The capitalist system and the issue of inequality have been ongoing challenges for economic policy implementation. This is because they can have widespread impacts on both individuals in society and the sustainability of the capitalist system. The problem lies in the fact that capitalism can generate economic growth effectively, but it struggles with the distribution of the benefits arising from that growth. In terms of income, a small group benefits significantly from economic growth, while the majority do not receive their fair share. This leads to a situation where a small number of people become extremely wealthy, while the majority either barely get by or live in poverty. As the economy grows, the gap between the rich and the poor widens, exacerbating the issue of inequality. In Thailand, where the economy operates under a capitalist system, we face one of the highest levels of inequality in the world. This is a critical social issue that, if left unaddressed, could pose risks to social cohesion, stability, and economic sustainability.

            Today's "Thought-Provoking Writing" will discuss this topic to foster an understanding of whether we have pathways to enable economic growth while simultaneously alleviating the pressures of inequality. We will examine the evolution of these issues in the global economy, focusing on the significance of economic policies that can influence the distribution of income generated from economic growth among various groups or players in the economy. This will help us understand the possibilities and limitations of efforts to address these problems.

Players in the Capitalist System

            The capitalist system is an economic system that operates according to market mechanisms, with four main groups of players. The first group consists of capitalists or owners of capital who own businesses, including investors who invest in the stocks of these companies, and senior executives who receive a share of the profits generated. The second group includes employees and workers who work for companies or businesses and receive wages and various benefits in return. The third group comprises consumers who purchase goods from companies, including individuals from various professions in both the private and public sectors who do not work for these companies but have income from other sources to buy goods and become customers. The fourth group is the government, which derives income from taxes on citizens and uses this tax revenue to spend within the economy.

            These are the four groups of players in the economy, and the outcomes of economic growth are distributed among them according to the "rules" established in society. For example, employees and workers receive their share in the form of salaries and benefits as agreed upon with the company. The government collects taxes from companies and workers based on the tax criteria set by the government. Capitalists earn profits from the difference between selling prices, costs, wages, and taxes. Consumers, who are the ones paying for goods and generating income for companies, receive the products they purchase and the difference between the price the seller receives for the goods and the price they are willing to pay, known in economics as consumer surplus. If this value is positive, it indicates the additional benefit consumers gain from consuming those goods. These are the four groups that receive shares from economic growth according to their roles and the societal rules established.

            A crucial point to recognize is that the distribution of the benefits of economic growth among different groups will follow the societal rules. The entity that controls what these rules should be is the government, which has the responsibility to draft laws and establish various regulations. This allows the government to use its power to create rules or regulations, such as taxation, that can alter the distribution of income among different groups. In simple terms, the government can use its legal authority to enact regulations that affect income distribution in society. This means that the benefits from economic growth allocated to each group, whether employees, capitalists, or consumers, can be changed through government action. Therefore, the government plays a significant role in addressing or mitigating the issue of inequality that the country or economic system faces.

Capitalism After World War II

            In the aftermath of World War II, starting from 1945, the growth of capitalism became a key goal for national development in the global economy, led by the United States and its allies, partly to halt the spread of communism and socialism supported by the Soviet Union and China. During this period, the government's role in economic development emphasized industrial growth to drive economic expansion while also focusing on fairly and appropriately distributing the benefits of growth to labor groups to reduce exploitation that could foster socialist ideologies. Consequently, we saw the enactment of similar laws worldwide that prioritized the protection of labor interests, such as minimum wage laws, the establishment of labor unions, job protection laws to prevent unfair dismissals, social security systems, and the idea of adjusting wage rates in line with productivity increases, leading to continuous wage growth.

            These approaches allowed the global economy to grow well, improving the living standards of laborers and employees, which led to the growth of the "middle class" in many countries, including Thailand. However, by the early 1970s, advancements in technology and business investments significantly increased productivity, while wage rates lagged behind. This disparity caused the share of output or income allocated as profits for capital owners to expand more than the share of wages in total income. The income gap between capital owners and employees began to widen. However, the global economy slowed down due to the oil shock and rising inflation, which severely impacted consumers and business owners. Consequently, income distribution in the economy did not favor an increase in the share of income for business owners, while the government lost credibility in its role of managing the economy due to the economic slowdown.

The Era of Globalization and Free Markets

            After the collapse of the Soviet Union and the socialist system in 1989-90, the philosophy of liberal economics and free markets regained influence in global economic policy. Under this concept, an economy with less government involvement, operating according to market mechanisms, would lead to more efficient resource allocation within the economy. This idea ushered in a golden age of economic liberalization in trade and investment, the free movement of capital across borders, and the reduction of government restrictions and roles in the economy. The result was significant global economic growth, but the distribution of income within the economic system increasingly favored capital owners and investors, worsening income distribution. As the economy grew, the problem of inequality within the economic system intensified, both internationally and domestically. During this period, it became clear that the role of the government and economic policies shifted from protecting labor interests to prioritizing the benefits of investors, business owners, and capitalists, such as through state enterprise privatization and reducing progressive tax rates.

            The increasing problem of inequality led society to question the profits of the business sector and the rising inequality. This raised the issue of what role, if any, businesses should play in society beyond profit-making, including whether the business sector should do something to alleviate the country's inequality by utilizing their knowledge, skills, and resources to help solve the problem of inequality and give back to society. From this observation, we see efforts by businesses to adapt to reduce societal backlash through corporate social responsibility (CSR) initiatives and the establishment of foundations and social organizations to assist the underprivileged or those lacking opportunities in society. Billionaire entrepreneurs engaging in philanthropy have become a new form of capitalism that attempts to convey the message that the wealthy can contribute to solving the country's problems and helping society.

            However, the problem of inequality has not improved; rather, it has worsened. Inequality has intensified, while the efforts of capital owners to adapt through various social assistance programs are often viewed as insincere and potentially politically or commercially motivated. The allure of the free market system peaked in 2008 when the global economy faced a major crisis stemming from market liberalization and the reckless and unwise investments of capital owners and investors.

From the Global Economic Crisis to the Present

            A decade after the global economic crisis in 2008, the global economy has yet to return to normal. The financial system still struggles to function effectively. Despite governments worldwide investing vast resources to address the crisis, it is estimated that the 2008 global economic crisis caused damages exceeding $22 trillion. The groups most affected by the crisis were laborers and consumers, while capital owners, particularly those close to government assistance, benefited. Consequently, in the ten years following the 2008 economic crisis, the issue of inequality in the global economy has not improved but has worsened, with increasing inequality in many countries, including Thailand.

            The impact of the economic crisis on citizens has led many people in various countries to lose faith in capitalism, policymakers, and electoral politics, believing they cannot prevent or resolve the issues at hand. This has resulted in a search for strong leaders to address these problems and a rise in populist politics that reject the established rules and relationships that were once the foundation of capitalism's success. Importantly, younger generations are seeking new alternatives that offer hope and answers to the difficulties they face for their future. Recently, a survey of young people in the United States, specifically Gen Z and Millennials, revealed that 70% of Millennials aged 18-34 are willing to vote for politicians with socialist ideologies. This stance will significantly impact U.S. politics moving forward, and Thailand's political landscape may similarly be affected by economic issues and the problem of inequality in the country.

How Will Capitalism Address the Issue of Inequality?

            The answer lies in the government prioritizing the third group, the consumers, more and utilizing the power of consumers as a counterbalance to reduce the problem of inequality from worsening. This is crucial as laborers are becoming weaker due to economic downturns, unemployment, and the impacts of technology on job availability. The consumer group, in terms of numbers, is growing. Importantly, communication through the internet and modern technologies, such as mobile phones, will empower consumers even more, as they can quickly unite to protest or demand action on issues that affect them collectively. For example, this year, protests in 24 countries worldwide have stemmed from consumer mobilization through modern communication tools, with the primary concern being economic issues. Notably, these protests have proven effective and can directly influence government policy, surpassing the impact of past labor protests.

            This is a new phenomenon that both the government and capital owners or business owners must recognize and adapt to, leveraging the power and grievances of consumers to help mitigate the issue of inequality. This presents a challenge that society must strive to utilize current events to address existing problems early on, to avoid the risk of larger issues arising in the future.

Thought-Provoking Column
Dr. Bandit Nitchathorn
Chairman of the Public Policy Foundation for Society and Good Governance

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