THE International Monetary Fund's role in Asia was a hotly debated topic at a two-day conference, Asia 21, organised by the IMF and the government of Korea in Daejeon earlier this week. On several occasions, Dominique Strauss-Kahn, the IMF managing director, raised the point about the need for countries to pay more attention to social inequality rather than focusing on economic growth alone. He accepted criticism levelled against the IMF's involvement in Asia more than 10 years ago when the Fund was pursuing macroeconomic stability in its financial prescriptions without taking into account the consequences of social upheavals. "Some of the criticisms were fair, while others were unfair. But we are willing to listen and engage more with Asia," he said.
Eisuke Sakakibara, a professor at Aoyama Gakuin University in Japan, argued that the IMF model has become obsolete, failing to take into account the phenomenon of the real economy, because most of its research focuses on macroeconomic conditions. Peter Sands, the CEO of Standard Chartered, also called upon the IMF to have more interaction with the private sector.
Strauss-Khan sat through most of the conference listening attentively to the debate on the role of the IMF and Asia's prospects going forward.
Indeed, the macroeconomic model fails to give us the real picture. An economy might have strong macroeconomic stability or high GDP growth, but it can nurture social upheavals if the microeconomic conditions at work are not proceeding in conjunction with social equity.
China is now becoming more concerned about social inequity even though it is experiencing spectacularly high economic growth.
High growth might lead to the creation of a middle class but it does not translate into high income for the common people. Most of the time, the larger share of the pie goes to the banks and corporate shareholders. The banks and corporate shareholders then continue to take risky bets to create bubbles, which leads to problems, forcing governments to bail them out because, if they fail, national economies will also fail. This is a dilemma facing modern states pursuing a capitalist style of economic management
Finance Minister Korn Chatikavanij took part in a roundtable discussion on Asia leading global growth. He said that since the 1997-1998 financial crisis, corporate income tax has doubled in Thailand whereas workers' income has not increased in inflation-adjusted terms. The export sector has been making money, but the benefits go directly to the owners of the export businesses or the shareholders. The workers only earn a wage that is not rising at all against creeping inflation.
An economic structure that aims only for growth and productivity, without taking into account social equity, will run into deep problems in the end. In fact, the liberal capitalist style of economy breeds this social inequity.
One of the reasons that Thailand is facing a political crisis is due to its adoption of a liberal economic management system that favours the big banks and corporations and forgets the traditional agricultural sector, which employs 35-40 million Thais. If we had developed the economy by placing the agricultural sector as a priority, we would not have cultivated the widening social inequality that we now face.
The United States is facing a similar malaise. Quoting Professor Raghuram Rajan of the University of Chicago's Booth School of Business, and former chief economist of the IMF, Martin Wolf, the Financial Times wrote that of every dollar of real income growth that was generated between 1976 and 2007 in the US, 58 per cent went to the top 1 per cent of households.
This is shocking. It proves that the capitalist system as we know it breeds social inequality in the most absurd way. To calm the populace, the US government came up with a generous housing scheme for all working Americans. This led to an era of easy credit and a boom in the housing sector. The banks then bundled the mortgage loans into securities and traded them for profits. The housing bubble, which burst in 2008, brought an end to the feel-good era. Now the Federal Reserve Board and Congress are picking up the tab.
We have the sufficiency economic model as an answer to this global problem. Unfortunately, few, even those in the Abhisit government, take notice of it.