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Chuan, unemployment fund, please


The government needs to give deeper thought to the social safety-net programme. Thanong Khanthong looks at the German model.


The 5,000 workers of the insolvent Thai Melon Textile Co Ltd are likely to receive compensation for their lay-offs. This probably will help them to live on for another six months. But what will happen to their lives beyond that, which will continue to be painful for at least the next three years? This scary prospect is not only limited to the Thai Melon Textile workers but also to other hard-working Thais trapped in the middle of the worst economic recession in the country's economic history.

Without the social safety net, Thai blue-collar and white-collar workers are left to their own devices to endure the pain of unemployment, falling incomes and rising cost of living. The risk of social turmoil cannot be underestimated. Honourable businessmen and the bread-winners of their families are pondering the unthinkable: if they cannot carry on, they would rather die with dignity. The less honourable go for crime as a short cut. Crime and suicides will rise in tempo with the contraction of the economy.

It is this challenge that Prime Minister Chuan Leekpai should bear in mind as he contemplates how the government can look after the vulnerable and ensure social stability. Helping the vulnerable who fail to make it in the market-oriented economy is one of the four principal functions of modern governments, apart from safeguarding macro-economic stability, investing in basic infrastructure and public services and protecting the environment.

Thailand has been adopting a free-market economy in pursuit of economic wealth. In the process it has ignored the interests of the majority of working Thais, hoping that the trickle-down effect from the market system will do its work by distributing incomes in a top-down fashion. The problem is that the people at the bottom have hardly enjoyed the benefits from the economic boom over the past decade when Thailand was growing at an average rate of 8.5 per cent a year.

The irony is that in the good times the rich reaped all the benefits, and in the bad times they were the first to get the bail-outs. The collapse of the financial system will cost public money to the tune of at least Bt500 billion, which will largely go on compensating the mistakes of the financiers and the bankers.

This may be the best opportunity for the prime minister, who is known to be a very sympathetic person to the plight of the vulnerable, to rectify this social injustice. Chuan could create a new chapter of Thai history by pushing out a Thai version of the New Deal. Instead of continuing with the free-market-based economy, he may consider steering Thailand to adopting a social-market-based economy.

''Germany offers an appropriate model of a social-market-oriented economy to study. It is a free market, but not all the people survive in this free competition. So when some of them fail to make it, there is a net to protect them from falling to the ground. This safety net lies at the heart of the German social-market-based economy created after World War II,'' explains Vichai Punphocha, general manager of Dresdner Bank.

Germany gives unemployment allowances to its people during difficult times. The unemployment fund is accummulated by contributions from working Germans, who pay an equivalent of 10 per cent of their tax. ''The virtue of the unemployment fund is that it provides built-in flexibility to the Germans as they await new jobs or retrain but can still continue to spend money from the allowances, which amount to about 85-90 per cent of their last net pay cheques,'' Vichai says.

The present Social Security Fund in Thailand, which covers basic health care, is insignificant and does not make any difference when it comes to helping working Thais get through the recession. ''In Thailand people now don't want to spend money because they have no confidence in their future. Without consumer spending things get worse because department stores sell less and manufacturers produce less, creating a snowball effect,'' he adds.

But where will the money come from during this time of fiscal distress? Chuan does not need to have the money in his pocket to start an unemployment fund. The government may collect another 10 per cent of the tax of salary-earners and pitch it into this fund. If he launches a 30-year bond to start this unemployment fund, he will certainly attract local and foreign money. Some Bt5.6 trillion in deposits in the banking system is idle because banks are afraid to hand out new loans in the recession. Some of this idle money could certainly go on subscribing to the bond.

Politically this proposal should be welcomed by all political parties jockeying to win popular support. For it is really a 'New Deal' for the vulnerable, who have been left behind during past decades. This proposal should gain additional financing from the World Bank, the Asian Development Bank or other international organisations, as it will lay down a new social foundation and bring about social justice.

Chuan, who cannot really say that he has accomplished anything significant during his present second term as prime minister, has a chance to make a big difference with the grand launching of an unemployment fund. By doing so he will erase the persistent image that he is not sophisticated enough to manage a modern economy. If he succeeds in introducing the unemployment fund, he will certainly earn an honourable place in modern Thai history.



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