After years of fighting off disaster, the economy of the nation was on its knees. The government had been forced to spend well beyond its means to wage the war. At the same time, economic activity had been devastated, seriously reducing government revenue. The country was on the edge of a financial abyss.
No, not Thailand post-Covid (though it may come to that). But France in 1918.
The First World War had ravaged the industrial heartland in the north of the country which would take years to rebuild. Over 10% of its active male workforce had been killed and more than double that were disabled. Civilian living standards had fallen by half.
In 1914 France had been one of the wealthiest nations on earth with extensive foreign investments. But the ‘Belle Époque’ had also seen one of the most economically unequal of the western democracies. What could be done to reconstruct the economic health of the country?
There were 3 main avenues that could be taken, none of them exclusive of the others.
The first was to demand that Germany, as the aggressor, cough up some hefty war reparations. The armistice that had ended hostilities was based on US President Wilson’s famed ‘14 Points’, a blueprint for what Keynes described as ‘a peace of magnanimity or of fair and equal treatment.’
French Prime Minister Clemenceau, who no one could ever accuse of magnanimity, had been happy enough to sign the armistice in 1918. But at the Versailles Peace Conference the following year he was intransigence personified.
He saw Franco-German relations as permanently hostile. WW1 had just been the latest in a never-ending series of wars. Having won the latest round, he wanted to inflict maximum economic damage on Germany so as to delay as long as possible its inevitable return as a threat to France.
He got his way, via some outlandish arithmetic. A percentage of pre-war German coal and steel production was used as the basis for calculating reparations to France, while at the same time France took over a huge proportion of German coalfields and steel mills in the Rhineland (Germany lost more in Silesia), cutting off Germany’s means of paying.
Germany ended up with a reparations bill that it had no hope of paying. So in a funny way Clemenceau got what he expected. Economic chaos in Germany helped the rise of the Nazi Party and, bingo, World War Two.
Importantly, France got very little economic benefit from reparations, certainly nowhere near enough to ‘repair’ the holes in its economy.
The second tack was what might be called the default option, the one that is almost invariably taken by governments facing economic crises. They borrow their way out of it.
Effectively this means that future government revenue, perhaps for decades, will be used to pay today’s bills. There is a question here of inter-generational injustice. Future generations, who had no responsibility for past policies (and possibly received no benefit from them), end up paying for their forebears’ follies.
So, for example, the UK government in 1837 decided to pay £20 million in compensation to slave owners for their losses after the end of slavery (the slaves themselves got nothing). The government borrowed to finance this and the debt was finally cleared only in 2015.
Borrowing is how the 2007-8 financial crisis was paid for, and the bursting of the dot-com bubble, and Long-term Capital Management, and the Savings and Loan crisis, and so on and so on.
But, wary of beggaring future generations with endless interest and loan repayments, France decided also to use a third strategy. Remember the gross economic inequality that underpinned the ‘prosperous’ pre-war economy?
Did rebuilding the economy mean re-installing this inequity? While ordinary françaises et français had made enormous sacrifices to win the war, it was painfully clear that some economic players had been doing quite nicely, thank you, and were in fact rather sorry to see their lucrative share of the wartime economy disappear.
So a new tax was introduced. The very rich (some now richer) would pay a percentage of their wealth (not income, not profits, not inheritances) in hard cash to balance the blood sweat and tears the rest of the nation had paid. So successful was this strategy that by 1920, it raised around 10% of GDP.
That’s the history. How about present policy?
Is the Thai economy, like the economies of governments the world over, getting clobbered by Covid in terms increased spending and reduced income? For sure. The hardest decisions today are those that have to balance public health and economic survival.
Are the rich in Thailand getting richer as most of the economy tanks? Forbes says so. Their annual list of the richest in Thai society shows that not only has their wealth increased during the pandemic, but for many of them, it has increased at an accelerated rate.
So could part of the economic solution take the form of a wealth tax, where those with assets above a (very high) level would have to pay a percentage of their wealth to the nation?
A number of voices say so, from the predictably egalitarian Oxfam to the more orthodox wonks at the IMF.
And in Thailand? Prayut did make an attempt to involve the ultrarich in Thailand in the economic struggle the pandemic. But he asked them not for money, but for ideas. Somehow the wealth tax never came up.