded in capturing the parliament, building a strong party by M&A, and winning a re-election landslide through populist policies.

Since 2001, companies on the Thai stockmarket with strong political links (especially those with some family members holding positions in the government) have increased their market valuation and market share more than companies with no such political link. Stockmarkets tend to respond favorably to companies with strong political links, because they anticipate that new policies will benefit the companies in question. Thai researchers have observed that, since 2001, there were many policies which benefited listed companies linked to politicians in high government positions, especially at the ministerial level. These policies include: discretionary tax breaks; reduction of concession fees; restriction or discouragement of new entrants; delay in operationalising the anti-monopoly law; delay in liberalising certain industries properly.

This phenomenon is not confined to Thailand, but cross-country studies show that Thailand has one of the highest rates of political linkages among all the stockmarkets of the world. Is the Thai parliament is the only one in the world that has proposed buying a real-time display of the stockmarket prices for the lobby?

The methodology for establishing the link between politics and the market valuations of shares is still being debated. But all the studies suggest that the families of tycoons-turned-politicians are doing rather well, and it’s likely some of this wealth is being used to maintain their political and economic power further.

Big businessmen everywhere seek to influence politics in order to benefit their businesses. This is nothing new. But the phenomenon of the tycoon state is new for Thailand and is a cause of concern. When businessmen and politicians are two relatively separate groups, there is some room for politicians to maintain autonomy, and there is more room for civil society to provide some checks and balances. But when the two groups are one and the same, any sense of perspective about what is public good and what is private good can become very blurred. The attention to private good may easily take precedence over the public good.

Suppose political power is being used to enable certain business groups to gain an unfair share of new opportunities becoming available in expanding sectors such as telecoms, entertainment, property, hospitals, and so on. The result may be that other businessmen who might be more efficient are being crowded out, and consumers  end up paying inflated prices. Usually one expects the forces of globalization to erode this position, but politicians in power may be able to delay liberalization, and screen out global competition.

Perhaps the most important consequences of the new era come in the area of the costs of corruption and their impact on society and politics. In more advanced societies, conflict of interest is a known problem. There are legal attempts to grapple with it, and there are also market mechanisms. In the US, when the Enron company was caught out in accounting fraud, the company was punished immediately by the stockmarket, which reduced the company’s value to zero. Later the company’s executives were punished by legal process. What happens in Thailand? Well the picnic goes on….

As a result, the only controls on conflict of interest in Thailand at present are those exercised by the media and civil society. The costs incurred to stay in power, and to prevent getting found out, are increasing. Both reserves of power and reserves of money are being used for these purposes. And the consequences are far-reaching. If the political temperature has risen so much lately, and mercury has started going backwards, it is not because of the conflicting egos of a few prominent individuals but because of the fundamental problem of conflict of interest.

Consider the extraordinary record of the past 4-5 years. The broadcast media have been swept clean of every program with independent political commentary. The print media have been intimidated by manipulation of advertising budgets, politically motivated takeover attempts, and a firestorm of defamation suits. Academics and activists have also been deterred by lawsuits. Was it a coincidence that the first three of these were all in response to allegations of conflict of interest by three companies in a certain business group? The independent bodies formed under the 1997 constitution are in complete disarray. The Auditor-General’s office is headless; the National Counter Corruption Commission blew itself up; the National Broadcasting Commission has become like a lost spirit, struggling desperately to be born.

Many countries, even developed ones, face problems of conflict of interests. It may be argued that as long as capital accumulation takes place and a satisfactory rate of economic growth continues, conflict of interest may be tolerated. But many countries have decided other consequences are too dangerous, and have created new laws and new institutions to prevent it. Even in the US it was less than 20 years ago that strict regulations to prevent conflict of interest were put in place. We can anticipate that Thailand will have to adopt similar institutions in the near future.

But the problems of media control and withholding of information is much more serious and is more difficult to address.

According to the Nobel prize winner in economics, Professor Joseph Stiglitz, the efforts by politicians to withhold information and gag the media are not good for the working of the market economy. They prevent people from responding to the market. A government which has more information than its citizens can take advantage of the citizens without them knowing or realizing. It may make wrong decisions but hide them from the public. Thus it becomes the public duty to resist the efforts of the tycoon state to manipulate the media, obstruct freedom of expression, and throttle civil society.