Democrazy

At a recent international policy conference on “The End of Double-Digit Growth: Implications for Economic Sustainability in Asia,” organized by the Konrad Adenauer Stiftung and Chulalongkorn University, I had the pleasure of meeting one of the senior officials of Thailand’s National Anti-Corruption Commission (NACC). He explained to me that thanks to their distinct accent, Thais pronounce democracy in a way that sounds more like “demo-crazy.”

If recent events in Thailand, the Philippines and other parts of Asia are any indication of the near future, we may see more “democrazy” in the years to come.

More sober growth ahead?

At the conference, economists from some of the top think tanks in the region acknowledged that the era of high economic growth could be over; and that this will, in turn, herald more challenging times ahead. Both developed and developing economies will struggle to find new growth opportunities and will have to re-think their industrialization and development models.

If the previous high economic performers are unable to resuscitate their growth and development to decent rates then they could fall into what economists call a “middle-income country trap.”

According to a recent study by the Asian Development Bank, about 35 out of 52 middle-income countries were in the middle-income trap in 2010. A total of 30 countries were in the $2,000 to $7,250 GDP per capita group for over 28 years; and an additional five countries were in the $7,250 to $11,750 GDP per capita group over 14 years. Very few middle-income countries are ever able to break free from this range of development. 

As countries turn to their own domestic sources of economic growth, many analysts also expect that domestic institutions—notably as regards competition policy and market regulation—will play a key role in spurring and sustaining growth and investments.

Issues of fairness and consumer protection will be key, as the main wealth engine shifts from export-oriented industries to homegrown consumption and investments. (Indeed, the Philippines has been a step ahead of other Asian economies on this front of relying on domestic consumption, given its historically small export sector and relatively larger domestic consumption-based economy, fueled by remittances.)

With tempered growth, it is also more likely that there would be less tolerance for previous inefficiencies and certainly any perception of unfairness. And this includes, most notably, cases of corruption that may have been previously glossed over during better times.

High inequality remains 

High growth in the past decades produced not just rapid expansion in wealth but also dramatic deepening of income inequality and yawning gaps in human development across and within countries.

Economic openness increases competition, in turn producing both winners and losers. There is evidence that the aggregate (national and global) level “winnings” from economic openness, when managed well, will always trump the “losses” (thanks to specialization, efficiency, technological catch-up and all that). The challenge, however, lies in making sure those “winnings” are shared more broadly.

Take any economy, couple the educated and skilled sectors that can compete with other sectors that cannot—and it would be easy to imagine how the few rich get richer, some of the more competitive are able to break into the middle class, and yet many of the poor get left behind.

Recent analyses on this topic, including those of colleagues like Prof. Nicole Curato of University of the Philippines and Ricardo Fuentes Nieva of Oxfam International, have already emphasized the international inequality figures. Let me simply add to their contributions here by sharing figures on the Philippines.

Table 1 shows the estimated real gross domestic product (GDP) per capita across Philippine regions (a measure which economists use to indicate how much real average wealth each region has). To help one appreciate the vast distances in wealth  and development levels, the real GDP per capita of some countries (averaged at the national level) are also reported.

Note that the Philippines’ National Capital Region is actually very close to the level of development of Brazil and South Africa already. The NCR—if it were a country—would even be slightly richer than Thailand.

On the other hand, regions such as Bicol and the Autonomous Region in Muslim Mindanao (ARMM) are far behind and much closer to the level of development of conflict-racked African countries like Kenya and the Central African Republic.

In fact, if one were to compare the Human Development Index (HDI) of Sulu province in Mindanao, for example, the United Nations Development Programme reports that Sulu’s HDI of 0.266 is close to that of Niger (0.261) and Democratic Republic of Congo (0.239), which are among the countries that consistently get ranked lowest in human development in the world.

High inequality + slower growth = noisier democratic politics

So this brings us to the situation we are in right now: entire countries have become divided, not just economically but also politically. 

Thailand is a case in point. The anti-corruption protests now rocking Bangkok are partly fueled by a number of recently uncovered corruption cases including one linked to the government’s controversial rice subsidy policy. Introduced in 2011 and designed to benefit poor rice farmers, this policy is expected to cost the government about 5 percent of GDP.

While some benefits trickle down to farmers, most of the wealth appears to be cornered by milling companies, some of which are reputed to be owned by government officials. What Thailand has is a schism between tax-paying urbanites who would like to shut down corruption-prone policies and usher a more inclusive political system not dominated by specific political families and their cronies; and rural and low income citizens who keep on voting those same politicians into power. (Now where have we heard that one before?)

At this point, the economics and politics of many countries in the Asian region reflect deep inequalities in these two spheres. And as I noted in a previous article, economic and political inequality feed on each other.

Restoring everything to a more stable balance requires that all of Asia address inequality in its various forms. Otherwise, prepare for more “democrazy” in the years to come. – Rappler.com

The author is Associate Professor of Economics and Executive Director of the AIM Policy Center. He thanks David Yap, Ailyn Lau and Monica Melchor for helpful inputs. The views expressed herein are his and are not necessarily those of the Asian Institute of Management.