An escape from populist policies: TDRI

"One way out concerns income inequality.  Populist policies often flourish in countries with severe economic and social inequality," he said in the paper.

He urged the government to transfrom the policies into a permanent infrastructure that will truly take into accounts the needs of the poor and the underprivileged. Rather than spending on this and that programme, he said the money should be used to finance a "more comprehensive, rights-based social welfare system" whereby all Thais are taken care of from birth to death by providing basic services such as education and health, and protection against other risks such as poverty, unemployment, old age, and disability. 

To avoid the vicious cycle, this must be done, aside from upholding macro-economic development and economic stability, he said. 

 

 

 

Following is the full version. 

 

"Anyone who watches TV news knows that Thai politicians seeking to gain or retain power like to be seen as bestowing money on the people. That’s despite criticisms that populist policies are wasteful and actually benefit the better-off more than the poor. Sadly, it seems Thailand is now entering a vicious cycle of populism.  Can we do anything to avoid it, and if not possible, to live with it?

Many people voted for the Pheu Thai Party in last year’s general election because they believed it would deliver on its populist promises.  But populist policies will not help people in the long run. Instead, such policies encourage people to passively wait around for government assistance. And the policies take away resources that could have been used for sustainably promoting the general welfare and put them into securing the political popularity of the ruling party. 

We would have populist policies today regardless of who won the election -- all the major parties had such policies in their campaign platforms.  And if another election was to be held tomorrow, we can safely bet that most of the parties would trot out similar platforms.  

The question then is, how many more times will we have to endure this in future elections?  A look at the experiences of countries where populist policies were rampant in recent history (like those in the Latin America) shows that, unfortunately, such policies persisted for long periods; they only temporarily receded when governments ran out of money and came back to life once financial stability was restored.  This is a vicious cycle any decent country would want to avoid.  And this is what it seems Thailand is now entering.  

Can we avoid the cycle?  One way out concerns income inequality.  Populist policies often flourish in countries with severe economic and social inequality.  In such a country – unfortunately Thailand is one -- opportunistic politicians see populist policies as a sure-win election strategy. They say to the (much larger) low-income groups: We’ll tax the rich and the middle class and spend the money on you.  If populist policies actually reduced inequality, then they would kill themselves in the long-term when the society becomes sufficiently equal such that further rounds of populist policies would no longer win the elections.

But this does not seem to be what’s happening in Thailand.  Strangely, Pheu Thai’s populist policies are mostly pro-rich rather than pro-poor.  Take the price pledging programs, which buy rice and other crops from farmers to shore up prices to certain level.  These programs are expected to cost taxpayers at least 150 billion baht annually, or almost half of what the government allocated to all public investment in fiscal year 2012.  Yet, a study by my colleague Nipon Poapongsakorn at the Thailand Development Research Institute shows that most of the money will go to the rich: the exporters, rice millers, corrupt politicians and bureaucrats, rich farmers. The poor farmers are likely to get less than one-fifth of it. Other government policies even more obviously help those who are in the upper social rungs: the first-car and first-home programs, the debt moratorium for “good debtors.”   

Other policies are biased towards neither the rich nor the poor, such as the additional transfers to villages that offer microcredit loans to the villagers, the giving of tablet PCs to Grade One students, and the increase in monthly payments to older people.   

The most redistributive policies are the hikes in the minimum wage and in the minimum salary for new bachelor degree graduates. If the minimum wage hike to 300 baht per day for unskilled workers is enforced, the workers would get overall 250 billion baht more, equivalent to 2.5 percent of gross domestic product. That’s certainly a huge transfer of wealth from “rich” entrepreneurs to poor workers. But some poor workers could be hurt if the wage hike forces firms, especially small ones in remote areas, to lay off their least productive workers.  Also, there are many workers in the “informal” economic sectors who might not get the new minimum wage anyway.   

Now that it’s clear that Pheu Thai policies won’t make Thai society more equal, I believe another way to escape the vicious cycle of populism is to “transform” these policies into something that is more useful while maintaining the current social sentiment of “heeding the needs of the poor and the under-privileged” that has undergirded the political popularity of populist policies. It is the right time to transform the populist policies into a more comprehensive, rights-based social welfare system.  The government would take care of all Thais from birth to death by providing basic services such as education and health, and protection against other risks such as poverty, unemployment, old age, and disability.  

Such a system would cost the government 200-300 billion baht per year, according to joint researches by the Thailand Development Research Institute, the Office of the National Economic and Social Development Board, and the Thai Health Promotion Foundation.  Is this too much?  Remember that the crop price pledging programs already cost more than half of this amount – and they benefit mostly the rich.  All of Pheu Thai’s populist policies combined might be costing as much as it would take to fund the social welfare system.  That means Thailand is already paying for populist policies (again, that often only benefit the well-off) with an amount that can provide decent social welfare for all Thais from birth to death.  Making the transformation has little fiscal consequence.  But it certainly requires statesman-like political will.

If such a policy transformation does not happen, then we are unlikely to escape the vicious cycle, and will have to find ways to live with it with as little damage as possible.  I think three things must be done.  

First, we must protect prudent macroeconomic management from the politicians’ urge for more populist spending.   It is not surprising to hear the Pheu Thai finance minister regularly demand that the Bank of Thailand ease policy.  Although such verbal policy interventions are counter to all good macroeconomic practice, the minister, as a true politician, could not care less.  Worse, it is perhaps only a matter of time before real intervention takes place, and that would seriously endanger macroeconomic management.  Thais must take a common stand that macroeconomic prudence cannot be compromised, no matter how large the election victory margin was.

Second, we must respect the choices the majority made in the election, so what we should do now is to make sure that the majority make informed decisions.  People must learn to see the connections between the eventual difficulties they will face in their daily lives and the reckless spending of populist governments.  Academics must join hands with journalists in communicating this message, especially to the common people.  We must use more innovative communication channels and styles, to go beyond academic circles and the media most accessed by the middle class.  Such channels include mass-circulation newspapers and community radio and local cable TV stations. The language used should be simple, direct, and to the point.  

Lastly, we must make sure that the government is not so obsessed with populism that it neglects long-term economic development.  This is especially important as Thailand now seems to be falling into “the middle-income country trap,” when growth has reached a plateau and the country cannot compete with more advanced, innovative countries. Serious reforms are needed to escape this trap.  Among those with top priority are upgrading the quality of education and promoting innovation activities in both the public and private sectors.  Unfortunately, such reforms have never been taken seriously by those who formed the Thai Rak Thai, People Power, and the Pheu Thai parties.  We should find ways to make them serious about this. 

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