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The Thailand you’ve always known – Part 2

May 23, 2010 2 comments

Regarding my AUA Thai Program Blog, The Thailand you’ve always known, a friend commented, “The following article takes a VERY different perspective. I hope your perspective is the right one.

Time will tell. (No pun intended.)” http://www.time.com/time/magazine/article/0,9171,1990640,00.html

Interestingly, I don’t find what I am saying to be at odds with the Times article above.  Typical of most non-Thai views it regards the issues the surround the conflicts as things that must be corrected. Issues like freedom of speech, institutions, military, etc. The problem here is that these institutions exist because they are still needed. To abolish them for the sake of Western styled democracy would be suicidal for Thailand. The present government appears to know this.

Thailand’s majority have historically viewed government as ‘masters’ – ‘elder’ government if you will. In most democracies, the government exists to represent, indeed serve the people. If this becomes the case in Thailand, it will require a major value shift, and one that Thai people are not likely to make soon. (see Elders below) If the comparison can be made, and I think it’s a fair comparison, the majority of Thailand politically is comparable to children growing up. They have needed and still do need their parents.

Have the parents become institutionalized? Of course.

Is that holding back some things? Of course.

Is that adding stability to the country? Yes, and No.

In order for the Thai majority to take the reigns of government they must win the confidence of the parents. This will not happen by the sort of demonstrations that have just occurred. It must happen in a united way. Nearly every Thai/family owned business as well as many Thai run, non-family businesses I know of are like a microcosm of the country in this regard. And there seem to no end of cases where the parents did in fact, turn over the control to the 30 and 40 year old children, only to have the business destroyed in a very few years.

The institutions and government that many are so quick to criticize are the very thing maintaining stability here. While the damage done last week is undoubtedly the most costly in terms of dollars, in terms of lives, it was extremely low. This points to the true values of the Thai and is something that most developed countries could learn a great deal from. Businesses will be rebuilt, money will be made again, and when it comes down to it, the real hardships from it all will rest on the poor who like teenagers in rebellion, are gaining a foothold in the political process. They’re just not there yet. I for one, want to see that growth continue – but I don’t think it would be wise for it to happen overnight. What won’t be recovered are the lives which have been lost. Most of these deaths seem to be caused neither by the government nor the redshirts who are seeking a voice, but by a few who are apparently using all sides as fronts to gain power. This too, is a product of transition from the old ways to democratic government, which can only move forward through education, and increased maturity of the majority – a growth process which takes time.

Elders

One of the great underlying values of the Thai is that of honoring the elder. This lies as as deeply as any value the Thai hold, and is one of the obstacles to a Western style democracy. Rightly so.

Historically, it has always been the family elders who have had the final say. The social fabric was held together by this. As larger governments have emerged, this is still the case. The fact is, the majority of the people still look to age as deserving the final say and this cuts across every faction in the demonstrations. One can only begin to imagine the internal conflict in the hearts and minds of many Thai at the moment.  (In addition to age, wealth has also had it’s place in offering respect. Perhaps the greatest thing that Thaksin did for Thailand was help the Thai see that riches is not a good reason to necessarily respect a person or give them more credit that others with less means. I’d guess that never again will Thais readily be influenced heavily by a candidate’s wealth.) The upshot of this is that as elders involved in politics, it’s important to listen and go along with what they say. This underlies the institutions that are in question and is one of the redshirts major issues.

As I said previously, I think that this is a balance for Thais to determine. Ssecondly, it’s a balance that can only be found over time. For those of us who live here and have been taken with the charms of this people, let’s give them the space and time to find that balance. Let’s also understand together that this place is everything it is because of the values of the Thai people.

Read Part 1 at : http://auathai.wordpress.com/2010/05/22/the-thailand-you-have-always-known/

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The Global Crisis of Legitimacy


The Global Crisis of Legitimacy
May 4, 2010 | 0856 GMT

Iran’s View of Obama

By George Friedman

Financial panics are an integral part of capitalism. So are economic recessions. The system generates them and it becomes stronger because of them. Like forest fires, they are painful when they occur, yet without them, the forest could not survive. They impose discipline, punishing the reckless, rewarding the cautious. They do so imperfectly, of course, as at times the reckless are rewarded and the cautious penalized. Political crises — as opposed to normal financial panics — emerge when the reckless appear to be the beneficiaries of the crisis they have caused, while the rest of society bears the burdens of their recklessness. At that point, the crisis ceases to be financial or economic. It becomes political.

The financial and economic systems are subsystems of the broader political system. More precisely, think of nations as consisting of three basic systems: political, economic and military. Each of these systems has elites that manage it. The three systems are constantly interacting — and in a healthy polity, balancing each other, compensating for failures in one as well as taking advantage of success. Every nation has a different configuration within and between these systems. The relative weight of each system differs, as does the importance of its elites. But each nation contains these systems, and no system exists without the other two.
Limited Liability Investing

Consider the capitalist economic system. The concept of the corporation provides its modern foundation. The corporation is built around the idea of limited liability for investors, the notion that if you buy part or all of a company, you yourself are not liable for its debts or the harm that it might do; your risk is limited to your investment. In other words, you may own all or part of a company, but you are not responsible for what it does beyond your investment. Whereas supply and demand exist in all times and places, the notion of limited liability investing is unique to modern capitalism and reshapes the dynamic of supply and demand.

It is also a political invention and not an economic one. The decision to create corporations that limit liability flows from political decisions implemented through the legal subsystem of politics. The corporation dominates even in China; though the rules of liability and the definition of control vary, the principle that the state and politics define the structure of corporate risk remains constant.

In a more natural organization of the marketplace, the owners are entirely responsible for the debts and liabilities of the entity they own. That, of course, would create excessive risk, suppressing economic activity. So the political system over time has reallocated risk away from the owners of companies to the companies’ creditors and customers by allowing corporations to become bankrupt without pulling in the owners.

The precise distribution of risk within an economic system is a political matter expressed through the law; it differs from nation to nation and over time. But contrary to the idea that there is a tension between the political and economic systems, the modern economic system is unthinkable except for the eccentric but indispensible political-legal contrivance of the limited liability corporation. In the precise and complex allocation of risk and immunity, we find the origins of the modern market. Among other reasons, this is why classical economists never spoke of “economics” but always of “political economy.”

The state both invents the principle of the corporation and defines the conditions in which the corporation is able to arise. The state defines the structure of risk and liabilities and assures that the laws are enforced. Emerging out of this complexity — and justifying it — is a moral regime. Protection from liability comes with a burden: Poor decisions will be penalized by losses, while wise decisions are rewarded by greater wealth. Because of this, society as a whole will benefit. The entire scheme is designed to increase, in Adam Smith’s words, “The Wealth of Nations” by limiting liability, increasing the willingness to take risk and imposing penalties for poor judgment and rewards for wise judgment. But the measure of the system is not whether individuals benefit, but whether in benefiting they enhance the wealth of the nation.

The greatest systemic risk, therefore, is not an economic concept but a political one. Systemic risk emerges when it appears that the political and legal protections given to economic actors, and particularly to members of the economic elite, have been used to subvert the intent of the system. In other words, the crisis occurs when it appears that the economic elite used the law’s allocation of risk to enrich themselves in ways that undermined the wealth of the nation. Put another way, the crisis occurs when it appears that the financial elite used the politico-legal structure to enrich themselves through systematically imprudent behavior while those engaged in prudent behavior were harmed, with the political elite apparently taking no action to protect the victims.

In the modern public corporation, shareholders — the corporation’s owners — rarely control management. A board of directors technically oversees management on behalf of the shareholders. In the crisis of 2008, we saw behavior that devastated shareholder value while appearing to enrich the management — the corporation’s employees. In this case, the protections given to shareholders of corporations were turned against them when they were forced to pay for the imprudence of their employees — the managers, whose interests did not align with those of the shareholders. The managers in many cases profited personally through their compensation system for actions inimical to shareholder interests. We now have a political, not an economic, crisis for two reasons. First, the crisis qualitatively has moved beyond the boundaries of a cyclical event. Second, the crisis is rooted in the political-legal definitions of the distribution of corporate risk and the legally defined relations between management and shareholder. In leaving the shareholder liable for actions by management, but without giving shareholders controls to limit managerial risk taking, the problem lies not with the market but with the political system that invented and presides over the limited liability corporation.

Financial panics that appear natural and harm the financial elite do not necessarily create political crises. Financial panics that appear to be the result of deliberate manipulation of the allocation of risk under the law, and from which the financial elite as a whole appears to have profited even while shareholders and the public were harmed, inevitably create political crises. In the case of 2008 and the events that followed, we have a paradox. The 2008 crisis was not unprecedented, nor was the federal bailout. We saw similar things in the municipal bond crisis of the 1970s, and the Third World Debt Crisis and Savings and Loan Crisis in the 1980s. Nor was the recession that followed anomalous. It came seven years after the previous one, and compared to the 1970s and early 1980s, when unemployment stood at more than 10 percent and inflation and mortgages were at more than 20 percent, the new one was painful but well within the bounds of expected behavior.

The crisis was rooted in the appearance that it was triggered by the behavior not of small town banks or third world countries, but of the global financial elite, who took advantage of the complexities of law to enrich themselves instead of the shareholders and clients to whom it was thought they had prior fiduciary responsibility.

This is a political crisis then, not an economic one. The political elite is responsible for the corporate elite in a unique fashion: The corporation was a political invention, so by definition, its behavior depends on the political system. But in a deeper sense, the crisis is one of both political and corporate elites, and the perception that by omission or commission they acted together — knowingly engineering the outcome. In a sense, it does not matter whether this is what happened. That it is widely believed that this is what happened alone is the origin of the crisis. This generates a political crisis that in turn is translated into an attack on the economic system.

The public, which is cynical about such things, expects elites to work to benefit themselves. But at the same time, there are limits to the behavior the public will tolerate. That limit might be defined, with Adam Smith in mind, as the point when the wealth of the nation itself is endangered, i.e., when the system is generating outcomes that harm the nation. In extreme form, these crises can delegitimize regimes. In the most extreme form — and we are nowhere near this point — the military elite typically steps in to take control of the system.

This is not something that is confined to the United States by any means, although part of this analysis is designed to explain why the Obama administration must go after Goldman Sachs, Lehman Brothers and others. The symbol of Goldman Sachs profiting from actions that devastate national wealth, or of the management of Lehman wiping out shareholder value while they themselves did well, creates a crisis of confidence in the political and financial systems. With the crisis of legitimacy still not settling down after nearly two years, the reaction of the political system is predictable. It will both anoint symbolic miscreants, and redefine the structure of risk and liability in financial corporations. The goal is not so much to achieve something as to create the impression that it is achieving something, in other words, to demonstrate that the political system is prepared to control the entities it created.
The Crisis in Europe

We see a similar crisis in Europe. The financial institutions in Europe were fully complicit in the global financial crisis. They bought and sold derivatives whose value they knew to be other than stated, the same as Americans. Though the European financial institutions have asserted they were the hapless victims of unscrupulous American firms, the Europeans were as sophisticated as their American counterparts. Their elites knew what they were doing.

Complicating the European position was the creation of the economic union and the euro by the economic and political elite. There has always been a great deal of ambiguity concerning the powers and authority of the European Union, but its intentions were always clear: to harmonize Europe and to create European-wide solutions to economic problems. This goal always created unease in Europe. There were those who were concerned that a united Europe would exist to benefit the elites, rather than the broader public. There were also those who believed it was designed to benefit the Franco-German core of Europe rather than Europe as a whole. Overall, this reflected minority sentiment, but it was a substantial minority.

The financial crisis came at Europe in three phases. The first was part of the American subprime crisis. The second wave was a uniquely European crisis. European banks had taken massive positions in the Eastern European banking systems. For example, the Czech system was almost entirely foreign (Austrian and Italian) owned. These banks began lending to Eastern European homebuyers, with mortgages denominated in euros, Swiss francs or yen rather than in the currencies of the countries involved (none yet included in the eurozone). Doing this allowed banks to reduce interest rates, as the risk of currency fluctuation was pushed over to the borrower. But when the zlotys and forints began to plunge, these monthly mortgage payments began to soar, as did defaults. The European core, led by Germany, refused a European bailout of the borrowers or lenders even though the lenders who created this crisis were based in eurozone countries. Instead, the International Monetary Fund (IMF) was called in to use funds that included American and Chinese, as well as European, money to solve the problem. This raised the political question in Eastern Europe as to what it meant to be part of the European Union.

The third wave is represented by crisis in sovereign debt in countries that are part of the eurozone but not in the core of Europe — Greece, of course, but also Portugal and possibly Spain. In the Greek case, the Germans in particular hesitated to intervene until it could draw the IMF — and non-European money and guarantees — into the mix. This obviously raised questions in the periphery about what membership in the eurozone meant, just as it created questions in Eastern Europe about what EU membership meant.

But a much deeper crisis of legitimacy arose. In Germany, elite sentiment accepted that some sort of intervention in Greece was inevitable. Public sentiment overwhelmingly opposed intervention, however. The political elite moved into tension with the financial elite under public pressure. In Greece, a similar crisis emerged between an elite that accepted that foreign discipline would have to be introduced and a public that saw this discipline as a betrayal of its interests and national sovereignty.

Europe thus has a double crisis. As in the United States, there is a crisis between the financial and political systems. This crisis is not as intense as in the United States because of a deeper tradition of integration between the two systems in Europe. But the tension between masses and elites is every bit as intense. The second part of the crisis is the crisis of the European Union and growing sense that the European Union is the problem and not the solution. As in the United States, there is a growing movement to distrust not only national arrangements but also multinational arrangements.

The United States and Europe are far from the only areas of the world facing crises of legitimacy. In China, for example, the growing suppression of all dissent derives from serious questions as to whom the financial expansion of the past 30 years benefits, and who will pay for the downturns. It is also interesting to note that Russia is suffering much less from this crisis, having lived through its own crisis before. The global crisis of legitimacy has many aspects worth considering at some point.

But for now, the important thing is to understand that both Europe and the United States are facing fundamental challenges to the legitimacy of, if not the regime, then at least the manner in which the regime has handled itself. The geopolitical significance of this crisis is obvious. If the Americans and Europeans both enter a period in which managing the internal balance becomes more pressing than managing the global balance, then other powers will have enhanced windows of opportunities to redefine their regional balances.

In the United States, we see a predictable process. With the unease over elites intensifying, the political elite is trying to stabilize the situation by attacking the financial elite. It is doing this to both demonstrate that the political elite is distinct from the financial elite and to impose the consequences on the financial elite that the impersonal system was unable to do. There is precedent for this, and it will likely achieve its desired end: greater control over the financial system by the state and an acceptable moral tale for the public.

The European process is much less clear. The lack of clarity comes from the fact that this is a test for the European Union. This is not simply a crisis within national elites, but within the multinational elite that created the European Union. If this leads to the de-legitimization of the EU, then we are really in uncharted territory.

But the most important point is that almost two years since a normal financial panic, the polity has still not managed to absorb the consequences of that event. The politically contrived corporation, and particularly the financial corporations, stands accused of undermining the wealth of nations. As Adam Smith understood, markets are not natural entities but the result of political decisions, as is the political system that creates the allocation of risk that allows markets to function. When that system appears to fail, the consequences go far beyond the particular financials of that event. They have political consequences and, in due course, geopolitical consequences.

Reprinting or republication of this report on websites is authorized by prominently displaying the following sentence at the beginning or end of the report, including the hyperlink to STRATFOR:

“This report is republished with permission of STRATFOR”

What’s Good with Thaksin, the Redshirts, and the Yellowshirts?

April 13, 2010 2 comments

Key: [TIG = This is Good]

Nearly every news report I read, blog, tweet, or comment from a friend, decries what’s happening with the RedShirt demonstrations and conflicts surrounding it. I for one seem to see things a bit differently.  I think much of all this is good stuff!

People write about the past, quoting a bit of history, a date, or a person’s name.  No doubt this establishes credibility for them as a writer or reporter.  But what of the big picture.

For example, Thaksin was and perhaps still is among the wealthiest people in the world. Was he corrupt? Have you ever heard of a Thai politician who wasn’t? I don’t mean to malign anyone here, but it seems to me that corruption, power, and control have been the domain of Thai government for all of modern recorded history.  I can’t imagine making a shift from the past that is to an non-corrupt form of government overnight.   Anyway, my understanding of how Thais want things to work, is that corruption is nowhere near over!  Did Thaksin take corruption to new levels? Sure – he had the means to do so.  Want him back? No way. I think the guy’s dangerous. But to his credit (motives aside) he is the first rich, politician that I know of who really engaged the poor majority. [TIG]

Honestly, the attitude of the past by those in political power has always been to ignore the poor, until election time, or until the poor needed something so badly they had to close down roads to get attention.  By the way, this is something that is historically common all over the provinces – so when these guys came to Bangkok, it wasn’t too difficult to imagine what the outcome might be – the RedShirts may have never been much engaged in the politics before now, but they are certainly experienced in demonstrations that involve road closures.  So Thaksin, among the list of other accomplishments, can be credited with single-handedly (a hand quite full of money) engaging the masses of poorer people in the democratic process.  I imagine that using 300 Baht gifts to these guys before election won’t have the same effect as it always has in the past! [TIG] Ah, you say, he paid all of these people and that’s the reason they’re involved.  Realizing that this has always been common practice, It’d imagine that the stakes have been raised so high by now that the practice will have to dissappear! [TIG]

Many people have decried the demonstrations of the RedShirts.  Why? Frankly, it’s been very disruptive. Having never been really engaged in democratic proceedings before, they now have something they want to say. [TIG] The fact that they could perhaps go about it in a better way to my way of thinking is of much lesser importance that the fact that they’re finally involved.  Come on everyone.  This is the majority of the population by a long shot – and they have never gotten involved before now. You must ask yourself why haven’t they?  So now the RedShirts have started a course in politics and democracy, and are paying tuition. [TIG]

So does anyone want these guys running the country? No! But they need to be involved, and it may be important to recognize that it is largely those who are opposed to the RedShirts, who have been historically all too happy to leave the “poor uneducated farmers on the farm where they belong!”

So now the poor are speaking up!  I say [TIG]!

We who are from places where democratic processes are more established and governments are more stable, fail to remember our own histories.  The riots, the uprisings, the debates that ended in bloodshed – all seem to be a part of our own histories.  In fact, for the sort of changes that have happened and need to continue, few people have died. [TIG] Few of us have experienced such happy demonstrations as have been the majority of the RedShirt activity.  The spirit has largely been that of a football game! Where else but in Thailand do people have such a fun time demonstrating? [TIG]. Sure there are a few how are holding grudges, and they may be pulling more strings that is obvious to the casual onlooker – but again, it’s always been like this and won’t change overnight. I imagine that if this was the USA, there would have been less than 1/2 the demonstrators and over twice the deaths. So… [TIG]

As in most of life, it’s not really about who’s right or who’s wrong.  So when people want to talk about this person did this, or that person did that, Or use words like corruption, vote-buying, or vested interests, I want to say to everyone, take a step back and look at the big picture! While I don’t want to see the country being run by puppets of Thaksin, (and this is something to disallow) for the first time that I’m aware of, there is finally a real cross-section of people who are involved in the political process. [TIG] Will elections be dramatically different from the past? Probably not. But the more varied and involved the people are, the more representative the government must become. And the more elections will be about ideas rather than about power.

And This Is Good.



Red Shirts and Yellow Shirts – How will this end?

March 14, 2010 Leave a comment

I don’t know about you, but if you’re in Thailand, you’re probably getting asked this question as much as I am.  Most of the people I know don’t really define themselves as either Red or Yellow.  Most of the people I know, wish that we could just have nice, quiet coups without all the publicity, which by every account, has hurt Thailand considerably.  It’s not that people don’t care that business interests are suffering – it’s more like there simply seems to be no way forward that’s positive.

As in other places in the world, the whole situation lacks real leadership and direction.  (Perhaps in this sense, the government is truly representative of the people.)  Or perhaps, and I think more likely, this situation needs a different sort of solution, one that cannot really be provided by politics.

Everyone seems to want democracy – but everyone it would seem, realizes what with the social, educational, and class differences among the constituents, a representative government is unlikely.  Not to over-simplify things, but it’s not dissimilar to an imagined representative process where the majority of the voters were 16 year olds, while the minority were 70 year olds.  The minority has held the reigns of power (i.e. money) and all of a sudden, the 16 year olds have found their voice.  Among his many other successes and failures, Thaksin gave the kids a voice.

The problem as I see it is this: While we may hope that the Red Shirts will slowly lose their ability to gather together, and Thaksin may lose his ability to support them, this is a dangerous game to play.  Ideas don’t die so easily.  Sooner or later, new leaders emerge.

It’s not hard to see that the present powers that be, don’t really represent the poor and less well-educated of the country. (notice I’m not saying repressed.) [In their own view, Thaksin was the first major politician to extend a ‘helping hand’ to the poor majority.  We could all debate whether his motives were to help the poor or not, and whether what he did actually helped anything – many families have become destitute because of the loans that couldn’t be repaid.]  But as a scenario, is there any leader among the Red Shirts including Thaksin, who could possibly bring together a government which is representative of the business and economic interests of the nation?  (notice I’m not saying majority.)  [And here lies the democracy problem.  Who possibly favors allowing the 16 year olds to control finance, foreign policy, national security, etc.?]

We currently have two ways of seeing things, that are held apart from each other by virture of education, knowledge, and experience.  If there was some way to educate, and bring the majority of Thai people up to the levels of the Yellow Shirts, democracy might work better. By levels, I don’t mean higher in any moral sense, simply more advanced due to broader experience, opportunity, education, money, etc.  This is the vital difference between the young and the old.  Thailand doesn’t do retirement very well.  We value our aged.  But this can also be extremely stifling.  And on occasion, splits occur.

What is needed here is a bridge, or better yet, many bridges that will span the gaps between the Red and Yellow factions.  Today, Thonburi is nearly non-existent as a unique and different place from Bangkok – it has been so integrated mainly due to the bridges across the Chao Phraya River.   But where the bridges might come from in order to span the gaps between the Red and Yellow is anyone’s guess, but they must ideally be built from the power base to the disenfranchised – and here too, leadership appears to be lacking.

Thinking out loud, I wonder if business people, all of who suffer from the current state of dysfunction, could develop a plan to make the needed bridges.  While a return on investment in the poorer communities may not make great business sense, it makes great social sense.  It might also do wonders to alleviate the political divide that is costing business so much today.

I imagine people commenting at this point – something down the lines of how long such a strategy would take and how expensive it would be.  I agree, it could only happen little by little over a period of time, before the lasting results would be understood completely, but I also know that this problem of Red and Yellow isn’t going to end with the demonstrations this weekend – and frankly, from the business perspective, it’s costing too much already.

Last year I visited Taiwan.  I spoke with friends about the tensions between the mainland and their country.  Those tensions are lessening, little by little, because of investment between the countries.  If the Thai government created incentives for businessmen to invest in the poorer communities, much could happen quickly.  It wouldn’t take too long before the knowledge and experience would be there in a way that everyone could finally wear new shirts with new colors.  Then, and not before, will Thailand find the means to a representative government.

Democracy

November 7, 2008 Leave a comment

Democracy fails, not because it doesn’t work at all, but because it instills individualism without responsibility. Only when individuals realize that the personal needs of others are also their own responsibility will we see a system of government emerge that makes more sense. Rather than every man for himself, it will be every life for the life of all.