Asian Think Tank Dialogue @ Hong Kong, 20 February 2009

Asian Think Tank Dialogue

Hong Kong, 20 February 2009

Scene setting

Special address by Dr Thaksin Shinawatra, Chairman of Building a Better World Foundation and former Prime Minister of Thailand:

Some would say our meeting today happens at the wrong time in history.

The whole world is desperately thinking about how to get out of the financial crisis created by global speculation on packaged debt paper.

At most the world is thinking about injecting new money into the developed world economy so that consumers around the world will have confidence to consume again.

So, why are we meeting today and tomorrow to discuss about eliminating poverty in Asia in particular and hoping to find a workable model to uplift the poor in the rest of the world?

I would like to suggest there is no better time than now to think and to act – to work on opportunities for the poor who will be the foundation of economic stability in the future and on what will be the answer to social and political instability that is incurring unnecessary cost and expenditure to all societies.

The present financial crisis has a linkage to our meeting today. But in a way that I like to look at this way:

From the perspective of previously underdeveloped Asian countries, the best model for development after the Second World War was the export-led development model. This model was a success so long as:

One: the Plaza Accord formula continued to work. Japan invested abroad to avoid a yen rate which could be non-competitive.

Two: China continued to stumble indefinitely on which model of capital management it should apply for the development of its potentially giant economy.

Three: the American appetite for consumer products from Asia kept growing indefinitely.

Four: nobody questioned the US public and private debt and the ability of the US to pay for its debt internally or externally.

Alas, these conditions were not there at the end of 2008.

The point I would like us to confront directly, if possible, is that, while some of the Asian countries were able to exploit these conditions to the extent that some of these Asian countries were branded as the new tiger economies of the world, did we resolve the internal management problem of our countries?

We seem to save a gigantic amount of foreign exchange reserve, and most of us have fairly healthy internal savings; but we have the problem of internal gap of economic opportunity among those who are at the fringe of that successful export-led model and those who enjoy the benefit of export-led growth.

Gentlemen, it seems to me that we are confronting two cul-de-sacs. None of us know when the United States will provide us with “the pre 2008 collapse” growth in consumption and new ability to pay debt.

Secondly, some of us do not know what we should we react to or how.

So, some of us are now trying to create stimulus packages not knowing how we are going stimulate consumption when we are confronting contraction of wealth, some say to the tune of 20% of previous wealth. How are we going to get the confidence of our own internal economy to consume when our people are confronting this nightmare?

Are we assuming that the left-over capacity for production in the export industries will somehow be taken up by internal consumption? The critical mass of demand can only come from those who are the majority of our people and who are on the fringe of the export-led model. Do they have the income and diversified demand that can underpin the survival of the export industries?

Are we assuming that once the US is somehow able to create growth in consumption again, we all somehow go back to the good old days?

I would like to propose the following thoughts:

I think if we were to assume the above scenarios, we are kidding ourselves.

We knew that even before the 2008 collapse. There were too many essentially “same” products competing for the same consumers. Technology was the same, design concept was the same. So we fought on price.

We knew the party will be over, the question was when. Well, according to the new President of the United States “the party is over.”

What do we do next?

The first thing to do is to accept reality and not believe assurances that the global boat is in good shape and in good hands and that none should dare rock it. World economic forums and international media are always ready to gloss over any holes anyone cares to point out. We now know that not only are the holes getting bigger but that there is no rudder. But this dialogue is not about finding a rudder and fitting it in. Even if we knew how, we have no power to fix it. We are gathered here to do what we can – within our means and limits – for our peoples in the knowledge that the volatility of international markets will not subside for quite some time.

Our peoples’ future will largely be in their own hands provided they are determined not to forget the basics. Peace and prosperity can last only when everyone has a chance to do something useful with his life. Mahatma Gandhi recognized this. The rest of us did not.

Let me give you a brief outline of the experience of the country that I know best – Thailand. Though my country was not forcefully opened to the vagaries of a single metropolitan power, our wise kings had long recognized the need to keep certain windows open to the world while retaining the ability to keep our houses to ourselves. However, the advent of a series of naturally insensitive military dictatorships distorted the pace and spread of our development to such an extent that we had to face a communist insurgency in the rural areas. Development projects in villages were too few in number and too small in scale given the magnitude of the emerging problems. The Bangkok-based elite believed that Bangkok-centred development, promoted by all advisers and preferred by all foreign investors, was good enough for all Thais as it would “trickle down.” But, as we all now know, the trickling down is never automatic or easy unless somebody wills it.

While there was little trickling down, the Bangkok-based economy was burgeoning and internationalizing. At one stage, some of us even felt like we were living in two very different worlds, not seriously trying to straddle both, let alone merge them. The internationalized part of the economy was naturally subjected to the vagaries of open markets and vigorous movements of money in search of quick and ever increasing profits. We had been strongly advised to lower our floodgates and not to erect new ones. When speculators chose to hit us in 1997, we were naturally out of our wits and could only admire the guts of Dr Mahathir Mohamed when he decided to stand up to the movers of money and their champions at the International Monetary Fund. That severe experience made me and my associates think. The result of that exercise is the first manifesto of Thai Rak Thai, the party that I founded and which won two subsequent elections. (I should add that parties that adopted those ideas won two further elections.) The basic philosophy of our approach might be of interest to the scholars here.

We decided that while we keep our economy as open as possible and welcome management, technology and capital from abroad, we will seek to strengthen those neglected parts of our economy that would provide us long-term stability. We would also, in the process, develop a creative economy that would maximize the inherent potential of our people.

The measures we implemented while in government included:

One Tambon (village) One Product (OTOP) project

Village and Urban Community Fund

People’s Bank

Asset capitalization

Intervention in agricultural prices to increase farm income (paddy and rubber)

Farmers’ debt suspension

Rehabilitation of soil and forest, and resolving water shortage problem

Extending compulsory education

One Amphur One Scholarship scheme and Income Contingency Loan

Education reform and introduction of Internet for learning

Tax measures to help the elderly and care for parents

Tax measures to develop labour skills

Fix It Centre

Thailand Creative and Design Centre

Incentives for small- and medium-scale enterprises

Minimum wage increase

Public housing for the poor

Issue of land titles

Low-cost health care scheme

Decriminalizing juvenile drug offenders

Compensating victims of criminal cases

Establishment of National Human Rights Commission

Stayed value added tax against strong advice from IMF to raise it

Promotion of tourist attractions, opening of Suvarnabumi Airport, establishing Natural Disasters Warning System to build tourists’ confidence

Promotion of alternative energy resources

Tax measures to expedite debt restructuring

Measures to promote domestic savings

Measures to revive and develop Thai capital market

Tax measure to develop Asian Bond

I will be happy to give you the details of these policies some time during this dialogue if any of you are interested. Each policy on its own does not explain the success of our extrication process from the 1997 collapse; but the total policy package did create a very satisfactory change in our economy. We were able to expand tax collection from the provinces. In fact, the percentage of increase was larger than that from the Bangkok industrial base area for the last three years of my administration.

I will also be happy to explain how such a policy mix can produce a viable and stable domestic economy that will grow to be internationally competitive in chosen areas where the people and their land have a natural advantage.

In the end, the name of the game is to produce a little surplus wealth, from produce or products or services, that can be shared in an equitable way without leaving behind the weak and the disabled. We did it in a particular way and we are proud that we have been successful. But we also have the humility to recognize that in a dynamic world what we have accomplished will need constant fine-tuning and adjustment. We also recognize that we have no monopoly over ideas that work. We have benefitted from experiments all over the world. We welcome new ideas.

The purpose of this dialogue is to evaluate such ideas. The purpose of Building a Better World Foundation is to turn such ideas into practical, implementable projects, and implement them – often in partnership with concerned governments, international agencies and other organizations.