Kiatnakin Phatra recently released a a book called 50 Years: The Making of the Modern Thai Economy to commemorate the 50th anniversary of their founding. The book summarizes key developments in Thailand’s economic history since the Second World War, and it’s certainly useful reference material if you have any interest in economics or development in Thailand.
I found the conclusion a particularly useful recap of the economic challenges that Thailand faces today. Because the book was written in Thai, I decided to summarize some parts of this last section here.
Thailand’s four economic traps
- The Middle Income Trap: Thailand has admirably developed into a middle income country but has been unable to advance further to becoming a high income country. This is because Thailand has tried to utilize the same strategies as the past to move forward — namely, exports produced by cheap labor — without investing in research and development or innovating. Now, with higher labor costs but no real means to add value to our products, Thailand is uncompetitive compared to both lower income and higher income countries.
- The External Dependency Trap: Thailand has depended on export-led growth and tourism to drive the economy. The country also depends on foreign technology and even foreign labor. The fragility of this strategy has been brutally revealed, however, by the economic crisis generated by the coronavirus crisis, which led to border closures.
- The Debt Trap: Financial developments in the past few decades have made it more easier than ever for Thais to access sources of credit. But this has also saddled both households and businesses with more debt. Should the economy experienced a prolonged slump, it becomes increasingly likely that they will be unable to meet their financial obligations.
- The Inequality Trap: Although Thailand has significantly reduced poverty, growth and prosperity remains concentrated in the hands of the few. This creates a vicious cycle where both poorer households and smaller businesses are disadvantaged and unable to compete.
Thailand’s four weakening economic engines
- Population structure: Thailand’s aging population meant that since 2010, the working population has been gradually decreasing. This trend will continue, meaning that Thailand will experience labor shortages and the welfare state will come under increasing pressure.
- National resources: Thailand’s natural resources are being depleted, including natural gas in the Gulf of Thailand. Tourist destinations are also deteriorating faster than nature can recover.
- Exports: The competitiveness of Thailand’s exports has gradually declined as our costs of production has increased.
- State capability: The costs of maintaining Thailand’s bureaucracy have increased even as the capability of the bureaucratic system has declined. Laws and regulations have become increasingly outdated, making it difficult to do business. Corruption remains an issue.
Four key challenges for the Thai economy
- Technological change: Digital technology has led to advances in agritech, medtech and fintech. We are also seeing the role of the platform economy and the sharing economy. However, technological change will exacerbate the digital divide and automation poses a risk to low-skilled labor.
- Climate change: Thailand’s agricultural sector is particularly vulnerable to climate change, while several industrial centers are placed near Bangkok which is at risk due to the potential of sea level rise. Climate change will also pose an issue to Thai exports as some countries discriminate against products that are not environmentally friendly.
- Geopolitics: Thailand has tried to maintain friendships with both the United States and China, but as competition between the two intensifies, Thailand will find this balancing act more difficult.
- Political conflict: The generational gap in political attitudes has become ever-more difficult to reconcile. Political uncertainty will continue to damage Thailand’s economic stability and harm its competitiveness.
Four necessary economic reforms
- Increasing productivity by improving the education system, upskilling the labor force, increasing the use of technology in businesses and reducing monopolies
- Building immunity by reducing over-reliance on a single economic sector and developing financial innovations for both households and the private sector
- Growing sustainably by developing an economy that corresponds with an aging society, reducing the use of labor, developing eco-friendly industries and internalizing the costs of pollution
- Reducing inequality by making quality education, healthcare, sources of finance, career opportunities etc. more accessible to all and decentralizing power and resources to local authorities