50th anniversary special report
The Kingdom of Thailand is a balanced, diversified society that has the right blend of ingredients for its success story to continue, and lessons for its neighbours to learn, writes Peter Janssen.
Two decades ago Thailand was a ‘frontline state’ against creeping communism across its borders in Indochina to the east and Myanmar to the west. It stood seemingly alone and isolated, a domino on the verge of falling. But the dominoes have fallen the other way, and Thailand’s unique form of capitalism has become an example, both good and bad, to its neighbours.
The country’s economic growth has become textbook material for developing nations. ‘Thailand provides an excellent example of the dividends to be obtained through outward orientation, receptivity to foreign investment, and a market-friendly philosophy backed by conservative macro-economic management and cautious external borrowing polices,’ says a recent report by the World Bank.
According to the latest figures from the World Bank, Thailand had the world’s fastest-growing per capita GNP between 1985 and 1994, averaging 8.2%, significantly ahead of economic growth in South Korea, China and Singapore.
Even among Association of Southeast Asian Nations (ASEAN) countries, Thailand stands out. Last year, it edged past Indonesia in terms of GDP, despite its smaller population. Thailand’s manufacturing sector is the largest in ASEAN, and its private sector is unquestionably the most diversified and arguably the most entrepreneurial.
Decades of institutional continuity are perhaps the foundation of Thailand’s economic strength. King Bhumibol Adulyadej, who this year celebrates his 50th year on the throne, has provided political stability during the country’s often tempestuous road to democracy, marred by frequent military coups d’etat and factionalism among Thailand’s many political parties.
The multi-party system, and resulting shaky coalition governments, have led to a quick succession of cabinets and administrations in the past decade. They have, however, had remarkably similar ideologies and macro-economic policies. Even within the apparent chaos of Thai party politics, there has been incredible continuity. A real balance of powers between the monarchy, the bureaucracy, the politicians, the military and the private sector has created a truly pluralistic system.
‘Thailand’s is a very well-balanced society,’ says Nimit Nontapunthawat, chief economist at Bangkok Bank. ‘It doesn’t belong to any one clique, one family or one élite group.’
The political system, such as it is, has consistently supported private enterprise. ÔOur private sector is strong because it has been allowed to grow throughout Thai history, rather naturally. And later on it was also protected from foreign competition,’ says Nimit.
Thailand has arguably benefited from its unique history. It’s the only Southeast Asian nation that escaped colonialism, partly because of its geographic location (a buffer between old British and French colonies) and partly because of the pragmatic policies of its rulers.
Similarly, the country also escaped the post-colonial upheavals of communism in Indochina, and excessive nationalism elsewhere. Thailand, throughout, has remained an open society – open to the talents of Thai-Chinese and Thai-Indian communities, and to any foreign nation seeking to do business with her.
Decades of pro-private sector policies, and outright protectionism during the 1960s to 1980s, laid the foundation for Thailand’s so-called economic miracle of the late 1980s. With its well diversified industrial base, the Thai economy was well-positioned to take advantage of the realignment of world currencies that took place in the mid-1980s, when the yen was forced to rise against the US dollar.
Although designed to bolster the US economy, Thailand, whose baht is tied to the dollar, was arguably a major beneficiary. With the sudden foreign exchange advantage, the country’s exports literally boomed, attracting a wave of investor interest in export-oriented industries, especially from Japan.
Double-digit growth in annual exports between 1985 and1995, combined with unfettered consumerism at home, have been the dual engines behind Thailand’s record-setting economic performance.
The rapid growth has also highlighted Thailand’s deficiencies – such as swiftly depleting natural resources, environmental degradation, insufficient infrastructure (which has transformed Bangkok into an urban nightmare) and lack of human resources.
Building up Thailand’s human resource base is arguably the nation’s most serious task, especially if Thailand is to preserve the balanced system which has fostered stability and growth in the past. This will require both a strong private sector and an equally competent public sector.
‘You still have very good top level bureaucrats in Thailand, but the question is do you have the supply at the middle management level? They seem to be heading for the private sector much more than in the past,’ says Arnaud Guinard, the World Bank’s chief of mission in Thailand.
Summing up Thailand’s past recipe for economic success, Guinard attributes it to ‘a dynamic private sector that has not been hampered by the bureaucracy, plus fairly sound macro-economic policies’.
Future success will depend on upgrading that bureaucracy and ensuring Thailand’s leaders pursue the sensible macro-economic policies of the past, such as controlling inflation, encouraging foreign investment and supporting export-oriented industries.
Meanwhile, Thailand is well on the way to proving that political continuity, a balance of powers and belief in market forces are definite ingredients for growth.