The bedrock of true capitalist systems is a form of fairness— sometimes referred to as Strong Property Rights by economists.
If a person invests his money in something such as a house or shares in a business, no one, including the government is allowed to take that investment away from him — either with a gun, a confiscatory tax, or a regulation that so restricts its use that it becomes essentially worthless.
If a person risks his money and time starting a business and is skillful and fortunate enough to create a profit generating enterprise, no one, including the government is allowed to take that business away from him or threaten regulation that would force the person to give the business to another person.
This bedrock fairness principle extends to the even application of laws and regulation. A tax, rule, or regulation that is imposed on one must be imposed on everyone. The government cannot confer competitive advantage to one business by selective enforcement of taxes or rules against one business and leave another untouched.
All business are allowed to compete on a level playing field and let the best man or, in this case the most efficient and innovative business, win.
Countries like Thailand are not truly capitalist societies. They exercise a bastardized form of capitalism sometimes referred to as Crony Capitalism.
Under Crony Capitalism, a sub-group of people write the rules (laws and regulations) and selectively enforce them. Laws and regulations are written not to create a level playing field but are written for the exact opposite reason-to tilt the playing field to favor one group over another.
Crony Capitalism creates a game that appears fair at first glance but, in fact, has rules and practices that make it impossible for outsiders to win.
Case in point – the luxury car market in Thailand.
Thailand imposes a steep tariff on luxury cars. This is a Mercedes S- Class sedan that costs about $94,500 USD or 2,835,000THB at current exchange rates. The same car in Thailand costs $397,000 USD or 11,500,00 THB in Thailand. A truly breathtaking difference.
At first glance, the tariff makes no financial sense. At that price, the people willing to pay the legal fully tariffed price number no more than a few hundred and the actual number who would actually purchase the car number no more than a few dozen. From a financial point of view, the Thai government would raise far more money with a waaaaaay lower tariff and greater volume.
If you’ve wrapped your head around the idea of Crony Capitalism the ridiculous tariff makes perfect sense because the tariff is not meant to raise money for the government or even make a moral statement about the inappropriateness of a small elite having enormous wealth in a country where the common man lives in poverty.
The tariff is simply Crony Capitalism at work — a case study of how the powerful and connected get rich and stay rich without the necessity of taking risks, without finding ways to produce more efficiently, and without creating innovative new products that are required in true capitalist economies for companies to remain profitable.
The tariff creates a game, the luxury car market, where the rules are tilted to favor an elite that writes the rules and selectively enforces them and excludes better financed, better educated, and more entrepreneurial foreigners, even the companies that actually produce the cars, from competing them out of existence.
In the Thai luxury car market, those with connections and influence have an unassailable advantage over those without connections and influence and the market is intentionally structured to put money into the pockets of that elite group with greater reliability, less work, and less risk than investing in a business where constant efficiency, hard work, and innovation are required to succeed.
The nuts and bolts of being a luxury car dealer in Thailand is exploiting the artificially created spread between the cost of cars and the fully tariffed Thai price — $302,500 USD for a Mercedes S-Class sedan.
The nuts and bolts of being a successful luxury car dealer in Thailand is playing a game where the rules convey you the unassailable competitive advantage of not having to follow the rules.
If your family is powerful and connected, they can get cars through customs without paying the tariff and can get the car legally registered without proper documentation.
If this requires $50,000 USD of payoffs per car, that’s fine because the enormity of the tariff leaves you with a $252,500 USD margin with which to operate.
If your family is powerful and connected, you can easily undercut dealers who follow the “rules”, pay all taxes and obey all regulations.
Buy or steal a Mercedes S-Class in a left hand drive market, such as England or Australia, import it to Thailand, avoid tariffs, get the car a legitimate green book, flip it in a couple of months and earn a guaranteed $100,000+ USD profit on your $100,000 USD investment – nice work if you can get it.
The current luxury car market in Thailand is flooded with Mercedes E-Class sedans that were rushed into the country right after the reigns of power changed in the last election. Drive down Thonglo, Ekkamai, Petchaburi, or Rachada and when you pass a luxury car dealer look at the cars on display– E-Classes abound and now you know the reason.
With government control changing hands, long standing connections expired. Before they expired, many cars were brought in under the wire – before those controlling the reigns of power and the luxury car franchise were passed to a different sub-group of the Thai elite.
Ever wonder why Thai car registrations are not computerized –why an ordinary policeman or government official effectively has no way of quickly checking the registration status of a vehicle? Think about it and the “backwardness” of Thailand is easily understood.
So what does this mean to normal everyday unconnected Joe Blows like us – farang who might like to buy a luxury car in Thailand.
Don’t do it.
Don’t play a game you can’t win — one where the rules are tilted so you end up inevitably loser.
If you buy a luxury car from a legitimate dealer, you’ll pay the fully tariffed price which is tens of thousands of dollars above the market price.
Buy a car from from one of the many private dealers and you’ll most likely be buying a car that was not properly imported to Thailand and where the full tariff was never properly paid and it’s possible that you’ll buy a car that was stolen in another country and legitimized in Thailand.
Buy a car from a private dealer and someday in the future you may get pulled over by a traffic policeman who “discovers” your cars’ pedigree or a connected Thai will decide he wants your car and, next thing you know, your expensive luxury car will be “legally” taken from you because you “broke the rules”.
Don’t play a game you can’t win.