The Fifth Tiger

Study of Thai Development Policy

Robert J. Muscat

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315484150
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

Thailand's dynamic economic development has earned it a reputation as the "Fifth Tiger" (following on the heels of the superperforming "Four Tigers" - South Korea, Taiwan, Singapore and Hong Kong). This is a study of Thailand's development experience since 1955.

1

INTRODUCTION

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Among the nonsocialist countries of East and Southeast Asia, their histories led to the adoption of trade-oriented market economies based on private ownership of the means of production. The reasons behind this common orientation differ from country to country. For example, Malaysia inherited a thriving capitalist economy from British colonialism; its continuation was implicit in the economic and political bargain between the Malay and Chinese communities on which the Malaysian polity rests. The economic orientation of Taiwan and South Korea was inherent in their responses to the security threats posed by mainland China and North Korea, respectively, and in their early economic and security dependence on the United States. Indonesia adopted a market economy policy after the Communist coup attempt in 1965. Thailand’s route to a market economy was different still, as I shall explain in the body of this study. While the majority of countries of this region share a broad orientation that has contrasted sharply with socialist economics and with the highly protected, inward-looking policies that prevailed in much of the Third World in the postwar era, the development policies of the Southeast and East Asian countries have differed from one another in many respects. Their economic policy histories show substantial variation around the basic “model.”

This region is of particular interest to students of modern economic development because the model has yielded more sustained and rapid economic growth than has been experienced by the developing countries that have pursued substantially different strategies. The super-performing economies—Taiwan, the Republic of Korea, Singapore, and Hong Kong—have become well known as the Four Tigers, or as the Asian NICs or Newly Industrializing Countries (Hong Kong, of course, is not a country). In the lead in the region has been Japan, the most super-performing economy of all. Behind the Tigers have been Indonesia, Malaysia, and Thailand, also growing relatively quickly, but not in the sustained double-digit league. In the late 1980s Thailand did edge over into double-digit growth to become one of the fastest growing economies in the world.

The experience of Taiwan and Korea has deservedly commanded much attention. A considerable literature has accrued that analyzes the evolution of economic policy in these outstanding cases, drawing lessons that may be applicable to other developing countries. The Thai case has not received the attention it deserves. Like every country, Thailand has its unique history, culture, and resource endowment. The opportunities and threats it has faced in the postwar period have also had their unique characteristics. It differs from most developing countries in never having been colonized, in its long history of bureaucratic centralism, and in its unusual status as a major food exporter. In other important respects, however, Thailand’s experience has been closer to that of the general run of developing countries than that of the Tigers, and it may contain lessons more readily applicable than those drawn from the economic management experience of the super-performers. Thailand has been more typical in its relatively modest (in relation to Korea and Taiwan in the 1950s and 1960s) volume of aid receipts; its high but not extraordinary levels of domestic saving and investment; its ethnic composition (less diverse than Malaysia, the subcontinent, or most of Africa and Latin America, but more diverse than homogeneous Japan, Taiwan, and Korea); in the extent of the threat to its survival (compared with Taiwan and Korea) and the pressures that threat put on government to press economic growth and industrialization; and in its character as a “soft” state, that is, a country where government has limited ability to impose its policy preferences or decisions on its citizens’ economic (and other) behavior.

A primary objective of most nonindustrialized states has been to reduce poverty, to emulate the material, technical, and welfare achievements of the industrialized countries. (A few poor countries have been governed by regimes preferring stagnant isolation. Some larger number have been wrecked by governments predacious or malignant.) At different times over the past four decades or so, different schools of thought have risen, and fallen, regarding the most efficacious role for the state in the development process. In the 1950s and 1960s the dominant wisdom held that development required an active intervening state to overcome inadequacies of the private sector and of the operations of the market—for example, paucity of entrepreneurs, low domestic savings rates, technological weaknesses and other market information “failures,” and small market size, inhibiting local industrial investment in the face of competing imports.

In the 1970s an international projection of this orientation, especially favored by Latin American economists, asserted that the world market system had enabled the already industrialized capitalist countries to erect an economic framework in which the less developed nations were locked into a dependent and essentially low-growth position. Throughout this postwar period, political motives aside, governments and economic managers in many developing countries were drawn to Marxist ideas and to “command” system models inspired by Soviet or Maoist experience.

The collapse of the command economies in the 1980s reinforced the palpable superiority of market systems and private property rights as a framework for modern human economic activity. Within this framework, however, there remains wide scope for greater or lesser government suasion or control over private economic decision making. In the early 1990s the argument has tended to crystallize. Analysts and advocates have clustered around two alternatives generally characterized as state minimalism versus market-friendly dirigism or intervention. Emphasizing the glaring inefficiencies and economic failures of government interventions over the years, the minimalists would limit severely the economic role of the state beyond that of watchdog over free-market rules of the game and provider of public goods (such as national defense and public education) not likely to be provided more efficiently, or equitably, by the private sector, a policy prescription commonly identified with the World Bank. The market-friendly dirigists point to the outstanding growth records of South Korea, Taiwan, and Japan as demonstrations of the superiority (or at least superior potential) of government guidance of the private sector, even its manipulation (e.g., through credit allocation), albeit well short of thoroughgoing command.

The political economy of decision making in Thailand has been the very opposite of that in Japan and the Asian NICs in one important respect: Thai governments normally react to the logic and pressure of economic conditions, waiting until they have built up a fair degree if consensus. These decision processes have generally reached the point of inaugurating policy adjustment well before macro conditions have gotten out of hand. But, for the most part, Thai governments have responded to pressures rather than attempting to shape the pattern of private-sector activity according to a technocratically predetermined set of objectives. In the Japanese and NIC models, government has played an initiating, leading, and directive role toward private investment and the evolution of the basic structural and comparative advantage characteristics of the economy.

The Thai experience stands between market-friendly dirigism (and its perverse cousin, market-inimical state intervention), on the one hand, and state minimalism, on the other. In this middle ground the Thai experience may be more apposite to the conditions of the large numbers of developing countries still struggling in the rear who are unlikely to be able to forge conditions conducive to the mandarin management at the heart of East Asian dirigism. The relative success of the Thai approach to economic affairs also serves as a demonstration that rapid growth in a “soft” state is feasible. In other words, the Thai experience (fluctuating between quasi-authoritarian and quasi-democratic episodes) stands, thus far, as a counter-instance to the proposition that has been put forward by some analysts that strong authoritarian governance and “hard” state economic intervention are necessary for developing countries to move onto a fast growth track.

Some writers have characterized Thai governments as passive with respect to economic policy, compared with the activism and initiatives of many other developing country governments.¹ At times, this “passivity” has taken the form of slow response to evident problems; as will be seen, this tardiness has been costly and merits criticism in some cases, but judicious (in retrospect) in other cases. There is another respect, however, in which apparent passivity, overlooked in development policy studies, has been a major part of the policy history. I refer to options that were rejected, policies and programs considered and discarded. As obvious as it may seem in 1994, after the collapse of the socialist command economies, the avoidance of bad policy (or rapid correction of bad policy, learning from palpable mistakes) has been one of the keys to sustained growth. The Thai economic policy record has been conspicuous for its avoidance of egregious resource allocation errors. Thus, to obtain a full understanding of Thai policy formation, this study will examine some important cases of what would otherwise be ignored as nonevents, that is, errors eschewed.

In any effort to describe and judge the policy experience of government over a long period of time, it is essential to distinguish between the more and the less important. Any day’s reading of the Bangkok press would give one the impression (as would the press in any open society) that economic and related policies were the subject of heated debate in a sharply divided polity. There are always inconsistencies in policies and programs, and decisions that appear to be misguided, even unintelligent or venal. The basic policy history, however, is composed of those components that are the relatively powerful levers, the major determinants of an economy’s performance, both short and long run. Among the determinants are the rules of the game respecting the roles of government and the private sector; public-sector performance in the provision of public goods and services; the extent and efficiency of market determination of prices and resource allocation decisions; government policies affecting the overall monetary and fiscal condition of the economy, the general price level, and the foreign exchange value of the currency; the climate for domestic and foreign investment; the underlying stability of the society; the health and education systems that build the stock of human capital; and development of the variety of technical, intellectual, and representational institutions that are essential to the functioning of a modern state and economy. In this study, I try to focus on the major determinants (while giving some sense of the deviations from the main thrusts), on the policy decision-making processes, and on the political and social forces working on these processes. In short, what did the Thais do, and why?

The Thai experience may also be instructive for the light it sheds on specific aspects of the development process, and on economic management of a relatively small international player that starts from a position of fledgling institutional capacities for the business of a modern state. Its “structural adjustment” experience in the 1980s, to correct macroeconomic imbalances resulting in part from the second “oil shock” in 1979, is particularly interesting in a comparative context. This study will review both macroeconomic and sectoral issues as part of a broad examination of the course of the economy over the post-World War II period. In addition, I shall examine some of the important interrelationships between economic and social change over this period. Thai intellectuals who are critical of the effects of modern development on Thai life frequently attribute the country’s social ills to the economic technocrats who allegedly have led the society into a conception of progress that is material and acquisitive, at the expense of traditional values and purposes. It is incumbent upon anyone undertaking a broad analysis of Thailand’s modern economic transformation to address these issues, and not presumptuously to assert that an economic framework alone is sufficient for considering the results that have flowed from a particular policy history.

The modern development of Thailand (and the other trade-oriented economies of the region) has been strongly influenced by the country’s intellectual, economic, and security relationships with the industrialized world. At times, these influences have played important roles in the evolution of development policies of particular interest to this study. However, the major substance and contribution of foreign aid to Thailand’s development has been in the creation of the institutional capacities required to develop and manage a modern state and in the education and training of Thai elites and professionals to lead and staff these institutions. By institutions, I refer to the panoply of public-sector functions needed to facilitate economic development and to the educational systems required for the creation of human capital. International technical assistance was particularly important in the 1950s and 1960s when these institutional capacities were, for the most part, initially designed and built up, and when overseas training of Thai technocrats and professionals was essential for “jump-starting" the institutional development process.

Many of these institutions, and the external aid projects assisting them, had “policy” functions in addition to programmatic responsibilities. That is to say, in their respective sectoral and subsectoral areas (e.g., teacher training, curriculum development, higher education faculties, population and family planning, communicable disease, mining, industrial finance, public administration, electric power generation and distribution, irrigation) these institutions played pivotal roles helping to define policies and public-sector objectives, and conducting policy-oriented research and pilot projects. Foreign technical aid was also critical for many of the operational agencies that in their formative years were receiving capital assistance for the initial expansion of transport and other infrastructure. Although the importance of sectoral institution-building and human capital formation processes for modern economic development cannot be overstated, my focus on broad development policy, especially its economic aspects, largely precludes extensive treatment of development management capacity at the sectoral level. The reader interested in fuller examination of Thailand’s institutional development than is contained herein, and the role of foreign assistance, may refer to sources listed in the bibliography.

Finally, it is important to note that, for several areas of development policy, the country as a whole is too heterogeneous to be the proper unit of analysis. The pace and substance of social and economic change in Thailand have varied considerably from one part of the country to another. The overall policy frameworks adopted by Thai governments (respecting, for example, macroeconomic demand management or the external trade regime) have applied uniformly to all parts of the country. The effects of these general policies, however, have not been uniform, thanks to the substantial differences among regions. Some of the major policy issues, respecting public-sector programs and adjustments to macrolevel policies, have arisen out of the need to cope with these regional differences in resource endowment, rates of growth in income, production structure, and ethnic character. Among the most important of these inherent variations between regions has been their location on the map in relation to neighboring countries, especially affecting the Northeast, the region most directly exposed to the long-running instabilities in the former IndoChina states of Laos, Cambodia, and Vietnam.

Until recently, an adequate description of Thailand’s economic geography could be based on a division of the country into four agroclimatic regions—Center, North, Northeast, and South. The Center largely comprises a flat alluvial plain not much above sea level. Much of the area is flooded for several months a year, naturally suitable for rice cultivation. The rivers flowing south into the Gulf of Thailand have given the Center a transportation system that has facilitated its traditional position as the country’s “rice bowl” and producer of a rice export surplus. It was the ability of farmers in this region (and in similar flood plains elsewhere in Southeast Asia) to produce rice in excess of domestic needs, in response to growing export demand from the middle of the nineteenth century, that gave rise to the application of the term “vent for surplus” to describe the essential economic character of these regions.²

The principal theories of international trade describe the effects and gains from trade as arising out of the reallocation of domestic factors of production, within each trading partner economy, as each responds to the opportunities to focus on its own products of comparative advantage in production cost. The vent for surplus concept, in contrast, describes the process in which an agricultural region with underemployed land and labor applies these undere...