BKK POST: 'An inward look may chan

[suriya@xxxxxxxxxxxx]

February 18, 1998


                                     



                          ANAND PANYARACHUN 

              'An inward look
              may change
              Thailand for the
              better'

              In the first Asia-Europe Foundation
              annual lecture former premier Anand
              Panyarachun shared his thoughts on
              Thailand's need for good economic
              management and governance if it is to
              emerge from the current economic
              crisis healthier and more open. The
              following is an excerpt from his speech.


              How can Asia, drawing on the painful lessons of the
              (economic) crisis, lay the groundwork for long-term
              development that is balanced, equitable and sustainable?

              I ask this question because development is not only about
              growth. As we have seen, high growth can occur while other
              aspects of development - social justice, equitable income
              distribution, sound environmental management - lag behind.
              Development, if you will allow an Asian metaphor, is a matter of
              yin and yang, a matter of finding the right balance between
              competing priorities, of which growth is only one.

              As Asia is a region of great diversity, generalisations will run the
              risk of being overly broad. Most of my observations shall
              therefore be drawn largely from Thailand. 

              Thailand's financial crisis, as many have observed, is a blessing in
              disguise. Its greatest blessing, I believe, is that it has compelled
              us to become more introspective. Now that we have learned
              first-hand the harsh realities of the global marketplace, we should
              be in the right state of mind to correct weaknesses in our system
              that were left untended during our high-growth days.

              This process of self-evaluation is indispensable. The choices we
              make today will determine the course of our long-term
              development.

              Looking at where we started out and where we stand today, it is
              plain that new choices are needed. When East Asia first began
              its modernisation drive in the late 1950s, the debate over free
              markets versus central planning was far from settled. Armed with
              cheap, plentiful labour and abundant natural resources, we
              adopted outward-looking trade and investment policies,
              gradually integrating our economies into the world market.

              The result was that our economies grew by leaps and bounds.
              The East Asian success story was dubbed a miracle by Western
              analysts and observers and was generally held up as a model for
              less developed countries in other parts of the world.

              But as we grew, our development became lopsided. Many of us
              preferred extravagance over efficiency, high growth over
              equitable income distribution, and quick profits over
              sustainability.

              For countries seeking escape from poverty, these choices were
              not surprising. After all, we were playing catch-up, and had to
              compress into the span of a few decades what took the West
              hundreds of years.

              And as those of you who work with computers know,
              compression is usually achieved through loss of non-vital or
              redundant data. In our case, what we lost was neither non-vital
              nor redundant. While outwardly we seemed to be doing a
              splendid job of catching up economically, it was often at the
              expense of social and political development.

              It has taken a crash to bring home the fact that many of our
              institutions are ill-equipped to meet the challenges of the
              globalised era. While the world has been undergoing deep
              transformations, our economic, political and social institutions
              have not kept pace.

              The kind of systemic reform Asia needs to stay on top will not
              occur overnight, which is all the more reason for the process to
              be set in motion quickly. Competition among developing
              countries has become more intense, with the entry of new
              players in the international economy, all hawking cheap labour,
              plentiful natural resources, and friendly investment laws. In the
              West, political support for preferential trading privileges or
              special assistance to developing countries is increasingly hard to
              come by.

              The only way for us to survive in the long run is to improve our
              efficiency. And the key to improving efficiency lies in better
              economic management.

              This sounds like a truism. So let us be clear about what is
              involved, both the factors working against us and for us.

              Working against us is institutional inertia. Asia's economic
              success was called a miracle because it was built on an
              institutional framework that often contradicted free-market
              economics - strong state intervention, state-directed industrial
              policies, tight government-business networks.

              But as they say, nothing succeeds like success. As long as the
              economy steamed ahead, the institutions that underpinned Asia's
              growth worked well enough. It was only when the crisis hit that
              the flaws were exposed for the world to see. Once the system
              broke down, reform became not merely fashionable but
              imperative.

              In the case of Thailand, our integration into the world economy
              was far from seamless. In fact, it created an internal contradiction
              that led to inefficiencies in the system. While we adopted
              Western-style capitalism, we retained our traditional system of
              patronage networks, a system built on personal connections to
              allocate values and resources.

              Personal connections can be innocent, but when they become a
              factor in public affairs, they can be deadly. Because patronage is
              not based on merit, it tends to breed inefficiency and corruption.

              Another feature of Thai society that is ripe for reform is the way
              we exploit and consume resources.

              If ever there was a country that could afford to be self-sufficient,
              it was Thailand, where, as King Ramkhamhaeng the Great
              observed in the 13th century, there was always fish in the water
              and rice in the fields. Thailand was so abundant in its natural
              resources that the efficiency with which they were used was
              never an issue. When the Royal Forestry Department was set up
              over 100 years ago, for example, its original mandate was to
              oversee the exploitation, rather than the conservation, of the
              forests.

              Our natural bounty has declined considerably since then, as the
              pattern of resource exploitation shifted from subsistence or
              domestic consumption to supplying the global market. The fertile
              rice fields around Bangkok have been converted into industrial
              and housing estates; the Gulf of Thailand suffers from overfishing;
              our forests have been so severely depleted that logging had to be
              banned.

              The modern-day mismanagement of our natural resources does
              not imply, however, that efficiency or sustainability is a concept
              unfamiliar to Thais. We do have traditional strengths that need to
              be revived and drawn upon, especially in this time of crisis.
              Before we opened our hearts to consumerism, recycling and
              economical use of resources were very much part of the
              traditional Thai way of life. Sustainable use of resources was built
              into the system. Each person used only as much as he needed.
              Material wealth was secondary; making merit was more
              important. And the extended family provided a social safety net
              for those unable to take care of themselves, such as the elderly.
              Accumulating great wealth was possible, but there was no
              compelling reason to do so.

              The introduction of the joys of the consumer society changed
              that. The prospect of making profits to allow indulgence in life's
              luxuries replaced Buddhist piety as a motivator.

              I am not bemoaning the loss of a bygone era. The world changes
              and there is no turning back. My point is that in our rush to catch
              up with the West, the lessons we learned - from the West and
              from our past - were incomplete.

              While the West had evolved checks and balances to curb the
              excesses of capitalism, in our exuberance to reap the fruits of
              capitalism the need for such mechanisms went unheeded. While
              transparency and accountability had long been pillars of public
              governance in the West, in Asia the webs of power and money
              remain largely hidden from public view.

              We sought to emulate Western ways without an appreciation of
              their underlying philosophy or how they evolved. At the same
              time, we discarded our tradition of sustainable resource usage.
              We created a hybrid form of capitalism where patronage was
              put to the service of profit-maximisation, a recipe for unbalanced
              and unsustainable development.

              Better economic management is clearly needed and the key is
              good governance. Good governance is about more than good
              government. It is about more than having honest and capable
              people in public office. We Thais have a fondness for the
              comforting certainty of strong leadership. Whenever the country
              is in trouble, we long for a knight in shining armour to come to
              our rescue.

              But the days of father-knows-best decision-making are over.
              The state, despite its aura of authority, is not omniscient,
              particularly in this day and age when markets routinely flout state
              efforts to maintain economic stability. The government by itself
              cannot know, for example, how a given dam project will affect
              the lives of those living downstream or the ecosystem of the area.
              When it comes to choosing among competing priorities political
              leaders are as likely to fail us as to save us. 

              In developing countries, governments often make decisions -
              political and economic - that run counter to the public interest.
              Good governance is about putting in place the mechanisms to
              define what constitutes the public interest and to see that the
              public interest is served despite everything else. This is the
              rational of the political reform movement underway in many
              Asian countries.

              For good governance to come about, reforms must take place at
              several levels.

              The government must be responsive to the people's needs. In
              order for it to be so, it must first be accountable. A government
              that answers to no one, a government whose actions go
              unchecked, is more likely to abuse its power and ignore the
              public interest.

              Checks and balances are at the heart of accountability. In a
              representative democracy, it is the duty of the opposition to
              performan this function in the legislature. But that is not enough.
              Checks and balances must be in place throughout society to
              counterweight society's most powerful institutions. A free and
              responsible press, representing a broad spectrum of opinions, is
              vital to make sure that all aspects of any given issue get a fair
              bearing. Citizen groups and NGOs must be encouraged to form
              and monitor the work of the government, as well as educate the
              public and policy makers on issues of concern.

              When there is a diversity of channels for the people to articulate
              their interests, it is more likely that all sides of an issue will be
              discussed and that a solution acceptable to all will be reached. It
              is when public policy decisions are made in secret or by a small
              coterie that the public interest is likely to be harmed. To avoid
              such occurrences, the decision process must be transparent and
              open to scrutiny. The people must be given free access to all
              information pertaining to public policies and projects.

              To be sure, good governance will not bring about some idyllic
              utopia. In fact, it can be quite messy. The cacophony of voices
              can be deafening, and we must alawys keep in mind the rationale
              for good governance. We all dream of having Solomon-like
              leaders with the integrity and wisdom to solve all our problems
              justly with minimum of fuss. But leaders, too, are human,
              susceptible to temptation and other human frailties. Good
              governance makes up for their shortcomings by opening up the
              policy process to all the people.

              On the part of Thailand, reforms are underway to bring about
              good governance. Last year, we passed a new constitution that,
              for the first time in Thai history, was drafted with the full
              participation of the public. As someone who played a part in the
              drafting process, I have hopes for this consitution. I like to think
              that over time, it will transform Thailand into an open, democratic
              society, where transparency and accountability are the norm
              rather than the exception. I like to think that the provisions of the
              constitution will ensure that human rights and civil liberties are
              better protected and enforced; that the changes the constitution
              makes in the electoral process will reduce money politics and
              corruption; and that the checks and balances it provides will
              result in greater accountability on the part of politicians. But of
              course the constitution is not a magic bullet that will cure all of
              society's ills overnight. All sectors of society must embrance the
              ideals behind it before it can make a difference.

              Good governance does not stop at the government.
              Accountability and transparency must also be demanded of
              companies and all actors that exert a disproportionate influence
              on the public interest.

              Companies, in particular, are no less prone to abuse than are
              governments, but are less subject to public scrutiny. In a
              patrorage system, they can logically be expected to make the
              most of connections to externalise costs to society - especially
              environmental costs. 

              But in many developing countries, it is even harder to hold
              companies accountable. Flexible and creative accounting
              practices as well as pro forma auditing can conjure up balance
              sheeets that have no bearing to reality.

              Bloated asset valuation can give a misleading picture. Cozy ties
              with influential political figures can help ensure that the
              companies' skeletons remain firmly in their closets. The task of
              monitoring the private sector for abuses thus cannot be left to the
              government. Enlightened consumers and shareholders must do
              their part to keep corporate abuses at bay. This can only be
              achieved if and when full disclosue of facts and figures relating to
              companies' performance is strictly observed.

              The crisis facing East Asia is at heart a crisis of adaptation. It is
              difficult because in order to adapt well, we must do away with
              certain traditions, certain ways, that are out of line with the global
              marketplace. But if we are to prosper in this challenging era, the
              sooner the reforms are implemented, the sooner our societies
              become open, the sooner transparency and accountability are
              built into our system, the surer will be our rewards.

              Anand Panyarachun is chairman of Saha-Union Public Co Ltd
              and a former prime minister. 




                                     




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