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How do firms in Thailand overcome market failure?

How do firms in Thailand overcome market failure?

How do firms in Thailand overcome market failure?

Thailand and the Coup Trap

The New York Times

BANGKOK — Fifteen billion dollars. That’s roughly the price tag of the coup d’tat to date. And it’s the difference between the Thai economy, Southeast Asia’s second-biggest, stagnating, as it is now, or its chugging along at 4 percent, its average growth rate since 2001.

When a group of generals led by Prayuth Chan-ocha toppled the democratically elected government of Prime Minister Yingluck Shinawatra last May, their political agenda was clear: They wanted to quell a mounting legitimacy crisis. For many weeks protesters had been taking to the streets to condemn Ms. Shinawatra’s management of the economy and a controversial amnesty bill that would have benefited her brother Thaksin, a former prime minister in self-exile whose political parties have dominated Thai politics since 2001.

Now the economic consequences of the military takeover have become plain. The protests that precipitated the coup had already slowed growth, partly because of blocks on government borrowing, stalled exports and a restrictive monetary policy. And the situation has hardly improved since.

The Bank of Thailand recently slashed its projections for G.D.P. growth for 2014 from 1.5 percent to 0.8 percent — compared with 2.9 percent in 2013, before the coup, according to the National Economic and Social Development Board (N.E.S.D.B.), Thailand’s state economic planning agency. Rather than achieve what the official propaganda claims — order, stability, growth — the return to old-fashioned autocracy threatens to bring economic near-stagnation and will likely increase income inequality.

The takeover in May was at least the 12th military coup in Thailand since 1932, the year constitutional monarchy was introduced. When generals have taken power in the past, they have used the opportunity to develop the country. There was rapid economic growth from 1983 until 1996, largely under Gen. Prem Tinsulanonda, who held office until 1988. Back then the economy got a jolt from a major devaluation of the currency (the baht) and a series of measures designed to promote rapid industrialization by encouraging foreign investment (mostly from Japan), infrastructure expansion and industrial exports.

In theory, the current junta could also make a big economic contribution. But in a bid to scour the system of Mr. Thaksin’s influence, the generals have been turning their backs on many policies favored by his government, including those that worked.

Mr. Thaksin’s signature economic achievement was to encourage consumption among lower-class people: His government provided access to affordable health care, gave out credits to rural communities, and created a transfer system benefiting poor students and old people. Today, the generals are reducing transfers to lower-income groups, concentrating on unfocused infrastructure expansion and taking no action to increase exports or tourism.

This will not do in the face of Thailand’s aging population and broken educational system, and of the global economic slowdown. Especially not when stagnation already threatens the social contract. The N.E.S.D.B. reckons that 0.1 percent of Thais own nearly half of the country’s assets. Capitalist America, where 0.1 percent of the population owns one-fifth of all assets, looks like a socialist paradise in comparison.

Some simple, well-known measures could do much immediate good. The central bank could spur stagnating exports and tourism by buying U.S. dollars to drive down the baht. The government could boost private consumption with a massive transfer program to farmers, students and the elderly. The Bank of Thailand could make credit more readily available by increasing the money supply, and it could stop using interests rate to manage monetary policy, which has not been effective.

Yet the chances of such policies being implemented are low. The Bank of Thailand seems crippled by conservatism and uncertainty. Fiscal policy is in the hands of bureaucrats who are fearful of spending public money. The generals’ own support base is too narrow for them to suggest, much less achieve, anything contentious. And some of their economic proposals so far have been essentially nationalistic and risk discouraging foreign investment.

Every rational path out of stagnation seems blocked by autocratic rule. Thailand is not, as many economists argue, in a middle-income trap; it is in a coup trap. And this is a self-inflicted condition.

To raise the economic welfare of all Thais, and reduce the economic inequalities that have underlain political conflicts, by our estimation Thailand’s G.D.P. growth rate would have to be brought up to at least 6 percent. For that, though, bold measures are needed.

Small and medium-sized investors need to be given greater access to credit. The financial sector must be made more competitive, including with the creation of new lending institutions, ideally more domestic commercial banks. The junta should also encourage more foreign direct investment in high technology, both to increase productivity in existing manufacturing (such as the automotive industry) and to spur higher-value manufacturing (such as for pharmaceuticals and telecommunication products).

In the 1980s and 1990s, Thailand developed its Eastern Seaboard by turning infrastructure built in the Gulf of Thailand during the Vietnam War into one of Asia’s greatest production and export platforms, especially for automobiles and petrochemical products. A similarly grand strategy today might be to revive this old idea: creating an alternative route to the Strait of Malacca, the world’s busiest shipping lane, by digging a canal through the Kra Isthmus, in southern Thailand. A diversified manufacturing belt could then be developed along the canal, with two new great ports on either end. Another option would be to build a vast economic zone in the north and northeast of Thailand to supply the Chinese market.

The generals claim to want to address all these issues urgently. They must adopt a bold approach to overcome bureaucratic inertia or else recovery will be slow. Reviving the economy is their single best chance of justifying the coup and stabilizing the country.

Source Citation:

Cookson, Forrest E., and Tom F. Joehnk. “Thailand and the Coup Trap.” New York Times 2 Jan. 2015: NA(L). Business Insights: Essentials. Web. 30 Aug. 2021.

Discussion

  • How do firms in Thailand overcome market failure? 
  • What costs and benefits do US based Ford and British companies experience has a result of FDI in Thailand? 
  • What role does Thailand’s location play in its booming economy? Is agglomeration involved? 
  • Should foreign invested and domestic firms sell more to domestic consumers in Thailand? 
  • How will the coup affect the auto and other American and British companies doing business in Thailand?

**** Initial Post should be at least 200 words. Response posts should be minimum of 75 words

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