The dark side of global markets

Ranee Hassarungsee
Social Agenda Working Group; Focus on the Global South (Focus)

The 1997 economic crisis led to the privatisation of lucrative state enterprises as an IMF requirement to reduce the debt, which was largely incurred by the private sector. However, the multinational corporations have not benefited Thailand, but they have returned profits to their own countries. At present, it is vital to define, prioritise and achieve an equilibrium between democratic development and market mechanisms. In this process, civil society should play an active role in maintaining basic human values.

Financialliberalisation: killing all birds with one stone

Thailand’seconomic development strategies have always relied on foreign investmentcapital. Between 1986 and 1989, the average annual inflow of foreign capital wasUSD 1.2 billion. The amount rose to USD 2 billion during 1990-1996 when Thailandbegan to liberalise its financial sector. Even in 1997 when the economic bubbleburst, USD 3.8 billion of foreign investment flowed into the country.[1]The majority of this capital was invested in property and land development,public utilities, private health care, telecommunications, financial services,trade and marketing promotion, large-scale industrial projects and other directinvestment.

The1997 financial crisis created greater opportunity for foreign direct investment(FDI). 1998 saw the highest growth in FDI in the banking and finance sector,while the investment growth in the industrial sector grew 53.4% higher than in1997. FDI increased because many businesses on the verge of bankruptcy had nochoice but to let overseas multinational corporations take over theiroperations. Thailand’s Board of Investment (BOI) was set up primarily topromote foreign investment. The BOI provided investment incentives, such as taxexemption for a certain number of years. Complete ownership of companies hasbeen the latest promotion the BOI offered to bring in greater foreign investmentcapital. Thammawit research revealed that since foreign corporations have beenallowed to own either majority or 100% shares of BOI-promoted companies, 135such companies had their majority shares bought up by multinational corporationsbetween November 1997 and March 1999.[2]

Increasedinvestment capital brought in by multinational corporations spurred Thailand’sexport figures and integrated the national economy more closely with the globalmarket system. A 1997 statistical report showed that two-thirds of total exportvalue came from export companies operated by foreign investment capital. Thesemultinational corporations, excluding food and rubber industries, accounted forapproximately 80% of the industrial sector’s total export volume.

Since1987, industrial development strategies have principally emphasised promotinglarge-scale industries operated by multinational corporations, which wereprovided with tax privileges, tariff protection, and infrastructure facilities.Not surprisingly, such policies have simultaneously destroyed most of themedium- and small-scale domestic industries. These internal entrepreneurs had tocope with labour shortages, lack of access to capital, and unfavourable tax andtariff systems that put them at a disadvantage relative to their large-scaleoverseas counterparts.[3]

Thailandhas not substantially benefited from the operations of multinationalcorporations. They have used various means, including transfer pricing, toreturn profits to their own countries. At the same time, inadequate attentionhas been paid to domestic value-added production and technology transfer, whilecomparatively high expenses on royalty fees of technical expertise were welcome.While some high-tech goods, such as machinery, mechanical instruments, andelectronic circuits, were exported, most of these products were merely assembledin the country before being exported. In computer products, Thailand’stop-export, imported components constituted 44-46% of export value.

Inaddition, exports faced fierce competition in global markets. According to a2002 survey by the Export Promotion Department, Thai exports in high valueelectronics dropped 18.5%, being negatively affected by competition from China.Domestic crisis and competition combined to cause serious increases inindustrial unemployment and “flexible” employment: low-paid, informal sectorjobs without any welfare benefits that are taken primarily by women.[4]Formal sector workers who kept their jobs found their bargaining power seriouslyweakened and labour rights eroded.[5]

Privatisation:purchased with natural resources as a premium

The1997 economic meltdown also made the privatisation of lucrative stateenterprises unavoidable. The government was obliged by the IMF to privatiseState Owned Enterprises (SOEs) to reduce the debt, which was largely incurred bythe private sector. For example, in Thailand’s November 1997 Letter of Intent,the government stated that it had completed the preliminary work to increase therole of the private sector in energy, public utilities, communications, andtransport sectors. The government intended to reduce its stake in the nationalairline (then 93%) and Bangchak petroleum company (then 80%) to well below 50%.It also submitted to Parliament the necessary legislation to facilitate theprivatisation of the SOEs that were not yet corporatised.

Recently,it has been reported that many of the biggest privatisations were conductedwithout transparency. In the case of Petroleum Thailand, the top threeinstitutional shareholders are affiliated with Merrill Lynch, while the largestindividual shareholders had personal connections to the political party inpower. The government has announced the privatisation of Thai Thanakhan Bank,THAI (Plc), Telephone Organisation, Airport Authority and the Krung Thai Bank(Plc). The 2003 privatisation list includes the Port Authority, CommunicationAuthority, and the Metropolitan Waterworks Authority, while in 2004 theElectricity Generating Authority, Metropolitan Electricity Authority, ProvincialWaterworks Authority, and Provincial Electricity Authority will follow suit.[6]

Radicalchanges: uprooting the majority’s livelihood and resources

Privatisationof “public goods”, such as water, has already occurred to a certain extent.According to one of the principal conditions of the ADB’s USD 600 millionAgricultural Sector Programme Loan, the government is obliged to endagricultural subsidies, charge farmers current market interest rates,restructure the water resource management system, speed up the passage of theNational Water Resource Act, and establish market-based water pricing. AnotherUSD 200 million loan from the World Bank was also granted to the NaturalResource Management Project, aiming at improving water management in the ChaoPhraya River Basin. The World Bank has indicated that more efficient watermanagement includes tradable user rights.[7]

Thegovernment granted a concession to the East Water Co. Ltd. (Plc), which was setup by the Provincial Waterworks Authority and co-invested by a private companyfrom Singapore, to provide and sell water resources to urban and industrialsectors of Thailand’s eastern region. It also awarded a concession to a jointventure between a Thai private firm and a British counterpart to produceuntreated water for the Provincial Waterworks Authority office in Pathum Thani,an important industrial area adjacent to Bangkok. Still more concessions weregranted to private companies to produce water supplies to be sold to ProvincialWaterworks Authority offices in several provinces.

TheState Enterprise Policy Committee met on 29 December 1999 and approved an urgentstudy on privatisation by a private consulting firm. Such privatisationprocedures included full water supply concessions that allowed the privatesector to operate all systems of production, sale and services, as well asmaintenance, metering, invoicing, and bill collecting. The concessions, to begranted in five river basins, would last for 25 years and have direct impacts onfarmers all over the country. For example, under a framework that privileges“maximum returns” when water is scarce, farmers could find their user rightstransferred to users in other sectors.

Localvoices of wisdom

A study on public participation in water privatisationby Chulalongkorn University’s Social Research Institute provided insight intolocal attitudes on the management of resources.  It revealed that in many areas the majority of the populationfelt they needed to participate in the management of water at the river-basinlevels. Many of these people were well informed and already involved inriver-basin management because they have had to deal with serious problemsrelated to natural resources:  waterpollution by industrial factories and urban communities, conflicts over waterbetween the farm and industrial sectors, soil salinity, deforestation ofwatershed areas, andoverproductionof sand deposited along the river banks.

However, the participationenvisioned by the people is different from that suggested by the State. TheState’s top-down approach will involve an organisation of water user groupsand a river basin sub-committee that will oversee the local water resourcemanagement and lay down strict rules for all water users, whose managementmethods are different owing to their communal cultures. Moreover, each riverbasin is ecologically different and features different irrigation systems thatrequire varying management and maintenance techniques.

Charging irrigation fees toreduce water demand and encourage users to save water is an inequitablesolution. There would be no guarantee that with the irrigation-fee system inplace, low-income water users would not be deprived of their access to water.[8]

Inan April 2002 seminar co-organised by the Popular Midnight University, theAssembly of the Poor and the Assembly of Academics for the Poor, manyalternatives to water management were proposed. Prof. Nidhi Iawsriwongidentified the following outstanding “knowledge” or wisdom employed by thegrassroots people’s management of water:

·       Water“knowledge” combines technology, ecology and sociology.

·       Natural changesare normal phenomena.

·       Sustainabilityrequires moderation.

Nidhiasked, “Can this three-dimensional water management method, including itsinherent mindset, be called knowledge?” He believes that while it is tooundocumented and unorganised to be called a “body of knowledge” that can betransferred through modern learning processes, such as classroom instruction ortextbooks, for the villagers this knowledge is easily learnt through their wayof living. However, these practices are hard to learn for those with differentlifestyles. As the saying goes, knowledge is power. The creation of alternativeknowledge threatens to dismantle powerful social structures. It is not going tobe achieved easily.[9]

Away out for Thailand

Areport by Pranee Tinnakorn reveals that the richest 20% owned 49.2% of nationalincome in 1975-76. This figure went up to 57.8% in 2000. In other words, onlyone-fifth of the population owned more than half of the country’s income. Thefact that the prosperity of national development has continued to beconcentrated on those already rich has widened the income gap between the richand poor even further. During 1975-76, the richest 20% earned eight times morethan the poorest people. However, the ratio was 15 times in 2000. Today,Thailand’s rich and the poor live a life as starkly different as day andnight.[10]

Analysingthe current situation, political scientist Chai-anan Samudavanija made thefollowing conclusion: “A vital problem we are encountering now is how toprioritise and achieve an equilibrium between democratic development directionand market mechanism approach. Development direction and market mechanismapproach are related to each other. In a unilateral development direction bywhich an emphasis is favourably given to export-led industrial capitalistdevelopment at the expense of agricultural and small and medium enterprisesectors, market mechanisms will play a more powerful role in ruining communalway of life.

“Weneed popular politics whereby the community and popular sectors are society’score groups. Civil society should have a participatory role to play in apolitical space… Civic society governance means that society’s mainstreamculture plays an active role in maintaining basic human values—cooperation,interdependence, sharing, and moderation—instead of promoting competition,accumulation, destruction, usurpation, and extravagance... [W]e need a futuregovernment that is conscious of their political obligation to equilibrate thepower balance between the private and the people sectors. If the governmentevades this obligation, its inaction will practically strengthen the destructivepower of the private sector over the civil society. As a result, the civilsociety sector will become weakened and incapacitated under the clutches of thestate and the private sector.”[11]


[1] Anuch Abhabhirom et al., Thailand Trends, No. 13 “Thailand’s Society, Knowledge and Stance in the Global Forum”, Thailand Research Fund, 15 May 2002, p. 55.

[2] Thammawit Therd-udomtham et al., “Thailand’s Industrial and Technological Development Over the Past Five Decades”, seminar on Five Decades of Thailand’s National Economic and Social Development Plan, Faculty of Economics, Thammasat University, 12 June 2002, pp. 7-20.

[3] Niphon Phuaphongsakorn, 1999, “Thailand’s Industrial Development and the Idea of Self-sufficient Economy”, an article presented to the 1999 Annual Conference of Thailand Development Research Institute on Self-sufficient Economy, 18-19 December 1999.

[4] Worawit Charoenlert and Bandit Thanachai-setthawut, “Economic and Social Crisis and the Future of Thai Labour”, 1997 Thailand’s Turning Point, the Political Economy Centre, November 2001.

[5] Work Report, Women Workers Section, Friends of Women Foundation, September 2002.

[6] Prachachat Thurakij newspaper, 8-11 August 2002, p. 11.

[7] Srisuwan Khuankachorn, “Will there be no resources for the people?: Privatisation of resources ownership by foreign capital in Thailand’s economic recovery age and for whom”, Political Economy Journal (for Community), No. 13, p. 158.

[8] A research report on “Public Participation in Water Allocation and Privatisation”, Social Research Institute, Chulalongkorn University, 2001. 

[9] Nidhi Iawsriwong, “Alternatives to Water Management”, Matichon Weekly magazine, 13-19 May 2002, p. 41.

[10] Pranee Tinnakorn, “The Inequality of Income Distribution over the Four Decades of National Development: 1961-2001”, seminar on Five Decades of Thailand’s National Economic and Social Development Plan, Faculty of Economics, Thammasat University, 12 June 2002, pp. 4-27.

[11] Chai-anan Samudavanija, From a Nation State to a Market State: Ideologies on the State and Societies in a Globalisation Age, Ban Phra Arthit Press, December 2001.