The long-term damage done by populist policies

Every government around the world has at one time or another been guilty of creating moral hazard by exploiting expedient populist policies. These policies and legislations are, in essence, “bad economics”, but nevertheless are considered to be “good politics”. In many developing countries, political parties are engaged in “competitive populism” by trying to outdo what freebies others are offering by offering even more. Economic feasibility and foundation give way to “blockbuster” entitlements that in the longer term do nothing but great harm to the overall livelihood and economic future of citizens, especially those people that the policies claim to be helping.

On Tuesday, “discussions” between rubber planters and government representatives broke down. The rubber farmers have been demanding that the government start buying up raw rubber sheets, smoked rubber sheets and rubber latex sheets at prices almost 30 per cent above the world market prices, which have been consistently falling due to abundant rubbersupplies worldwide. Their demand is based on the fact that if the government is willing to implement, and continue under seever criticism, the price pledging programme for rice farmers, what’s the problem of doing the same for them.  

The government’s argument against yielding to the rubber farmers’ demand is quite lame, considering the enormous losses it has incurred by stubbornly continuing with the rice price-pledging scheme, whose total price tag is beyond the wildest imaginings of ordinary people like you and me. The government has told the rubber farmers, with a straight face, that a commodity such as rubber has to base its price on that of the world market.

It is hard to understand the logic of the government’s “double standard” when it comes to price-pledging programmes. On day one, this government declared – based on the market observation of a “smart alec” – that it would buy up rice from farmers at almost 100 per cent above world market prices. It also announced the imprudent hope that it could create an international “rice cartel”, not unlike Opec for oil, that would push up the world market price of rice. Over a year later, the funds used to support this rice policy are estimated to be over Bt700 billion and counting. Most of it has gone into the pockets of political cronies, including their wives, mistresses, children, relatives and friends.  

Meanwhile, Thai rice continues to lose its once leading share of the world market. The market mechanisms of the industry have been destroyed and, worst of all, rice farmers are still in a deep funk. Members of the ”Poor People’s Congress” are still camping out in front of the Finance Ministry demanding debt waiver from the government.

So, the demand of the rubber farmers is logically valid. The government cannot talk about a world market price with them, because it has completely and deliberately ignored such a standard when it comes to rice. It is not an exaggeration to say that Thailand’s best and brightest economists have argued strongly in public and in private against the government’s rice price-pledging scheme. But their voices continue to fall on deaf ears.

Then we see a sea of taxis parking at the Royal Plaza demanding remedial measures from the government for floating the price of liquefied petroleum gas (LPG), that will go into effect next month.

Freebies are in great demand, and gone is the pursuit of sound economic policies that should be the top priority of a genuinely good and responsible government.

Freebies are like the steroids that are now the drug of choice for many Thai doctors, including dermatologists and ophthalmologists. Steroids do not cure any disease, they just make the symptoms temporarily disappear and give the patient a false sense of restored wellbeing. What comes after the effects of the steroid wears off is really not a concern of these doctors. Every new visit by the patient means more medical fees for the doctor.

Freebies are highly addictive. As with steroids, alcohol and narcotics, the body wants more as time goes by, not less. More steroids are needed because the body creates the physical conditions that need more of the same. Painkillers with narcotics make the body create more pain so it can crave more narcotics. Alcohol is a downer that requires more intake as a temporary pick-me-up, and a larger amount is needed to feel good again. Drug addicts need increasingly larger doses of their drug to maintain the same high they got when they first started.

At the end of the day, blockbuster free entitlements travel the same path the world over – towards blockbuster damages. The smooth implementation of real reforms becomes impossible when discontent emerges as an obstacle to the short-term pain that can bring about medium- and long-term gain for sectors or industries conditioned for years to a dole-centered economy.

Thailand is not unique in the governance failures that revolve around corruption, wasteful subsidies and inefficient service delivery. Everywhere we look, populism has become a political goose that lays the golden egg of electoral dividends. But, in the same vein, the price every country will eventually pay for this pernicious form of “government for the people” is systemic damage that is not confined to a fiscal burden and strain; it leaves behind a trail of distortions that destroy efficiency and encourage waste and pilferage.  

In 2011, two Citigroup economists, Willem Buiter and Ebrahim Ragbari, looked into the likely sources of future global economic growth between 2010-2050. In their analysis of national economic growth drivers, they pointed out the critical importance of avoiding “populist assaults on the incentive to work, save and invest”.

With our current government, such assaults started on the rice industry. They are spreading to other industries and sectors. The moral hazard they create will stymie the prospect of sustainable growth and development of the country in the years to come. Governments come and go, but we the people remain, first and last, the real losers.