Thailand: Economic Growth Achievement and Challenges

Introduction

Thailand is the second largest economy in South East Asia with the population 67.7 million people (CIA 2014). Thailand economies grew at 7 per cent or more for 25 years, in the period of 1960-1997 with no single recession. After big crash, Asian Financial Crises in 1997, Thailand successfully recovered by strong growth contributed by massive export and private consumption (Phongpaichit et.al 2012). Consequently, this growth can lead to increased income per capita of Thailand. As a result, World Bank (2011) changes the classification of Thailand as an upper-middle-income with GNI per capita US$4,210 in 2011.

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However, after progressing in many macroeconomics indicators and growing importance in Asia’s geopolitics, Thailand experienced a slowdown starting from 2008. The slowdown begins by Global Financial Crisis (GFC) in 2008 affects in the export demand. Then, big flood in 2011 makes a lot of manufacture industries halt their production. Subsequently, political uncertainty makes Thailand experienced economic sluggish down from 7 per cent and stable in medium growth rate 3-4 per cent from 2008-2011 (Phongpaichit et.al 2012). The political unrest, has a direct impact on the tourism industry of Thailand, where the number of foreign visitors went down and impacted on decreasing 2 percentage points of GDP in 2010 (Time 2010). This trend of moderate growth is lower than its ASEAN counterparts like Malaysia, Vietnam and Indonesia as emerging economy that can grow more than 5 per cent. Furthermore, Thailand competitiveness also fallen from rank 28 in 2006 and now rank 38 among 148 countries in 2013-2014 (WEF 2013). To be brief, gloom in Thailand economy potentially can be in the long run if there is no change in pro-growth policies with current political volatility.

The main culprit of recent decelerate of economic performance is Thailand political unrest. This wavering situation during 2006 to 2011 creates uncertainty, although they have long experience of political conflict during a century. This is because recent coups and power changing escalation is getting worse. According to World Competitiveness Report (WEF 2013) reveals four main problems in Thailand competitiveness is corruption, government instability/coup and policy instability and inefficient government bureaucracy.

Other fundamental cause of decreasing trend is human capital quality cannot support dynamic economic demand and subsequently slowing the growth and potential problem in the future development. After long periods Thais society has a challenge of persistent inequality of educational opportunity. Besides, in demographic aspect Thailand society now become an ageing society with the change in population proportion (UNFPA 2006), which is older society is getting higher percentage and a fall in the proportion of productive population which they will work and pay the tax to running the economic activity. Based on UNFPA (2006) prediction, The proportion of senior citizen in total population will rise to 14.0 per cent in 2015, 19.8 per cent in 2025 and approximately 30 per cent by 2050.

One most significant aspect that affects the Gross Domestic Product (GDP) declining is because Thailand economy is highly impacted by external shock in large economies such as U.S and European Union. Thailand dependency on export demand from those countries make Thailand economy vulnerable in global shock. Now the government needs new ideas and vigorous innovation capacity to create broader market given the current dynamic global market competition.

Key issue: Political uncertainty, inequality of income and education and new capacity for global competition.

Options to accelerate growth

Thailand current strategy with the philosophy of economy “Philosophy of Sufficiency Economy” is trying to establish the growth in modest rate (OECD 2013). With that philosophy and considering recent evidence of economic slowdown and political turmoil, Thailand policy-makers have to put some change in their initial policies and institutions towards getting “sufficient” and sustained growth.

A lot of options (but inconclusive) of strategy are provided by consensus like Washington Consensus (cite), Beijing Consensus and Commission on Growth and Development (Commission). Some of the Commission recipes are suitable to Thailand’s situation. Commission (2008) encourages countries to focus on export promotion and industrial policy, ensuring equity and equality of opportunity and redistribution of government (to keep accountability), enhance regional development by encouraging unity not uniformity and leads to labour mobility. Next, countries should fight corruption through competition, feedback and evaluation. Additionally, economist that well known with his middle income trap phenomenon, Kharas and Kohli (2011), suggest that in the middle income countries (including Thailand) to elevate from their level by doing some steps. First, change from diversification to specialization in production. Second, transform from physical accumulation of factors to productivity-led growth. Third, from centralized to decentralized economic management.

The Priority: Reform in increasing the equity and the quality of education

In the case of Thailand, the reform to reducing inequality of access of good education is the most important reform that Royal Thailand Government should implement. This reform is important because three reasons. First, to create equality and improve the quality of education is in line with the Thailand’s vision. Seconds, reducing the gap and disparities are critical to reduce the political instability and break the binding constraint. Third, reform in education equality is a tool for laddering middle-income economy to higher income economy in industrial development towards export.

Reform in education equity policy is in line with the vision of Thailand as “A happy society with equity, fairness and resilience” as narrated in the Thailand’s eleventh Medium Term Plan. Since is well planned by the government, there is no problem in the budget. Education budget is nearly USD 14.7 billion in 2012 that constituted 4 per cent of its GDP in 2011. This number is greater than high income countries in ASEAN like Singapore’s that only 3.2 per cent of its GDP. With such huge figure Thailand doing good performance in school enrolment of every level. Surprisingly, the tertiary education rate is the highest in ASEAN (OECD 2013). However, these decent gross enrolment rate only enjoyed by the youth live in capital, Bangkok. Students who are living in remote and poor region cannot access education facility because the cost of transportation and other non-tuition cost. Thus, the gap between the grades of students from rural and urban areas is far too wide. Another issue is inequality between private and public schools make no incentive for the private sector to provide services in education. OECD estimation shows that cost of schooling in private school is two and half of public sector (OECD, 2013).

In creating political stability narrowing the gap between rich and poor in access for education and health are prerequisites. In Thailand context, OECD (2013) reports that the north-eastern region is the area with highest poverty incidence while the central region and Bangkok are the lowest, two poles of political power this day that keep escalating the unrest. This binding constraint among inequality-political unrest-economic slowdown should be broken. Rodrik (1998) finds in his research in how multiple countries suffer severe after 1975 had divided societies and weak conflict-management institutions.

Reform in more advance education is required for diversify new domestic demand and new export demands. Advance education also important engines for middle income countries to transform their economy toward service sectors. Based on recent sources of Thailand’s export data shows that real contribution of goods export is 57 per cent compare to service 12 per cent (World Bank 2011) with machinery/electrical, rubber, and transportation as leading commodities (OECD 2013). With those leading commodities Thailand need to diversify into other commodities to get new market. Eichengreen et.al (2013) find that country with high level of participation in secondary and tertiary education has less likely face slowdowns. Similarly, countries with high-technology products have a relative bigger contribution in exports is less vulnerable trapped in economic slow-moving. Study from OECD (2013) reveals that the education index have positive influence in variables that promoting growth like: total factor productivity, high-technology exports and competitive industrial performance (CIP).

How to realizing this education equalization reform? At first, Royal Thailand government should manage education accountability. Accountability is a key in for the first step in the mission in narrowing education gap. Thailand requires improving and sustaining an effective education system that can be monitored and evaluated. Tangkitvanich (2013) an expert at the Thailand Development Research Institute (TDRI), asserts there is an inefficiency of education budget into highly spend teacher salaries post that is not translated into improvement in teacher’s performance. This lost can be consequences in equality of opportunity into society.

The next stage is directing education in the more skill-mismatch, coherence with agricultural and Industrial Policy. Bhaopichitr (in Parpart 2013), senior economist at the World Bank, argues that Thailand have two problems in education system. First, now Thailand faces shortage of highly skilled workers. Second, the problems in allocation when high skilled labour put in the wrong position.

In the Thailand current circumstances, it may be tempting to focus the policy into short-run return. However to maintain focus policy to enhance growth in is better pay-off when calculating long-run political stability and strong human capital as a foundation of growth. Policies that Thais government can do is to encourage upward mobility from the bottom society, i.e poor, in northern and southern regions, invest in regional education development to make sure every citizen get the good quality of education. These reforms should be attached with is coupled reforms in school governance and incentives to promote accountability. This step more likely includes with better social safety net programs. Royal Thailand government need to make sure their investment in education equity is a sound policy reform that transforms the expectations and aspirations of every citizen in Thailand.

References

CIA 2014, The world factbook, Viewed: 17 August 2014. <https://www.cia.gov/library/publications/the-world-factbook/geos/th.html>.

Eichengreen, B, Park, D, and Shin, K 2013, Growth slowdowns redux: new evidence on the middle-income trap, NBER Working Paper No. 18673.

Kharas, H and Kohli, H 2011, What is the middle income trap, why do countries fall into it, and how can it be avoided, Global Journal of Emerging Market Economies 2011 3: 281, Viewed: 16 August 2014, <http://eme.sagepub.com/content/3/3/281>.

OECD 2013, Structural policy country notes, Viewed: 16 August 2014, <http://www.oecd.org/dev/asia-pacific/Thailand.pdf>.

Parpart, E 2013,’Economists share views on Thailand’s biggest problems’, Viewed: 16 August 2014, <http://www.nationmultimedia.com/business/Economists-share-views-on-Thailands-biggest-proble-30220283.html>.

Phongpaichit et.al 2012, Looked in the middle income trap: Thailand’s economy between resilience and future challenges, Friederich Ebert Stiftung.

Rodrik, D 1998, Where did all the growth go? External shocks, social conflict, and growth collapses, Viewed: 15 August 2014. <http://www.hks.harvard.edu/m-rcbg/ research/d.rodrik_jeg_where.did.all.the.growth.go.pdf>.

Tangkitvanich, S 2013, ‘Teach Thais to think’, Viewed: 15 August 2014. <http://www.eastasiaforum.org/2013/09/17/teach-thais-to-think/>.

The Commission on Growth and Development 2008, The growth report: Strategies for sustained growth and inclusive development, Washington D.C, World Bank Publications.

Time 2010, ‘Thailand tourism devastated by political unrest’, Viewed: 17 August 2014, <http://content.time.com/time/world/article/0,8599,1982555,00.html>

UNFPA 2006, Population ageing in Thailand: Prognosis and policy response,Viewed: 17 August 2014. <http://thailand.unfpa.org/documents/thai_ageing_englishversion.pdf>.

WEF 2013, Global competitiveness report, Viewed: 17 August 2014, < http://www3.weforum.org/docs/ WEF_GlobalCompetitivenessReport_2013-14.pdf>.

World Bank 2011, Thailand economic monitor, Bangkok, World Bank.

World Bank 2011, ‘Thailand now an upper middle income economy’, Viewed: 15 August 2014. <http://www.worldbank.org/en/news/press-release/2011/08/02/thailand-now-upper-middle-income-economy >.