Some observations from the Thai economy

The capital market profit maximizing system has a long history of facilitating progress ... but at what cost. If we look at what the enterprise system has done well, it is remarkable. There has been enormous progress over the past fifty years or so, and in the process many fortunes have been made. According to this system, and the rules of this game, the people with fortunes are winners.

But a game that only makes part of the world ... less than 50% of the global population successful ... is too narrow. The game should have a broader base. It is not good enough to have an economic system that is makes money by “conning” the clients and earning for one group at the expense of another.

A profit maximizing enterprise agenda is not good enough. There has to be value creation ... and the key stakeholders are customers and clients as much as managers and owners.

The global profit maximizing enterprise sector and the financial markets have invested heavily where they have seen opportunity to invest for high profit ... but in the process they have created bubble and bust cycles that have not served to optimize socio-economic progress.

If the PME sector sees opportunities to earn profits, there will be investment. There is a lot of money flowing through the capital markets that will invest for high return, even where there is substantial risk. Much of this capital will invest for high profit, and not concern itself too much with how the profit is earned.

I remember doing work in Thailand in the early 1980s. Part of the work concerned an assessment of the investment potential of Thailand and the enabling environment of law and culture and institutions that would make Thailand a good place to invest. Of course the analysis of law and the banking sector and the regulatory environment and everything else made one draw the conclusion that Thailand was not going to be a good place to invest. Not to mention that very few people spoke English and the language and even the alphabet was incomprehensible. But before I concluded my work, I asked another simple question. Why was it that money was being invested in Thailand? And of course it turned out that a lot of money could be made in Thailand if it was invested in profitable enterprise. Money flow was not constrained by things that I had been studying. It was all about economic value adding and earning profit. Brothels, tourism were profitable. End of analysis.

Development will never be successful as long as the financing of development is limited to the initiatives of the official development assistance (ODA) community. Most of their decisions are driven by a social dimension that has little to do with economic value adding and profit. And after forty or more years of this, the flow of funding for ODA work is miniscule.

I was in Thailand again in the early 1990s ... in fact 1992. I was struck by the amount of new construction and leisure facilities like golf courses that stretched for miles in every direction around Bangkok. As I traveled around I noted how few of the houses were occupied and how much of the construction was not totally completed and ready for use. Clearly there was something of a mismatch between what had been financed and built ... and what needed to be sold ... and probably be financed. The banks were not yet reporting problems ... but clearly they were heading towards a crisis. And of course it eventually came. In 1997, the Asian financial crisis hit as the banks realized that they had over-lent to developers and it would take time for the market to absorb the inventory.