The search for lessons from lost economic decades has led from Japan to the US to Europe. Now the spotlight turns to Thailand.
This may strike some as odd, considering Thailand’s 5.3 percent growth, its young and expanding population, and the surprising level of political stability.
In her two years leading Thailand’s 68 million people, Yingluck Shinawatra has somehow managed to tamp down the virtual civil war that led to the ousting of her prime minister brother in 2006.
Look closer, though, at the thrust of Yingluck’s economic policies. Her government has subsidised rice prices, provided handouts to car buyers and favoured megaprojects that will enrich the politically connected more than the masses.
All this comes at the expense of long-term competitiveness and prosperity: Thailand should instead be investing in its future, especially education, if it wants to break out of the “middle-income trap”.
Yingluck’s U-turn last week on the government’s policy of hoarding rice at above-market rates is a case in point. She had planned to limit a practice that jeopardises the country’s fiscal position and warps commodity markets. Moody’s Investors Service said the subsidies damaged Thailand’s credit rating. Yet she caved to farmers, even firing her commerce minister to do so.
Granted, the programme is not bankrupting Thailand. The country’s $346 billion (R3.4 trillion) economy can handle the $4.4bn the government blew on rice purchases last year. But Yingluck’s recent priorities bear troubling similarities to those her exiled brother, Thaksin Shinawatra, championed from 2001 to 2006.
His vaunted “Thaksinomics” never amounted to more than doling out cash in return for rural votes. In January, Yingluck unveiled a plan to lift Thai living standards. She proposed spending about $72bn over 10 years on transport, energy and telecoms projects. Yingluck’s government is pushing an $8.6bn port and industrial zone project in neighbouring Myanmar. Last week in Turkey, she called for a “New Silk Road” rail project to link Europe and Asia.
“We have some very big ideas, concrete ones, to make growth more inclusive,” Transport Minister Chadchart Sittipunt told me last month in Bangkok.
Forgotten in this ambitious building boom, though, is any investment in social infrastructure. It is even more important to invest in education and training to improve the quality of the labour force and raise productivity so Thailand can keep up in the world’s most dynamic region.
The country lags not just at the tertiary level, but also at the primary and secondary phases of the education process. Like several other countries in the region, Thailand’s focus on rote learning gives short shrift to creative and critical thinking and English proficiency.
“There is little sign that inadequate investment in human capital and the need for reform of the education system is recognised by the current government,” said economist Peter Warr at the Australian National University in Canberra.
He has done extensive research on Thailand’s economic growing pains. Thailand matters because it’s a role model in the region. As Myanmar exits decades of isolation and tries to build a healthy economy, it is looking to Thailand for direction and financing. The same goes for Cambodia, Laos and Vietnam. How Thailand evolves will reverberate around the neighbourhood.
At the moment, Thailand is walking in place even if its headline growth rates outpace Japan, the US and Europe. To Bank of Thailand economist Piti Disyatat, per-capita gross domestic product (GDP) tells the story: it has been hovering at about 15 percent to 20 percent of US levels for more than 10 years.
This is a precarious moment for Thailand to be stuck at a per capita GDP of about $5 000 a year. Global growth is tepid, China is slowing, and Indonesia, the Philippines and Vietnam are winning jobs that Thailand once took for granted.
As Thai wages rise, so do production costs. It must move faster up the value chain to build more technologically advanced products in the electronics and automobile sector.
Building a more entrepreneurial workforce requires big investments and political will, both of which are in short supply. Corruption, among other things, skews incentives. Massive road, bridge and power grid projects are dripping with opportunities for politicians and business people to line their pockets.
“There are few if any kickbacks available from investment in education,” Warr said. “Physical infrastructure is another matter.” Thaksin’s policy of cash handouts to rural areas did nothing to strengthen government institutions, build a credible legal system or invest in human capital.
The five prime ministers who led Thailand between Thaksin’s ousting and his sister’s victory in July 2011 spent all their time avoiding another coup. Now that Thailand is stable, it is time to invest in the future. Pouring more money into people rather than rice farms and construction firms would be a good start.
William Pesek is a Bloomberg columnist.