TCS Daily


A New Venezuela of the East

By Martin Krause - August 16, 2007 12:00 AM

Thailand, once a case study in howa developing country can move forward through long-term economic growth, is nowmoving backward. The military coup last September marked the beginning ofthe U-turn, and the new government has since reversed many of the policies thathad helped to bring unprecedented prosperity to Thailand.

Particularly alarming has been thegovernment's decision, in November, to issue what's known as"compulsory licenses." These licenses authorize thegovernment to import or manufacture generic versions of medications that areunder patent by European and American-based companies. In short, the governmentconfiscated the intellectual property rights of four pharmaceuticalmanufacturers: Merck, which makes the AIDS medicine Efavirenz; AbbottLaboratories, which makes Kaletra/Aluvia, also for AIDS; and Sanofi-Aventis andBristol-Myers Squibb, makers of heart medicine Plavix.

Leftist activists applauded inBangkok and Geneva. For years the global socialist movement had beensearching for a leader to promote their agenda, which is geared toward theabolition of patents for medicine.

But this step was taken at a timewhen pharmaceutical companies were offering a pricing system, known as"tiered pricing," under which companies charge more for theirproducts in wealthy nations than in poor ones, so that the wealthy subsidizehealth care for those who cannot afford to pay.

Abbott is a case in point. In April the company decided to give the activists what they want. Through an agreement with the World Health Organization, Abbott reduced itsprice for Kaletra/Aluvia from $2200 to $1000 per patient per year for more than40 "middle-tier" developing countries. In wealthier countriessuch as the United States the price is many times higher. And thanks towhat the mid-tier and developed countries will pay, Abbott distributes theproduct for $500 in nearly 70 Least Developed Countries (LDCs), a price forwhich the company earns nothing.

Now the middle tier is gobbling upthe new offer. Earlier this summer another country hot to issuecompulsory licenses, Brazil, accepted Abbott's $1000 price point. But Thailand has so far refused, which calls into question whether this isreally about drug prices after all. On thequestion of whether Thailand can afford the new lower prices consider that thegovernment has increased the military budget by the equivalent of $1.5 billion. The anticipated savings from issuing compulsory licenses? Just $24 million.

Perhaps more telling, VichaiChokevivat, a Thai health official, responded to Brazil's acceptance bysaying that regardless of the eventual price, "the condition that we stopthe CL...is a condition we cannot accept."

Thailand refused lower drug pricesbecause they carry a condition of respecting property rights?

More proof that this issue is lessabout Thailand's health and more about the military government stealingproperty for its own benefits lies with the direct beneficiary of thecompulsory license: the state-owned, for-profit Government PharmaceuticalOrganization (GPO). The GPO has a long history of corruption andprofiteering, and it stands to profit from the decision to compulsory licenseWestern medicines.

Such a solution will certainly notimprove health in Thailand. The GPO's facilities have not passedthe World Health Organization's manufacturing standards, even as WHOspent millions to try to help the Thais through the approval process. Thegovernment maintains its drugs are safe, yet health officials in Thailand recentlypulled seven generic heart medications off the shelves because they failedsafety tests. Unfortunately this action came after the medicines weredistributed to patients.

The military-installed Thaigovernment is unpopular domestically. Since coming to power viacoup last year the military has pursued policies imposing censorship andcapital controls, consolidating industry and rapidly expanding its militarybudget. While it has won accolades from dictatorships such as Iran,it's quite clear that the government is attempting to win points at homeby bashing Western multinational drug companies.

The stakes are high. Aroundthe world the anti-globalization activists who prefer the socialism ofVenezuela and Cuba to free-market economics are agitating for other countriesto follow Thailand's lead. After an intense flirtation withcompulsory licenses, Brazil has accepted Abbott's price, but activiststhere would be only too happy to reverse that policy for the next drug.

This simmering leftism does notpromise better health care - since the real problem is not with drugprices, but with the country's health-care infrastructure -- and itcertainly does not promise economic growth. In chasing the approval ofthe Left, Thailand is drifting dangerously toward the failed and antiquatedLatin American model, and away from the Asian model which has brought itprosperity. Intellectual property rights are integral to that successfulmodel and companies have them, too. Taking these rights away for the useof government is a slippery slope away from the democracy the Left supposedlyholds dear. It is not too late for Thailand to do another U-turn andreturn to the policies that gave it increased living standards and hope for abetter tomorrow.

The author is Professor of Economics, ESEADE Graduate School, Buenos Aires, Argentina.



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29 Comments

A slender reed
This tirade against Thailand's alleged march toward socialism is predicated on a single, slender reed: their disregard for IP law. I'd give a penny to find out who wrote the check for the article's promulgation.

The author mentions in passing one more datum pointing toward this conclusion: laws enacting capital controls. Maybe he has a short memory, and forgets the incredible damage done there in 1998, precisely due to the lack of such controls.

This is an issue that strikes a nerve among Thailand's bankers, developers and capitalists-- precisely the people who we are supposed to assume are the victims. All were injured terribly during the Meltdown. And I suspect if indeed there are new laws safeguarding the country against a future uncontrolled flight of capital, the local capitalists are applauding heartly.

AT any rate, before blindly believing anything about this news from the blue, it might be prudent to check some second sources for these rumors.

A rookie mistake
A closer look at the issue of poorly thought out capital controls reveals no socialist plot to take over Thailand's fledgling government but instead an impulsive move to correct the rapidly over-valuating baht by means of capital controls thought of as onerous by the foreign investment crowd. And even though they only comprise 20% of investment the Thai markets, they're crucial.

Sp the government instantly reversed the controls. It was a one day event.

Parenthetically it's interesting to note that most liberal economists endorse the need for prudently designed capital controls, precisely to avoid future repeats of the Asian Plague. Mahathir's Malaysia, for instance, has done quite well by them, and could be a model for Thailand to study-- once a few of the generals get their MBAs.

slaves
I hear on NPR this morning, Chavez moves to become presidente for life and to seize all national money for himself. There must be rebellion against the tyrant.

http://www.npr.org/blogs/news/2007/08/hugo_chavez_president_for_life.html

He who loves the Devil is a slave to evil.

Viagra
I didn't notice if Viagra was on the list of drugs.

That's a very popular product in Asia with all those dirty old men going after those young Asian girls.

Maybe if they sold less Viagra there would not be as much need for AIDS drugs?

But then again, could such recreational drugs like Viagra be used to subsidize the life saving drugs?

But that supposes a free market.

Subsidies
If you need a source of subsidies for your AIDS drugs, why not simply tax Viagra? I'm sure the profits from Viagra, Cialis, and whatever else are used to support the R&D programs at the companies that make them.

A meta-note to the web people: for some reason, my browser displays this article missing some intra-word spaces. It makes the article read like the work of someone who can't type, and that makes it less credible to someone who is on the edge of taking it seriously.

'alleged march towards socialism'?
It's not alleged if indeed the military dictators there are going for a less free economy; that's what socialists also do. And of all the asian tigers, you like Malaysia as a role model instead of say, Hong KOng, Singapore, Taiwan. Only other big government guys, like you, and socialists etc claim that the capital controls of Malaysia worked. Real capitalists say they didn't, and indeed that they have hurt Malyasia for years. One example would be:
Nobel Prize winner Merton Miller
They lost a lot of foreign investment because of such controls. Now it costs more to try to recoup from the mistakes and try to attract more investment. Malyasia is considered a much riskier place than the freer countries in asia, including red china. But I suppose the military government of Thailand will be about as successful as other such military dictatorships. Wait a minute, I know you like some of them too. Malaysia, like Thailand also subisidises petrol products, and they even ban the singapore newspaper because of the frequent, accurate stories about how screwed up malaysia is.

viagra
YOu can already by all those viagra like drugs, on the streets and in pharmacies all over Thailand. Most are the Indian made knock-offs, and are really cheap. They're not only used by the dirty old men, who, unlike many americans, still get laid, but also as a recreational drug by young healty guys like a lot of the australian guys there.

Then how come they do capitalism so well?
Whether capital controls "work" or not depends very much on which side of the coin you're on. If you think you can contradict me when I say the Asian Tigers suffered a terrible amount of pain during the late nineties because of their failure to erect capital controls, please do so.

It does no good to just say such precautions are socialist. When they're needed, they're needed. When they aren't, they're just in the way.

Malaysia and Thailand will both do what they have to to keep their economies afloat. And I would suggest Malaysia must be doing something right. According to the CIA World Factbook their economy expanded by some 5.9% (2006 est.). That's double what ours did.

doing so well
They're not doing as well as their neighbours who did not interfere with capital controls. I live in asia, and read stuff about malaysia all the time thru publications here, and I also visit the crappy place once in a while to visit a friend who made the mistake of buying a condo there. Still, it's better than Thailand, but its economy is grossly distorted, not only by capital controls but also by massive racist economic policies which favour the 'bumiputras', the group which controls the government.
Malaysia also goes in for big white elephant projects which lose lots of money, like the Petronas towers(designed and built by foreigners), and their national car company that nobody wants to buy. Malaysia is certainly not a role model, esp. when you have better ones around.

Abolishing Term Limits not the same as Abolishing Elections...
And an elected leader enacting the will of the people is democracy at it's finest.

merged words
Whoever entered the article into this webpage software probably did so by copying and pasting from from a document with line breaks. The default setting of Outlook Express will break off sentences like this.
For entering articles from varying sources into publishing programs, editors must either manually delete endings line by line, or use something like ClipCache which includes handy scripts to do that and other common edit functions. CC saves me hours. (www.imcool.com and www.goHTSN.com)

Your comments are invited
You're at your best when you're talking about something within your own field of experience. I'm less enthusiastic when you wallow in your ideological rants-- they're less instructive.

So I'd like to hear more. How precisely do you think Malaysia's capital controls have hurt their expansion? Is it just that they keep foreign investors away?

If so, maybe that's not so bad. As I recall it was the rapid slosh of foreign money in and out of the system that caused Malaysia so much pain in the late 90s.

Second question: you mention their "massive racist economic policies". Do you mean the way they've crowded out the Chinese, to give the local Malays a chance to enter the capitalist system? That's the way we heard it way over here, on the other side of the world.

comments
My 'rants' are empirical, evidence based rather than ideological. RE Malaysia, here's one little article about another scandal they had:
http://www.businesstimes.com.sg/sub/news/story/0,4574,245340-1187380740,00.html? But in general, especially before when 'mega-mouth' Matahir was in power before, they used to manipulate the economy for political reasons, rather than economic. For example, after the 98 crisis, they froze accounts foreigners held there. I also had some shares and couldn't sell them. They also change their minds a lot re taxation. Some years ago they encouraged singaporeans to buy houses in malaysia, then after a lot of them did, they went and imposed a special tax to punish them for it. So if they want to get more FDI in they have to work harder, spend more money for publicise, etc. So many commentators give examples of how those previous distortions still hurt them; I don't have all that here. Also their national airline is no good, and their national car company Proton, which they've been trying to sell and nobody wants. RE racism. After the brits handed over the country, there was a kind of deal, the ethnic malays would run the government, and the chinese would run the economy. So they then had the new econ policy, which gave favoritism in every way to the malays, grants, loans, places at college, etc. For example, if the government wants to build some project, they give the contract to a malay, but since those guys don't like to work too much, and are not too good at anything, they then subcontract to a real chinese company to do the actual work. So it makes the malays have an entitlement mentality of what economists call 'rent seeking'. Lately, there have been some improvments, esp. since matahir left. But people still don't trust the place too much.

Excellent!!
Then let's do these same things here, in the U.S. GW Bush's vision could be realized by abolishing the Fed, giving him complete control over the treasury and he could enjoy stolen elections over and over. Hey, it's democracy right?

Agreed. You are right-on "acougar".
Bush diplomaticlly, avoided war with China (U.S. spy plane collision), pulled us out of recession with remarkably effective tax cuts (thank you George!) - giving us the best economy in memory, won two wars, re-invigorated American Pride, and shared power with the sniggering opposition party. There is no other living U.S. politician who has accomplished this. If anyone deserves no term limits, it is George W. Bush.

Minority contractor protection
Thanks for the response.

How long were your accounts frozen? Is your money still tied up there?

Isn't it the case that when there's a run on the bank they need to close it down for a bit so the panic can wind down, and people can reclaim their money in an orderly manner? If they don't, the fastest people to the door get paid off in full, and everyone else loses everything. Then the bank fails.

With an orderly suspension of trading, there's time to come up with an equitable plan that pays everyone off to the degree possible, and allows for a way to be found to keep the institution alive. They have such a plan in place at the NYSE. Is that creeping socialism? Or just good sense?

Re governments changing their minds a lot about taxation: didn't the US government do just that in 2001, 2002 and 2003? I'm sure you were very cheerful about those changes, and didn't lodge that complaint. But when governments decide their fiscal program is tanking, and a tax HIKE might be needed, oh lordy! It's capricious and unsettling!

I do get a kick out of your complaints about Malay contractors. I've been there, in Washington, DC. No one expects anything to either ever get done, or to get done well. And no one expects anything to be done at a reasonable cost. Why? Minority contractor requirements. This is a universal problem, wherever there are entrenched ethnic groups who run the local politics.

I'm now looking forward to reading your Business Times article. Just wanted to get this note off.

minorities
WEre frozen for years, then I got out a year or so ago. But i don't remember there being runs on banks the way you mean. At least from foreign investors viewpoint, it was the freezing of stocks; although they still did make dividend payments,even to overseas.
Re the US, i know they do stuff like that too, and I condemn it. But in malaysia it's even more and totally institutionalized, like an official policy. They know that the malays are what you would call 'underachievers' as compared to the chinese and east indians there(muchless the white people). So it was supposed to be a temporary policy to give them a boost, them became permanent. The article was just a little one to show you i do read stuff from about there all the time. And remember, they don't even have a free press there; singapore papers banned. Also, there is no freedom of religion there, even tho it's supposed to according to the constitution they have, but ignore. They figure a native malay has to be a muslim, and must not become an apostate. They also take away some wives and children to re-education canps to supposedly get them on the right muslim track, even tho the people might say the are hindoos or christian. It's a really crappy place, and beer is very expensive too, even more than in singapore; tax grab to support corrupt politicos

Say Roy, would you keep quiet if a contract you entered into with a non-GOVAG is changed to your det
..

The last word above should read "detriment"
..

How to fix Venezuela and prevent constitutional dictatorship
http://www.miamiherald.com/418/story/208138.html

Chavistas will be waking soon from the socialist drug.

The notion that Bush stole the 2000 election
is immature and rather stupid.

And, as far a cry from perfection, or even what I desire, in a President the W is, I still thank all the gods of heaven, hell, and earth that Gorey Al did not end up in the Oval Office.

Oh, by the way, F*** the Democrats.

Hope you noted my sarcasm
I simply challenge fair-weather liberals to stand by their stupidly phony convictions.

Blowing a fuse
I know how you feel, if you had money frozen for a year, not knowing when or whether you might ever get it out. But certainly you understand that such moves are made for the investors' protection? Whe there's a rush for the exits, everybody loses except the lucky few who got there first. Among the victims are not only the rest of the investor-depositors, but the institution itself. The trip wires are there for a reason.

Would you have preferred an uncontrolled market, where you might well have just lost every dime? Countries like Thailand, Indonesia, the Philippines and Malaysia have had that experience. And they don't care to repeat it ever again.

On steam boilers they have something called a fusible plug. It's a piece of the boiler wall made of lead, with a low melting point.

When the boiler overheats, the fusible plug melts and blows your head of steam. It makes kind of a mess, but the whole damn boiler doesn't blow up.

I feel safer with my money invested in a system with built-in fusibility. I lost a pile back in 1987, when we didn't have any safety mechanisms.

Political favoritism
You can find favoritism about anywhere. And it's no fun if you're in the group not being favored... while most people find it tolerable when their oen group is on top.

In a place like Kosovo it used to be the Serbs on top and the Albanians on the bottom. Now it's the other way around. Better? Not by much.

In Washington, DC I spent a career in a town where black folks were on top. And learned to work within the system just fine.

In the rest of the country it was the white folks on top. Were black people happy with that? Did they learn to cope with it? Life's like that.

I understand Fiji is the same way you describe Malaysia, with the lazy, incompetent Malays on top. In Fiji it's the South Indians who run the economy,all the shops and businesses, etc. But the Fijians own the place, so they hold all the political positions. That's why the place is such a backwater.

I can believe it's hard to get a beer in Malaysia. And I bet it's hard to get laid there too.

Another place you couldn't get a beer for love nor money was in Gorbachev's Soviet Union. He came out with that anti-alcohol drive in the 1980s and the only thing you could find was some ugly black market vodka. No beer, no wine. Friends had to have a dry wedding, because they couldn't secure a permit to buy champagne.

To give him some credit, almost everyone in the country was a lush by then, and he had to do something.

Your made-up language
Your use of language makes it seem like you have some sort of cognitive impairment. Instead of using "non-govags", which no one on earth but you uses, why not use "people in private industry", like the rest of us would use?

So let me translate your query into English. You're asking me what I would do if a business partner reneged on a deal he had signed to.

And of course, I would take him to court. I'd sue for performance. It's one of those cases where working within the framework of a set of laws comes in handy.

Question
Doesn't the US have an unconstitutional dictatorship? Hasn't Bush placed himself above the law? Doesn't he say the rules don't apply to him? And haven't the first and fourth amendments been pretty much whited out?

By "Bush" I mean the rest of them as well-- everyone who has worked to bring us a "unitary executive" beyond the reach of either public or Congress.

I fail to see how this is any better than changing the constitution and then following its rules. I greatly preferred being in a country where we were all subject to the rule of law.

Your lies
When Presidente Bush steps down in 2008, will he still be a dictator? or will it be Clinton or Barrak that is the new dictator?
Show me the white out.
What laws have you broken?
When will you leave this horrid place for the social justice paradise of Cuba or Venezuela?

Then, why are you so surprised (and sacrastic) when Dietmar complained?
You mean GOVAGs can not be held to their contractual obligations? You mean they are above law? Then, why are you so cross with the current POTUS and his team?

While everybody has a Right to change the contract they enter into with me for MY benefit, they have no such Right to change the contract to my detriment.

And that is what many a GOVAG do when they propose and pass so many programs in contravention of the pledge they made to honor and uphold the letter and spirit of the (US) Constitution.

governmentconfiscated the intellectual property rights
How can it be confiscation to abolish an artificial monopoly that should not have been given in the first place.

IP is not property. Property rights do not expire after 20 years. If you think a patent is property then the patent should last forever.

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