What is holding Thailand back from becoming a high-income country?
<p>A variety of factors appear to be holding Thailand back from rising to the next level of economic development. The country’s long dependence on natural resources and cheap labour means that growth is negatively impacted when resources diminish or when labour becomes more expensive. The country’s lack of skilled labour, particularly in the information technology sector, means that it is unable to climb the value chain to produce and export more technologically advanced products like electronics and automobiles. Instead, the country merely assembles consumer products designed in other countries. In addition, existing government training programmes are not used by the labour market, suggesting that these programmes are out of touch with economic realities. Perhaps more fundamentally, the Thai education system has contributed to the lack of productivity because of its inability to deliver skilled labour to the market, particularly to the information technology sector. Meanwhile, R&D investment is substantially lower than in Asian countries. The number of researchers and technicians in Thailand is much lower than in South Korea and Singapore, for example. </p>
Public and private investments have also contracted markedly. Thai firms have demonstrated poor innovation, while foreign investments in the higher-value sector have been low. The consequences of these realities are seen in the decline in short-run income, which reduces capital accumulation and raises the possibility of excessive foreign debt in the long run. There are also few sound macroeconomic policies in place, as a series of coups have disrupted to government policies in recent years. The country’s macroeconomic policy, its fiscal policy in particular, has not encouraged long-term growth. Instead, populist policies enacted to stimulate short-term consumption have led to fiscal deficits.
Countries such as Japan, Singapore, Taiwan, Hong Kong and South Korea have shown that innovation and high-value productivity are needed if one is to escape the middle-income trap. The Thai manufacturing sector, however, has failed to transfer foreign technology to local firms, and to encourage local innovation. By importing practical technical knowledge, local firms could contribute to the local knowledge base. This would encourage imitation and innovation, which play an important role in promoting technological progress.
However, the Thai economy continues to prefer assembling technology to imitating technology. Thai firms have been manufacturing products designed by other countries for more than two decades as Original Equipment Manufacturers (OEM) and should now endeavour to become Original Design Manufacturers (ODM). The Thai government needs to collaborate with leading local universities or the private sector to imitate, for example, the technology needed for these electric vehicle control devices. It could do this by funding Thai players and seeking technical assistance by hiring Chinese researchers, technicians and scientists. After gaining an understanding of how the electric vehicle control units work, the government could proceed to invest in R&D to spur innovation in that field. More importantly, the Thai government needs also to enact policies or initiate training programmes to ensure that technology is transferred to local firms. Additionally, the government should provide incentives such as tax benefits for firms to invest in R&D.
Human capital accumulation is also important for escaping the middle-income trap. One possible solution is to employ larger numbers of foreign scientists and researchers for technical assistance and R&D. Local researchers and students would then be able to learn from them. This can be encouraged in leading universities or in the private sector. The Thai government should make it mandatory for universities to update their curricula regularly.
We also have the issue of endemic corruption. A study conducted by Transparency International in 2015 found Thailand a highly corrupted country. The National Anti-Corruption Commission recently discovered former permanent secretaries and politicians to be unusually wealthy, and the courts subsequently ordered the seizure of massive assets. Although Thailand has the necessary legal framework to combat corruption, it has not managed to resolve the issue. Corruption in Thailand is difficult to control for many reasons. The wage level of civil servants is crucial in determining the level of corruption. Low wages make corrupt behaviour much more likely. Furthermore, the presence of time-consuming bureaucratic procedures and the red tape involved for various procedures provide good opportunities for illegal solutions, as do complicated government procurement procedures.
Furthermore, political stability is immensely important for Thailand. It would help ensure the formulation and implementation of effective government economic strategies. Political stability and economic development are obviously related. While economic slowdown could result in political turmoil and instability, an unstable political climate could lower investment and hinder economic growth. Thailand has so far confronted uncertainties associated with the unstable political environment. In recent years, political instability in Thailand has been exacerbated by power-sharing amongst several political parties and by military coups. Ministerial cabinets formed by coalitions of several political parties have led to a significantly low level of stability. From time to time, the Thai Prime Minister has had no choice but to dissolve the parliament due to quarrels among political parties. The recurrence of military coups reflects a very high degree of political instability.
Nipit Wongpunya, Assistant Professor, Faculty of Economics, Chulalongkorn University, Thailand (nipit.w@chula.ac.th). Visiting Fellow in the Thailand Studies Programme of the ISEAS-Yusof Ishak Institute from 16 May 2016-14 August 2016.