If you want to understand contemporary Thai politics, there is a lot to be gained from the latest announcement by the World Bank.
BANGKOK, July 2011–The World Bank has upgraded Thailand’s income categorization from a lower-middle income economy to an upper-middle income economy this year.
The World Bank annually revises its classification of the world’s economies based on gross national income (GNI) per capita estimates using the Atlas method. As of July 1, 2011, upper-middle-income economies are those with average incomes of US$3,976 to US$12,275. Using the Atlas method, Thailand’s GNI per capita is currently at US$4,210.
World Bank Senior Economist Kirida Bhaopichitr says: “The upgrade is in recognition of Thailand’s economic achievements in the past decade in which GNI per capita has almost doubled, while poverty has been significantly reduced. The country has been prudent in macroeconomic management with a strong fiscal stance and low public debts and inflation. Thailand has a friendly business environment and has been successful in attracting foreign direct investments and achieving greater diversification in manufacturing production, both in terms of higher value-added production and expansion into new emerging export markets.
“These achievements were reflected in the resiliency of the Thai economy to the recent global financial crisis, which now place Thailand in a position of opportunity to pursue stronger ties to both ASEAN and the world,” says Bhaopichitr, “For Thailand to sustain its growth and avoid the middle income trap, it needs to pay attention to raising the productivity of not only the manufacturing, but also the agriculture and services sectors. Higher levels of education and skills as well as creativity, innovation, and competition will be necessary. These would not only promote higher growth but also inclusive growth which will help reduce the persistent high income inequality in Thailand”.
On the “middle income trap” and how to overcome it, including a change of the political system, see the director of Sasin’s Institute for Global Affairs, Suvit Maesince, in the BP of today at
http://www.bangkokpost.com/business/economics/251854/time-for-a-real-reform-agenda
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GDP growth isn’t the way forward.
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Charles. What about poverty reduction?
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“GDP growth isn’t the way forward.” Certainly not if it is caused by inflation and credit growth, however if via increased productivity & manufacturing that pays reasonable wages then that is another story. Economies need to diversify, all Thais shouldn’t be impoverished rice farmers or prostitutes, nor westerners grossly overweight in service industries.
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Srithanonchai,
Thanks. Loved this:
“I don’t think the fact that Pheu Thai won decisively at the polls means much. Ultimately, Thailand might need to consider whether the system of one man, one vote is best for us or not.
I think that in the future, we will see more class warfare. It is the middle class that pays taxes, but it is the lower class that benefits from populist policies.”
At least someone is still taking Sonthi Lim seriously.
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c5
Leah – thanks for posting that (if you hadn’t, I would have*). It certainly leaps out from an otherwise worthy/laudable (if also familiar) set of recommendations.
* I hadn’t thought of the Sondhi L stinger – but also wish I had.
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The article by Suvit Maesince was quite interesting. At least it indicated that most problems are interlinked. One simple way out of the dilemma that the middle income groups have to finance populist policies would be to implement tax laws and/or increase the taxes for the rich! A way to improve the economic basics would be to shift investment into unproductive sectors like real estate and other speculations into productive sectors like industries and manufacturing. One way might be state support combined with taxing profits from speculation. Korea and Taiwan followed this way.
A lot of economic development in Thailand (as well as Malaysia and Singapore) was not due to improved productivity, as f.e. Krugmann indicated (Not tigers but fat cats). Thus, productivity improvement would be crucial. For this education and sciences are relevant as well as investment in R and D by the private sector. Unfortunately these do not provide rapid and high profits! Furthermore, they require business and intellectual skills as well as resources. Do those who make decisions (which are not necessarily the politicians) have such skills?
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Productivity improvement in Thailand is stifled by a patronage system lead by monopolistic family centered businesses, coupled with an education system that denies its students creative and critical thinking which are integral to innovation and future expansion.
The ten percent of the population who control the economy have no foresight as they only are interested in short term profits so as to retain their foothold wherever they are operating their cliques.
What hope is there for Thailand when the new PM comes from one of these kind of families.
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Leah:
This is not only about Sonthi Lim. Suvit is by no means a follower of him in the simple sense. Rather, his statement reflects an important stream of thought in the establishment (aphichon, ammat). They “are desperately seeking an alternative to the current brand of politics” (Suthichai Yoon expressing his feelings in The Nation of August 11). They see the Democrats’ failure as “betrayal” (Suthichai) of their hopes, because they don’t quite know how they can achieve their goals against the voting power of the “rural hordes” (Bangkok Post). Since the PAD/Sonthi are too obscure, moralistic and extreme to them, the Democrats had been their main practical hope for initiating political change.
For quite a different perspective on the “middle-income gap,” see the following quote.
“One part of immunization is to protect the communities from the capitalist system entering and destroying them. The capitalist democracy turns out to be dangerous for the villagers, which we can see from villagers being dependent on fertilizer, pesticides, and credit from both inside and outside the system. Those villagers that could escape from these dangers have invariably returned to natural agriculture, and reduced their involvement with the market. They look for ways to grow plants and raise livestock for their living. The sufficiency economy rejects the capitalist system. The creation of strong communities does not start with democratic community structures. Rather, they start with joining simple activities and relying on themselves. …, relying on the market as little as possible. Creating and supporting sufficiency democracy means to emancipate the people so that they are free from the patronage of a political system that uses populist policies as a tool. At the community level, sufficiency democracy can occur.”
Chai-anand Samudavanija. 2011. “Prachathipattai baep phophiang (2)” [Sufficiency democracy]. ASTV Phuchatkan, August 8, 2011:12
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Dear Srithanonchai,
thanks for the citation! I agree with your comment that establishment(s) are searching for new form of politics. At least some are aware that they cannot follow the old post-colonial pattern. The citation of Chai-Anan indicates for me the strength of a “neo-romantic” stream that has spread from the NGO (the answer is in the villages etc. and culture and community approaches) to royalty and Chai-Anan, while it has lost its apeal to Sulak and others who invented in the first place. Thai neo-romantisism is as much as former european romatisism an escape from reality. The village and sufficiency economy as well as suffiency politics as Thai-Hyper-Reality?
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Re: Srithanonchai #9 and HRK #10
I have been to a real village based on the sufficiency economy model, and let me tell you, I wouldn’t want to live there. They have basic, one room concrete houses with a single electrical line and double wall socket into each home, and bicycles and low priced 100 cc motorbikes for getting around. Yes, they spend a lot of time gardening in a mostly pleasant rural environment, and there is the typical government school for the children, but I left really wondering if most folks could be satisfied with this bucolic, humdrum existence. Especially when nowadays the typical factory worker in Rayong has more material wealth and can at least enjoy an occasional Saturday night out for beers, karaoke, and a 149 baht barbecue buffet special with his/her friends and kids.
It also crossed my mind of the hypocrisy of the model, when you consider that the Crown Property Bureau has amassed untold wealth, and the Crown Prince has not one but two 737s at his personal disposal, provided at taxpayers’ expense.
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Regarding the article in post #1.
“First, we are in the “middle income trap”. Korea, Taiwan and Singapore once were in a similar position…”
By this definition, are there any country that has not been in the “middle income trap”? In any case, how can you go from a GDP of $1,000 to $12,000 per capita (World Banks’s definition of middle income countries) without being stuck there for a while.
“Malaysia, once ranked in the mid-30s, similar to Thailand, now ranks 10th in competitiveness. Indonesia, once in the 50s, is now ranked in the 30s.”
In 2010-2011, Malaysia was ranked at 26, Thailand at 38 and Indonesia at 44.
http://www.weforum.org/issues/global-competitiveness
“Also consider that Thailand’s share of global trade has moved from 1% in 2004 to 1.1% in 2009. Over the same period, China moved from 0.1% to 10%.”
I assume China’s numbers is a typo. Thailand’s current export per capita is almost $3,000 annually. China’s is $1,100. I don’t think Thailand is doing too badly compared to China.
http://en.wikipedia.org/wiki/List_of_countries_by_exports
“With populist policies, we are using future money today to what end? One day, we may be in a similar position to Greece, where people don’t want to work.”
Thailand’s debt to GDP ratio is down from 60% to 40% in the last 10 years. Its foreign reserve stands at $200 billion. That doesn’t sound like Greece to me.
“Even now, we see our young people not wanting to work because they know the state will support them. It’s become ingrained.”
Thailand is a welfare state where people can live comfortably on unemployment benefits?
“It is the middle class that pays taxes, but it is the lower class that benefits from populist policies. Resentment about the perceived injustice will build…”
Right, but the high standard of living the middle class in Bangkok enjoy is to a large degree due to the services they buy cheaply from rural people.
Imagine if 1 million rural Australians came to work in Sydney for $100 a week. Sydney natives would suddenly be able afford to eat out daily, hire services to cook, babysit, clean, mow the lawn, etc…
A great bargain for the middle class in Sydney you would think. But wait, the middle class is paying most of the tax, and the rurals almost none. Such injustice! On top of that rurals are demanding higher minimum wages and increased investments in their areas. The government may cave in. How populist!
The one-man-one vote may not work anymore. The lower class from rural areas need to be be kept away from power. And they need to be taught sufficiency economy so they understand the benefits of living at subsistence level.
Bangkok Pundit also offer some comments on the article here:
http://asiancorrespondent.com/62619/time-for-reform-in-thailand-by-getting-rid-of-one-man-one-vote/
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From the TLC email list:
http://blogs.cfr.org/asia/2011/08/16/thailand%E2%80%99s-economy-survives-it-all/
Thailand?s Economy Survives it All
Posted on Tuesday, August 16, 2011
by Joshua Kurlantzick
A notable new entry on New Mandala points to the latest World Bank report on Thailand. In this announcement, the Bank upgrades Thailand?s economy from lower middle income to upper middle income, which is defined by average incomes of $3976 to $12275.
The fact that Thailand?s economy has grown strongly for nearly a decade and poverty has been reduced, as New Mandala notes, clearly helps to account for the growing political awareness of the rural population, which has resulted in continued support for the various populist, pro-Thaksin parties. But it is also simply amazing that, despite the political meltdown of the past five years, and the bloody standoff in Bangkok last spring, Thailand has maintained its economic momentum. In fact, despite last year?s violence, Thailand?s economy grew by over seven percent in 2010.
This resiliency is testament to the country?s ongoing strengths, even in the face of political chaos: A business-friendly tax regime, hospitality and services beloved by foreigners, a low-wage platform for manufacturing, and generally pro-investment governments. Thailand, in other words, has a reputation (based in some reality) that helps it glide through even the worst of its political problems.
However that reputation has also allowed successive Thai governments to avoid hard economic decisions, most notably about how to upgrade the country?s workforce. Thailand?s educational system is horrific, and this lack of quality education is preventing the country?s economy from rising up the value-added ladder. Eventually, it will have to do so, as even low wages and a business-friendly environment will not be enough of a competitive edge. Yet neither Thaksin nor successive Democrat governments took serious steps to address Thailand?s skill deficit. New Prime Minister Yingluck Shinawatra also does not seem to understand the depth of Thailand?s educational deficit, and how this deficit ? even more than its political strife ? could put an end to Thailand?s long run of economic good luck. Yingluck has appointed Worawat Ua-apinyakul as education minister in her new cabinet, an MP who has neither the credentials nor the national respect to lead a meaningful overhaul of Thailand?s education system or of the ministry itself.
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Dear HRK #10
We do not only have to rely on people such as Chai-anan for neo-romamticism. The Master himself, Sonthi L, declared that Thailand must ““determine a path towards agriculture, not industry. Thailand cannot do this.”
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Just to make it clear. A country where the majority of the labor force work in agriculture, is a country where the majority of the population live in poverty. There is no exception and no way around it, unless it exports enormous amount of food. Despite Thailand’s large agricultural sector, it still only contributes to 10% of its GDP.
In any developed country, less than 5% works in agriculture. In Thailand it is currently around 40%, down from more than 60% in the 90′s. Unless economic development is reversed, it will continue down toward 20% in the next 10 – 15 years.
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In Thailand about 40% of the labour force is estimated to work in agriculture, which accounts for about 11% of GPD. A lot of recent Thai politics can be understood in terms of that striking pair of statistics. AW
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Does this mean that HIV drugs will cost more?
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Its interesting that the world bank report claims Thailand is business friendly. I guess that is in the context of Myanmar, Vietnam, China and Cambodia, in this region yes Thailand has some advantages, but at the end of the day, you can not really invest in Thailand and control a business unless you have a export oriented factory , OR you give majority to local “investment” community, and indulge in the nominee shareholder game (US excluded).
The driver of economic growth has not been those local protected commercial elite, but in the massive foreign investment in factories on the eastern seaboard, central provinces surrounding Bangkok. And this has been where the Thai low income classes have found good paying jobs, where process worker, becomes a supervisor, becomes assitant manager, becomes manager, then director, and that is how a middle class has expanded. Its also where the Greek and US jobs have gone.
Yet a good portion of the privileged elite look down on this growing class as unskilled and or uneducated. Or begrudge rising incomes, even though they will spend all of it in Thailand.
Think of the opportunities if the Thai givernment freed up the services sector, Bangkok would become the regional hub for all sorts of service industries. But then the local protected elite would lose out, while salaries and opportunities for working Thai increased.
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