Rick Doner
Goodrich C. White Professor Emeritus, Emory University
Picture: Klong Toei Harbor, Bangkok
Source: Wikipedia Commons
Even after seriously stacking the electoral decks -- handpicking a Senate, gerrymandering, disbanding an opposition party, excluding a popular leader, and designing post-hoc electoral rules to allocate seats in the lower house of parliament – the Gen. Prayut-led coaliton barely eked out a victory in the March 2019 elections. Only by including 19 parties (of which 11 hold one seat) was Gen. Prayut able to establish a slim, (four-seat) parliamentary majority that elected him Prime Minister. But as of July 8, the coalition wasunable to settle on the actual cabinetthat would constitute a new government. Indeed, if history is any guide, such a coalition is likely to result in politicized, unstable ministries which are ill-equipped to carry out the kinds of policies required for sustained, inclusive growth.
Observers are rightly concerned that the fragility and potential instability of such a coalition will deter investment. Some $20 billionof public spending on transport and logistics projects has been delayed because of the delay in forming a government. Foreign investors,especially Chinese(mainly government-linked companies) are wary that continued political infighting can result in shifting rules and agency responsibility. Such investment is especially needed in light of weak GDP and productivity growth rates, Thailand’s 2.8%growth in the first quarter of 2019 was the lowest since 2014 as tourism and exports fell amid rising global trade conflicts and lagging global demand.
But the risks posed by a fragmented coalition go deeper than capital investment levels. If Thailand is to move beyond middle-income, to lessen inequality (especially regional inequality),and to reduce vulnerability to the vicissitudes of foreign investment and foreign markets, the country needs to strengthen its technology and skills base, especially of Thai firms, through better human capital, more effective R&D, more advanced and quality(technology-disseminating) infrastructure, and capital allocation that helps Thai as well as foreign firms.
Such measures are especially hard to carry out. They differ from the large, highly visible types of investments that have driven industries such as autos and electronics and that are central to the new $54 billion Eastern Economic Corridor (EEC). Improving the quality of the Thai workforce through better technical and vocational education (TVE) takes time and requires sector-specific expertise, even as it lacks the “bricks and mortar” outcomes that make the establishment of a new auto assembly plant or a state-of-the-art port so politically attractive. Similarly, to be effective, quality infrastructure such as public testing and research facilities devoted to helping Thai firms improve their competitiveness require the participation of numerous engineers and technicians with knowledge of firm needs in particular product areas. In addition, the results of such efforts are not immediately visible in terms of employment or foreign exchange figures.
Successfully addressing these challenges requires strong institutions: government agencies, business associations and public-private coordinating groups with long time horizons, sector-specific expertise, and solid monitoring and evaluation capacity. With some exceptions (e.g. macroeconomic management, industrial estates, and the Eastern Seaboard Development Program), these have not been features of the Thai public sector. Instead, ministries have been vulnerable to shifting leadership and rent seeking by parties and particular interests. Coalition governments have been especially prone to this dynamic, but it has also occurred when the faction-ridden Thai Rak Thai was in power. As a result, skills development effortshave been largely ineffectual despite firms’ long-standing and widespread complaints about shortages of technical personnel. Similarly, Thai-owned firms’ access to effective testing and research facilities in sectors such as rubber and autos have been meager.[1]
It merits note that some, albeit modest, progress was achieved under the military government of 2014-2019. After over a decade of requests from local auto parts suppliers, the Prayut government approved and allocated funds for an automotive test track. Also, the process for allocating factory permits has been significantly streamlined. In the past, firms – especially Thai-owned firms – had to apply for permit renewals, a process that typically took time and “special” contribution to public officials. Permits are now renewed based on self-reporting by factory operators. Thailand has also improved its international standing in terms of illegal fishingand human trafficking through more effective implementation of new laws and regulations. And finally, workforce development efforts have expanded, typified by an automotive human resource development program led by the Federation of Thai Industries and foreign assemblers, as well as EEC initiatives aimed at skill development.
However, inter-party wrangling over control of ministries makes further progress in such areas uncertain at best. Thus, the Democratsare fighting hard for control of agriculture, commerce and social development whereas Bhumjaithai wants transport, tourism and public health. The likelihood is that such party control will result not in sustained efforts to strengthen skills and overall competitiveness but rather populist measures such as price supports in politically important sectors such as rubber and oil palm.
A more optimistic scenario is that a military-led coalition government might be able to implement significant, productivity-related policies along the lines of the relatively reformist Prem-led governmentsof the 1980s. But there are some important differences.
First, because Prem did not have to contend with extensive political fragmentation, technocrats and technocratic institutions such as the NESDB, had considerable leverage in economic policy. Conversely, Prayut’s own party, Palang Pracharat is itself not all that cohesive. In addition to factional rivalries that have made it a coalition within a coalition, the party also has to deal with intra-military divisions. Second, Prem’s successes occurred largely in the areas of macroeconomics (exchange rates, fiscal policy) and infrastructural areas such as customs administration, and the Eatern Seaboard Development Program. These were, to be sure, important in, for example, helping to fuel the expansion of the automotive and electronics industries. But Prem achieved little in the productivity-related areasof skills development and standards promotion that are the chief challenges facing Thailand today.
A second scenario would involve a continuation of a relatively dualistic strategy, one that a well-informed economist with long experience in Thailand labeled “EEC + populism.” This would take the form of continued support for the Thailand 4.0-related projects in the Eastern Economic Corridor, heavily dominated by foreign firms, along with populist measures such as the afore-mentioned price supports in rubber. The danger here is that such a policy would reinforce Thailand’s serious regional disparities while doing little if anything to strengthen Thai manufacturers and to address the pervasiveness of labor informality.
Notes:
[1]See for example, Richard F. Doner, “The Politics of Productivity Improvement: Quality Infrastructure and the Middle-Income Trap.” Thammasat Economic Journal.2016. 34, no. 1 (April): 1-56.
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