Tom Pepinsky

Category: Asia

  • Not Going to Bangkok

    A good friend of mine is currently in Bangkok doing some exploratory field research (he studies how politicians mobilize the poor). There was a point a couple months ago when we considered whether or not it would be possible for us to meet up while I was here, with me flying up there to see him. Needless to say, we’ve decided that that’s not a good idea. Too bad, because I’ve never been to Bangkok before, but visiting there right now is really flirting with disaster.

    From time to time I get asked what the conflict in Thailand is all about. That’s one of those questions that seems like it has a simple answer, but if you really start digging you realize how hard it is to boil it down to something simple. The proximate issue is the legacy of former Prime Minister Thaksin Shinawatra, who was extremely popular among poor and rural citizens but who alienated the middle- and upper-class establishments, in particular in Bangkok. Thaksin was also widely accused of being corrupt (he is fantastically rich), and of being too violent in his campaigns against drug dealers and other enemies of Thai society (he was once a policeman). Thaksin was ousted by a coup in 2006; when the military allowed new elections, a candidate widely considered to be a Thaksin proxy won. Anti-Thaksin groups (“yellow shirts”) eventually mobilized big demonstrations that led to that new government’s ouster, with the help of some of their allies in the courts. The current PM, Abhisit Vejjajiva, represents the yellow shirt faction. Now, pro-Thaksin groups (“red shirts”) who believe the current political order to be illegitimate, are trying to bring the current government down. At the moment, it appears that they have failed…but no one thinks that this is over.

    Red Shirt Rally (source: Straits Times)

    5-20-10

     

    It’s tempting to say, then, that this all starts with Thaksin, that it’s a debate about his legacy. But it goes at least two levels deeper. The first level is about money and representation in Thai politics. The establishment in Thailand since, well, the 1600s or so has had a heavy bias towards comparatively well-to-do urban constituencies. Poor, rural Thais, especially those in the northeast, have always felt marginalized. Thaksin was the first national politician whose policies really targeted those marginalized Thais, and that made him genuinely popular. And because politics is a zero-sum game, strengthening this marginalized group means threatening the urban middle-class establishment. I have no doubt that if Thaksin were allowed to return to Thailand and to compete in another election, he would win handily.

    The second level, though, is about what democratic theorists call “loyal opposition.” Stable, consolidated democracies have what are known as loyal oppositions–factions that lose election but who don’t then overthrow the system in response to having lost. They are the opposition, but they are loyal to the principles of political competition. Thailand has never developed a system whereby the losing side (whoever it is) respects the outcome as legitimate. That means that someone always believes that the system is illegitimate, and will take to the streets to push for revolutionary change. I suspect that the main reason why a norm of loyal opposition never developed is because the Thai king has for too long intervened in Thai politics to solve intractable problems by fiat rather than forcing Thai politicians to come to acceptable agreements on their own. Oh, and the fact that the Thai military keeps launching coups (after Bolivia, no country has had more) doesn’t help either. Instead of working to come to acceptable agreements, both sides look to the king, the military, or both, to solve their problems for them.

    Combine the absence of a norm of loyal opposition with severe imbalances in representation, an old king who is too willing to step into politics, a coup-happy military, and a popular (if flawed) former leader, and you have the recipe for a never-ending war of attrition between two camps that sincerely believe that their opponents have no right to participate in any kind of legitimate government. This gets worse before it gets better.

  • Bearish on China

    I participated in a small workshop today on contemporary issues in financial policy in Asia. I was the only political scientist there–the other participants were either academic economists or analysts affiliated with some of the big banks active around here (RBS, Citi, etc.). What was most striking to me is how bearish the group was–and this especially includes the analysts–on China's long-term prospects. The general tenor of the discussion was something like this: we (meaning the world) has escaped the worst of the crisis, and for that reason governments and banks alike are congratulating themselves on a job well-done rather than taking a hard look at the sustainability of current practices. We know that this is a problem in the US and Europe, but no one is really being honest about what this means for China.

    The evidence of unsustainable financial practices in China is not direct, but it is quite suggestive. Between 2007 and 2009, private sector debt in China rose by 20%. That's a big rise in not a lot of time. By end-2009 private sector debt was over 150% of GDP…and if you think that sounds like a worryingly high number, it is. Now, clearly high and rising bank credit to the local private sector doesn't automatically produce problems, because China still seems to be chugging along. But if you look at these figures in the comparative-historical perspective, you see that this sort of rapid growth in domestic credit is nearly always an indication that some bad stuff is going down behind the scenes. We also see that market actors tend to ignore the signs of trouble as long as possible, because they believe that "this time is different," or because they believe that even if things are bound for a correction in the future, they are smart enough to get out right before the crash. We all know that China has problems with corruption, graft, and "non-economic motives" in the allocation of credit. It's just not plausible to believe that it is immune from the same consequences associated with such problems anywhere else in the world.

    The prediction that I heard is that sometime soon, Chinese banks are going to realize that they are overleveraged. That will lead them to rein in their lending activities to protect their balance sheets, which in turn will begin to starve the domestic real sector of cash. In the best case scenario, this just leads to a difficult correction. In the worst case scenario, the real sector correction exposes further problems in banks' loan portfolios, which generates further real sector problems, etc.

    So that's interesting, but not too specific of a prediction. As an academic point, though, what was really interesting was to hear the analysts talk about how their employers just aren't interested in hearing about the long-term unsustainability of China's credit expansion. From the employers' perspective, all they want to know is over their own relevant time horizons–that is, the next month or so–is China in trouble. And the answer to that question is, no. So while analysts and local economists are pretty bearish, the market makers are still doing business as usual, quite happily. I wonder if in five years we'll wonder how good of an idea that was.