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Thailand’s Delayed Structural Transformation

posted Feb 15, 2017, 8:33 AM by Joel Selway   [ updated Feb 15, 2017, 3:02 PM ]

Guest Post: Jacob Ricks

08 February 2017

Observers have long noted the disparity in levels of economic well-being between Bangkok and the rest of Thailand (Pasuk and Baker 2016). Indeed, this inequality has been partly blamed for the enduring political turmoil plaguing the country since 2005 (Hewison 2014). In some of my current research, I argue that much of this inequality can be traced to conditions of a delayed structural transformation in Thailand. In this essay, I first describe this phenomenon before examining one of its contributing factors, seasonal migration. I further contend that social and economic upheavals resulting from structural transformation warrant much more attention than they have received.

Structural transformation refers to the transition of economic activity from one broad sector of the economy into another. In most cases, this means that as a country develops economically, labor and investment moves out of the agricultural sector into industry and services. These shifts involve massive upheavals in the lives of those who take part in the changes, especially poor farmers, as they are forced to leave the countryside and join the ranks of the urban economy, often entering the lowest rungs of the socioeconomic ladder (Timmer 1997, 624).

Despite these potentially negative side effects, labor’s move out of agriculture is a necessary step in improving the welfare of the countryside. This is due to the fact that even though agricultural production might increase as a country develops, agriculture’s proportion of GDP generally decreases, meaning that a relatively smaller piece of the economic pie is available for farmers to split among themselves. If the proportion of labor in agriculture were to remain constant as the proportion of GDP produced by agriculture decreases, those farmers become poorer relative to their compatriots employed in industry and services even if farm incomes increase in absolute terms.

To make this clearer, imagine a hypothetical country illustrated in Table 1: At the outset, the country embodies a primarily agricultural population with one-quarter of economic production coming from the sector. Industry and services, though, produce a large surplus for their employment share, meaning those employed in these sectors enjoy a greater piece of the economic pie. The gap between GDP share and labor share serves as an approximate measure of structural transformation, with larger numbers indicative of imbalances in the economy; the closer the gap is to zero, the further along the process of structural transformation (Timmer and Akkus 2008). Fast forward 35 years, and the country has enjoyed substantial economic growth. If the country had experienced structural transformation during this period, most of the labor force would have abandoned agriculture to pursue higher-wage jobs in the cities, moving into industry and services. In this hypothetical scenario, 15 percent the labor in agriculture now produces about 10 percent of the GDP, placing farmers almost on par with workers in industry and services as to their proportion of the economy. On the other hand, in the scenario with delayed structural transformation, we still see that both industry and services enjoy large positive differentials while agriculture’s negative gap remains. This signifies massive inequality between those employed in these sectors; in other words, industry and service workers have remained much wealthier than farmers.

Table 1: Structural Transformation (ST) Example

 

Beginning Point

(Year 0)

Successful ST

(Year 35)

Delayed ST

(Year 35)

Economic Sector

GDP Share

(%)

Labor Share (%)

Gap

GDP Share

(%)

Labor Share (%)

Gap

GDP Share

(%)

Labor Share (%)

Gap

Agriculture

25

70

-45

10

15

-5

10

40

-30

Industry

40

10

+30

40

35

+5

40

20

+20

Services

35

20

+15

50

50

0

50

40

+10

We can now turn to Thailand. Since the 1970s, the country has transitioned from a low-income country to one enjoying upper-middle-income status, with agriculture’s share of the economy decreasing from about 25 percent of GDP in 1980 to only 11 percent in 2013. We would expect, then, that the number of Thais involved in agriculture should have decreased dramatically during this period, but this has not been the case, as demonstrated in the data in Figure 1. Since 1985, agriculture has generated less than one-fifth of Thailand’s GDP, and in recent years the number hovers at about ten percent, yet the Thai labor share in agriculture remains above 40 percent.[1] From this data, we can also conclude that most of the labor which moved out of agriculture was absorbed by the services sector, since industrial employment has remained stable at about 20 percent since the late 1990s. If we measure structural transformation via the difference between GDP share and labor share in 2013, agriculture exhibits a negative 30.51 percent gap. This suggests that one of the major sources of economic inequality in Thailand can be traced back to disproportionate shares of employment in the broad sectors of the economy relative to the productivity of those sectors. Thailand’s farmers have lingered in agriculture despite depressed incomes relative to the other sectors of the economy.

Figure 1: GDP and Employment Shares of Agriculture, Industry and Services, 1980-2013

Source: World Bank World Development Indicators

To paint a clearer picture of Thailand’s delayed structural transformation, Figure 2 places Thailand in a comparative light, plotting the percent of employment devoted to agriculture against a country’s level of development measured by GDP per capita (purchasing power parity in 2011 USD). The dashed line in the figure is based on a growth model, which predicts a country’s approximate percentage of agricultural employment based on its level of development (see also Klyuev 2015). Among the 123 countries for which we have sufficient data, Thailand stands out as one of the furthest from our expectations based on its level of development. Thailand’s agricultural employment is 24.1 percentage points higher than the growth model predicts, the 6th furthest from the line.[2] Thailand’s extreme outlier status is difficult to explain; among the other top ten outliers, five are among the United Nation’s “least developed countries” (Laos, Bhutan, Kiribati, Ethiopia, Rwanda), two are island nations with little agriculture (Marshall Islands, Kiribati), and three are former or current conflict zones (West Bank and Gaza, Kosovo, and Rwanda). Only Thailand and Azerbaijan have per capita incomes over $8,500 (PPP), but unlike Azerbaijan, there is no clear factor (i.e. oil boosting GDP per capita) explaining Thailand’s disproportionate number of farmers. 

Figure 2: Employment in Agriculture plotted against Level of Development

Source: World Bank World Development Indicators

What, then, is delaying Thailand’s structural transformation? 

While this question is much too broad for this short essay, we can consider one contributing factor: Rather than make the full transition into other economic sectors, Thai farmers rely on seasonal and off-farm labor to avoid falling even further behind their urban counterparts. Pasuk and Baker (2008, 71-72) claim that as much as one-quarter of the workforce, about 9.5 million people in 2016, is engaged in informal employment, which draws many laborers from the agricultural sector. The Ministry of Labor’s quarterly labor survey (triannually prior to 1998) helps us understand the relationship between agriculture and the informal sector. As Figure 3 demonstrates, there has been a sustained pattern of seasonal fluctuation in agricultural employment, wherein, during the main planting and harvest season for rice, agricultural employment increases by approximately five percent, or over 2 million individuals. This is largely driven by numbers in the North and Northeast regions. The Central region as well as the South have much more stable agricultural populations.

The count of 2 million, though, underestimates of the number of Thai farmers who rely on off-farm incomes to supplement their agricultural earnings. Somchai (2016, 508) reports that by the mid-1990s only about 30 percent of Thai farm households derived at least half of their incomes from agriculture. That number has certainly shrunk in the last two decades. During the off-season, millions of Thai farmers from the North and Northeast rely on seasonal labor to supplement their agricultural income; in many cases, farmers’ main source of livelihood comes from their work outside of agriculture, i.e. labor in the informal sector, such as driving taxis, motorcycles, street vending, etc. Those that remain on the farm often rely on remittances from their migrating family members.


Figure 3: Thailand’s Agricultural Employment by Region, 1995-2016

Source: Thai Labor Force Survey (various issues)

Thus large numbers of Thais from the North and Northeast retain their farmer hat even as they spend much of their life in some other trade, often in the informal sector, struggling to prop up household income at an acceptable level, albeit lower than their comrades in formal industry and services. Reliance on relatively low incomes from agricultural production combined with uncertainties in the informal sector make Thai farmers particularly interested in obtaining subsidies and assistance from the state (see Walker 2012; 2015).

The discussion and data above provide further explanation as to why subsidies are so popular among both farmers and Thai politicians. A delayed structural transformation has resulted in a  large proportion of the population still involved in agriculture that must content itself with a diminishing proportion of the economic pie; with low rice and other commodity prices, these farmers rely more and more heavily on the lower rungs of the non-agricultural sector. Politicians of both democratic and dictatorial slants, in their efforts to seek popular support, find receptive audiences among the populous agricultural community. For instance, the Shinawatra clan’s paddy pledging schemes won immense popularity in rural areas. At the other end of the spectrum, immediately after seizing power in 2014, General Prayuth’s first item of business was to distribute money to farmers (Bangkok Post, May 23, 2016), and despite accusing democratic governments of populism and corruption in association with agricultural subsidies, the junta was quick to adopt its own scheme, albeit less expansive and less popular than those of the Shinawatra governments (Edens, 2015).

Of course, this post offers only a brief look at Thailand’s delayed structural transformation and a preliminary glimpse as to how such a large agricultural population has endured. It leaves many questions unanswered: Why have Thai farmers preferred to stay on the farm? What effect have government policies had on structural transformation? How has politics shaped state responses to the transition out of agriculture? Why hasn’t the Thai state spent more time and effort in encouraging industrial expansion to absorb agricultural labor? What role do poor levels of education and training play in hindering structural transformation?

While many scholars have recently focused on the palace and the military in their search to understand the political uncertainty which plagues the country, questions related to Thailand’s delayed structural transformation merit greater attention than they have received. The Thai state’s ability and willingness to address the challenges of structural transformation promises to shape Thai politics in the near future, especially as the military junta promises democracy. Unless the state develops the capacity to respond to the impact of these vast economic and social transitions, political turbulence is likely to continue.

Citations

Edens, Rob. 2015. “ ‘New’ Rice Scheme Reveals Thailand Junta’s Dearth of Ideas.” The Diplomat (October 24).

Hewison, Kevin. 2014. “Considerations on Inequality and Politics in Thailand.” Democratization 21(5): 846-866 

Klyuev, V. 2015. “Structural Transformation – How does Thailand Compare?” IMF Working Paper 15/51.

Pasuk Phongpaichit and Chris Baker. 2016. Unequal Thailand: Aspects of Income, Wealth and Power. Singapore: NUS Press.

Somchai Phatharathananunth. 2016. “Rural Transformations and Democracy in Northeast Thailand.” Journal of Contemporary Asia, 46(3): 504-519.  

Timmer, C. Peter. 1997. “Farmers and Markets: The Political Economy of New Paradigms.” American Journal of Agricultural Economics 79: 621-627.

Timmer, C. Peter and Selvin Akkus. 2008. The Structural Transformation as a Pathway out of Poverty: Analytics, Empirics and Politics. Working Paper No. 150. Center for Global Development.

Walker, Andrew. 2012. Thailand’s Political Peasants: Power in the Modern Rural Economy. Madison: University of Wisconsin Press.

Walker, Andrew. 2015. “From Legibility to Eligibility: Politics, Subsidy and Productivity in Rural Asia.” TRaNS 3(1): 45-71.



[1] Here I use World Bank WDI numbers for 2013, which some argue overestimate agricultural labor due to seasonal fluctuations in numbers, as discussed below (see Klyuev 2015, 23). The World Bank appears to adopt the highest agricultural employment count reported in Thailand’s Labor Force Survey, which occurs during harvest season.

[2] The ten countries furthest from their predicted values are, in order of absolute values: Laos (32.2 percent), Marshall Islands (-32.2 percent), Kiribati (-29.3 percent), West Bank and Gaza (-28.7 percent), Bhutan (27.8 percent), Thailand (24.1 percent), Azerbaijan (23.9 percent), Kosovo (-23.4 percent), Rwanda (23.1 percent), and Ethiopia (-22.9 percent). 

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