Covid-19 has undoubtedly been the main culprit for destroying lives and livelihoods around the world in the past year. One would also be hard pressed to find anyone that benefited more from the situation than Prayut Chan-ocha’s government.
Consecutive years of economic slowdown, illustrated by the second lowest GDP growth rate in ASEAN (ranking behind only Singapore), were suddenly swept under the carpet. With the world’s economy in tatters, Thai government’s gross mismanagement suddenly did not look out of place but par for the course.
Prior to the events of Covid-19, there was absolutely nothing Somkid Jatusripitak loved to talk about more than “middle-income trap”. This supposed economic genius would go at lengths to point out that Thailand’s economic slowdown is due to the country’s faltering competitiveness due to rising labor costs and unreadiness to compete in higher value industries. He wasn’t wrong, but he also never did anything to address the issue. Ridiculous policies such as Thailand 4.0, Startup Thailand, EEC, Digital Economy and other catchphrase policies were exactly just that, catchphrases. Economic policies under the 5-Year rule of NCPO’s coup-government resulted in nothing, no material effect on the employment market, cost competitiveness or higher value creation.
So when Covid-19 came along in December 2019, the middle-income trap was conveniently substituted for this global pandemic as the malefactor of poor economic performance. However, these half-truths cannot paper over the cracks forever. The truth is, while the middle-income trap and Covid-19 did significantly contribute to the economic underachievement, the real culprit is the government’s polices.
In the past five decades, Thailand’s economic development can be largely classified into three different stages: Infrastructure Setup, Export Orientation and Consumer Credit Expansion. As previously written on Thai Enquirer, American’s Cold War interest in Indochina during the 1950’s to 1970’s has provided Thailand with significant economic benefits. Infrastructure investments in projects such as Utapao Airport, Sattahip Deep Sea Port and Mittraphap Road resulted in the sudden transformation of Thailand’s industrial readiness and embracement of capitalism. It also kicked-off Thailand’s tourism, hospitality and sex industry to accommodate American GIs fighting in the Vietnam War, especially in Pattaya.
After the Vietnam War, Thailand’s economy started to transition to an export oriented model. The transition was primarily driven by three key factors: superior infrastructure that was setup during the Vietnam War, soaring Japanese Yen as a result of President Nixon’s policy to suspend convertibility of the United States dollar to gold, and cheap labor. Given the global economic condition at the time, it became economically advantageous – especially for Japanese companies – to set up production bases in Thailand. Government’s policies like Eastern Seaboard Development Program from 1982-1986 under General Prem Tinsulanonda’s premiership were specifically designed to capture the economic benefits of this global trend and strengthen Thailand’s economic transition towards an export oriented model. These combinations of factors were so advantageous that the country would go on to see an uninterrupted period of growth for almost three decades from the 1970’s to late 1990’s. Thailand’s dream of joining the ranks of developed countries and becoming the Fifth Asian Tiger Economic Miracle seemed very real.
However, the dream came crashing down in the wake of the 1997 Asian Economic Crisis. Thailand’s three decades of uninterrupted prosperity led to optimism bias and manifested itself in speculative investments in real estate and financial markets. The magnitude of the crisis was only further exacerbated by the increased usage of leverage, especially foreign currency denominated loans, in short term speculative investments. The overnight devaluation of the Baht not only sent a ripple effect throughout Asia, but almost entirely killed Thailand’s financial and real estate industry. However, the rapid depreciation of the Baht in turn helped the export and tourism industry to become more competitive from a pricing standpoint. While the crisis was undoubtedly catastrophic, Thailand was able to make a rapid recovery from the hiring boom in exports and the tourism sectors.
Thailand would go on to register an impressive GDP growth of 4.5% in 1999, a staggering turnaround from -7.6% a year prior, and payback all of the IMF’s $13 billion rescue package / loan in 2003 – two years ahead of schedule. Nonetheless, although the country did seem to have made full economic recovery, the export oriented economic model that served the country so well for three decades is slowly becoming obsolete in the post 2000s economic environment.
Infrastructures in other emerging countries of the time like China, Vietnam and other countries in South and Southeast Asia have been constantly improving. While Thailand’s standard of living significantly improved in three decades, so did the cost of labor. The country has no other choice but to move into highly-skilled manufacturing sectors in order to preserve its economic standing, which is a valid strategy. However, it is clear that the glory days of export oriented economic model are over.
The Premiership of Thaksin Shinawatra came with a new economic strategy: consumer credit expansion. While Thaksin’s government may not have been the first to recognize the slow down of export oriented economy, they were the first to act on it. Like in any advanced economy, the next candidate to propel Thailand’s economic growth in the post 2000’ era is the strengthening and growth of domestic consumption. As a result, many innovative policies such as Village Fund Microfinance Loan Programs, Low Interest Rate Agricultural Loans and One Tambon One Product were specifically designed to promote creation of domestic supply and to stimulate domestic consumption.
Consumer credit expansion, however, cannot be implemented in isolation. Granting people access to low interest loans is of no value if they do not have the means to service their debts. Credit expansion policies must be done in conjunction with policies to increase employment, wages and salaries. To put it simply, people who earn more can borrow more and will consume more. However, this is not the case of simply raising the minimum wage. Rather, wage and salary increase should be based on economic merit based on market demand, which leads to the topic of industry liberalization.
It should be obvious that economic competition leads to higher levels of employment and wages. After all, there should be more people employed in an industry that has two companies than if there were only one company. Additionally, it should not be difficult to imagine that companies operating in the same industry would have to outbid each other in wages and benefits for the best talent. Therefore, promoting economic competition is a pivotal part to stimulate domestic consumption. The path to promote economic competition is industry liberalization, which unfortunately is against the interest of capitalist oligarchs, state monopolies and political actors operating behind them.
While Thaksin’s government was successful in liberalising some of the industries, such as the airline industry (much to the dismay of Thai Airways), there were also many significant pushbacks, especially in the effort to privatize state enterprises. The case involving the Electricity Generating Authority of Thailand (EGAT) is a clear example of the economic establishment refusing to embrace free market competition and to give up on its monopolistic position. Additionally, attempts to boost Thailand’s international competitiveness through bilateral FTA agreements were met with staunch opposition, especially those of U.S.-Thai Free Trade Agreement, usually claiming that such agreements would subject Thailand to “unjust” competition due to technological inferiority.
After Thaksin’s government was overthrown in the 2006 military coup, the pace of liberalization has significantly slowed down. A decade and half later, most – if not all – of Thailand’s major industries are under a monopolistic or oligopolistic setup, whether it’s energy, alcohol, medical, telecommunications, banking, retail or agriculture. Instead of embracing competition, Thailand embraced cronyistic capitalism. There is no better indicator of this than the fact that there has not been a single case that prosecuted any offenders of monopolistic behavior since the inception of Thailand’s antitrust law in 1999.
Instead of recognizing the need for liberalization to boost economic competitiveness, Prayut’s government reverted to the pre-2000 economic policies of infrastructure investments and export-oriented policy. While investments in rail systems such as high-speed train systems and extension of BTS / MRT train systems are badly needed, job creation has largely been restricted to the construction projects that are directly related to the rail systems. In fact, since the current plan for the high-speed rail system is so limited when compared to Chatchart’s Thailand Vision 2020, the potential of job creation in rail system construction is not even fully realized.
The poster child project of Eastern Economic Corridor (EEC) is nothing more than an extension of Eastern Seaboard Development Program in the 1980’s. The problem is the policy is not working. Japanese factories continue to close down production plants and opt to relocate to cheaper countries, mainly Vietnam. What the government fails to recognize is that the creation of new industrial parks is unlikely to be as fruitful as before since cheap labor can be found in abundance in other countries.
The lack of understanding of digitization’s benefits is also staggering. While other countries are using digitization policies to enhance economic competitiveness, Thailand is using it as a sound bite policy by people that can barely install applications on their smartphones.
The failure to recognize policy inefficiency is this government’s cardinal sin. Its resources misappropriation is costing the country in a very tangible way. The inability to create and preserve jobs in this challenging environment of global pandemic has resulted in the government needing to implement “helicopter money policy”.
Policies such as Chim Shop Chai (Eat-Shop-Spend), Rao Tiew Duay Gun (We Travel Together), Shop Dee Mee Kuen (Shop and Payback) and Prayut’s proudly presented Khon La Krueng (Let’s Go Halves) are desperate policies to boost consumer’s spending power at the expense of rising public debt. The government is paying people to go out and spend. As the economy continues to slow down, more people will continue to lose their jobs, tax revenue will continue to fall and the government will have to borrow more for people to go out and spend. This cycle will do nothing more than to preserve the economy’s short-term liquidity, while subjecting the country to an ever rising level of public debt that could bankrupt a nation.
The only way out of this economic crisis is policy that will create employment and boost wages. The worst fear is that the government already knows all of this, but chose to do nothing anyway. They may already know that the only way to systematically fix the economy is to liberalize the industries and promote competition, but they are unwilling to risk their political capital. With the meteoric rise in market value and wealth of the country’s biggest companies, it is obvious that big businesses support the current government. Doing what is necessary to turnaround the economy means to go against the government’s biggest supporters, which would mean risking its political hegemony. So instead, they chose the easy path of subsidised consumer spending, increasing the country’s public debt with ineffective policies and moving the country ever closer to bankruptcy.