More poverty, more reasons to rethink
economic policy
by CHANG NOI
The
Nation 27-Nov-2000
Between 1996 and 1999 the number of poor increased by three million,
taking the total up to almost 10 million, one sixth of the population.
The number classified as "ultra-poor" increased by two
million. Almost one in 10 of all Thais are so classified by an
international standard.
Inequality got worse too. After 1992, inequality had started to
lessen. But after just one year of the crisis, all those gains were
wiped out. Inequality is back to 1992 levels.
The rise in poverty is only partly due to the shock of the crisis.
Low agricultural prices have played a big part too. Almost all of the
new poor are in rural areas. Landless and small farmers have been worst
hit. But even those with 20 rai of land have a one-in-five chance of
being poor.
Early this year the World Bank released a draft version of the World
Development Report (WDR) on "Attacking Poverty". This argued
that financial crises worsen poverty and inequality, and that such
changes are "sticky" - difficult to reverse. The economy may
recover to its old size, but the numbers of poor do not fall back to old
levels.
For several reasons. In crises, the poor tend to lose their savings,
land and other assets. In the wake of financial liberalisation crises,
such as Thailand has just gone through, growth tends to be slower and
more volatile. When growth is steady, people can gradually clamber out
of poverty. They find it more difficult when the economy yo-yos up and
down.
We should not expect these extra three million poor to disappear
quickly. Employment has increased, but mostly in agriculture, and
agricultural prices are still dropping. Employment in manufacturing has
recovered somewhat too, but average wages are still dropping too.
In the past, Thai policy-makers concentrated on growth, looked to
outside investment for the stimulus and let growth take care of poverty.
Superficially it worked. Rising inequality was rationalised as an
acceptable and hopefully short-term cost. Policies to address poverty
and distribution were resisted in case they interfered with growth.
But it was not sustainable. Fast growth had huge hidden costs,
including massive environmental damage, community breakdown and social
tension. One lesson of the crisis is that the economy was growing too
fast for society to keep up. Many benefits simply flowed out of the
country because of heavy reliance on outside capital and expertise.
People could not be educated fast enough to contribute and benefit.
Institutions could not be built fast enough to protect the environment
and cope with social change.
In the near future the economy will not grow as fast as before. There
is too much overcapacity, the government is broke, international
confidence will not return and the debt overhang will not disappear in a
puff of smoke. Honest analysts are projecting 2 to 5 per cent a year for
the near future. The trick is to see this as a good thing, a chance to
let society catch up, a breathing space for building institutions and
repairing damage.
We still need growth. But we need the sort of growth which creates a
better society and a better environment. We cannot rely on the stimulus
of foreign investment, because other countries are more attractive.
Again, the trick is to see this as a good thing. The lack of external
stimulus means we will have to pay more attention to developing internal
markets. This means that policies to reduce poverty and improve income
distribution must be put back on the agenda because they shape domestic
demand.
In the past, policy-makers tended to think of growth and distribution
as a trade-off. If you went for one, you had to sacrifice the other. But
newer analyses show that societies which are more equal tend to have
faster growth. So investments in equity can also be investments in
growth.
Now is a good time to reorient the way Thai policy-makers look at
growth, poverty, and distribution. Resist the temptation to pump up a
new bubble. Abandon the bias against policies for equity. Focus on some
clear priorities.
First, fiscal reform. For decades, taxes and budget spending have
favoured the rich, not the poor. Taxes will have to increase to repay
the government's debt. More public money will probably be spent to bail
out the banks. In the short term the rich will profit. In the long term
they should be made to pay, through taxes on inheritance, luxuries and
large landholdings.
Second, agricultural development which favours the farmer, not
agribusiness. One critical issue is land. During the bubble and the
crisis a lot of land changed hands. Many small farmers probably lost
out. Much land probably now belongs to the banks. But we don't know.
There is no good data on land distribution. The last reasonable study
was almost 20 years ago. An attempt to update that study is failing
because of bureaucratic obstruction. The need for land reform is
probably being hidden.
Third, education. Plans for education reform have been laid. But
implementation is difficult. In the past, governing parties have treated
the education portfolio as coalition fodder, and some education
ministers have managed it like a goldmine. Whoever wins this coming
election should find an A-class minister for education.
Fourth, environment. A decade ago, Thailand got halfway towards
establishing institutions to protect the environment. But only halfway,
and the deterioration is still frightening.
Much has been said about turning crisis into opportunity. Here comes
the real challenge for the next government. Will it be prepared to
invest in social equity in order to prepare Thailand for the future?
Chang Noi is a pseudonym.