Considered one of the world’s poorest nations following World War II, Thailand has recorded remarkable levels of economic growth, making it one of the fastest growing economies among developing countries from 1952 to 2005 with an average rate of growth of 6.3 per cent. [1] The largest contributor to this remarkable turnaround has been growth in industry, and particularly the manufacturing sector. Additionally, structural changes to its economy made during the 1960s have been credited for bringing Thailand into the international marketplace, laying the foundations for long-term economic growth. Thailand’s export-oriented manufacturing model spurred productivity by attracting increased investment to physical capital while deriving cheap labour from its traditional agriculture sector.

When viewed in light of Thailand’s long history of political instability, this record of growth seems even more remarkable. Thailand has experienced 19 coup attempts since the revolution in 1932 ended its absolute monarchy system of government. Farrelly[2] describes this trend as Thailand’s “elite coup culture”: an institutionalised acceptance of coups as a legitimate means to affect political change. If left to continue, he argues, it could eventually topple Thailand – one of the most successful societies in Asia – from its perch.”

 Binding constraints to future economic growth in Thailand

 While Thailand’s post-World War II record of growth is impressive, the nation must navigate a number of significant challenges if it hopes to continue developing on a similar trajectory.

Poverty incidence has declined and incomes improved in Thailand with steady upward growth of GDP per capita. Jitsuchon[3] explains “almost 40 per cent of Thais have escaped from absolute poverty since the 1980s.” But while extreme poverty has declined and life expectancy rates improved, inequality within Thailand has increased.[4] Rural communities, particularly in the Northeast, continue to be disproportionately affected by poverty. Infrastructure and services located outside of major urban centres are neglected in comparison, indicating that populist policies promulgated by former Prime Minister Thaksin Shinawatra, designed to promote wealth distribution,[5] have not had a sustainable impact.

Since the East Asian Financial Crisis of 1997, Thailand has failed to produce rapid levels of economic growth. Thailand’s growth model, driven by cheap labour intensive manufactured exports seems to be strongly correlated with persistent income inequality and underinvestment in education pathways. Elite political actors in Thailand have grown rich off this established growth model and therefore seek to maintain the institutional governance frameworks that prolong their advantage. The hierarchical and nepotistic nature of Thai politics has progressively caused deep divisions between opposing, geographically disparate elements of Thai society. This has obstructed national cohesion and diluted the Thai Government’s incentive to invest in public welfare and equality. Sustained political instability has caused low investor confidence, which has slowed investment in capital stocks, inhibited technology transfer and prolonged the subsequent slowdown.[6] For example, economic growth contracted in the first quarter of 2014 due to political crises brought on by the May coup that ousted Prime Minister Yingluck Shinawatra. As a result, the World Bank slashed Thailand’s growth forecast by 1.5 percentage points suggesting that “tourism receipts, public investment and investor confidence” would be damaged by the political unrest.[7] Evidently, policies aimed at moving up the value chain to break into the world market for “knowledge-based and innovation based products” have not been prioritised, signalling that Thailand may have found itself caught in the Middle Income Trap.[8] 

Thailand caught in the middle-income trap?

 The Middle Income Trap is a relatively new concept that has been used to explain why once rapidly growing lower-income economies stagnate once they reach middle-income status and become unable to converge to high-income levels.[9]

While scholars admit there is not yet consensus on a single theory that explains the Middle Income Trap, of the generic determinants of growth slowdowns a number seem applicable to Thailand. An International Monetary Fund (IMF) Working Paper[10] identifies poor institutions as the most important among their seven determinants.[11] North defines institutions as the social norms and structures that “set the rules of the game in a society, or more formally, are the humanly devised constraints that shape human interaction.”[12] Furthermore, Egawa identifies income inequality as a core determinant of growth slowdowns in upper middle-income countries like Thailand.[13]

Economists have suggested a number of reform measures to accelerate growth in Thailand. Warr’s recommendation, for example, is to invest heavily in primary and secondary education in order to raise the standard of human capital and drive technology transfer and innovation in the long-term. [14] Such suggestions are laudable, yet the most significant strategy seeks to correct Thailand’s most debilitating predicament head on: through institutional reform of the central political apparatus and its inequitable power structures.

Accelerating economic growth in Thailand through institutional reform

 Institutional reform is critical if Thailand is to accelerate growth and attempt to move towards high-income status. Using institutions to explain growth trends has become increasingly popular since the 1990s. Acemoglu et al. implore that good institutional development is a “fundamental cause of long run-growth.” [15] Rodrik, too, finds that the “quality of institutions” is key. He defines quality institutions as those that “provide dependable property rights, manage conflict, maintain law and order, and align economic incentives with social costs and benefits.” [16]

As observed in Thailand’s case, institutions can legitimate unequal distributions of power in the policy decision making process by pushing institutional development along a set of socially constructed paths; effectively structuring the choices of reform on offer.[17] In this context, March and Olsen stress that institutions can “produce unintended consequences and inefficiencies” reinforced by national narratives that, importantly, are difficult to reverse once set in motion. [18]

Successful institutional reform in Thailand would break down the power structures that have entrenched elite actors at the top of the Thai political hierarchy. Reform of this nature would consist of decentralising some of the functions and responsibilities of the central government to regional political authorities, including strengthening the role of oversight institutions and civil society organisations. Decentralising the authority of political functions and responsibilities, if undertaken with adequate checks and balances, would work to correct the wide gulf between political elites and citizens.

Nelson suggests that at the provincial level in Thailand, political structures are largely informal and invisible, lacking inclusive formal mechanisms that allow ordinary citizens to participate in or gain access to the institutions of political decision-making. [19] Constitutionally redistributing certain political powers and responsibilities (education, health services and transport infrastructure portfolios, for example) to provincial governments would afford greater access to political institutions. This would also energise the capacity and influence of civil society organisations and local interest groups that were previously marginalised. By way of comparison, decentralisation has been an essential ingredient of Indonesia’s period of reformasi and has proven to be a relatively successful example of governance reform in Southeast Asian middle-income countries. [20]

The World Bank suggests “political decentralisation often requires constitutional or statutory reforms, the development of pluralistic political parties, the strengthening of legislatures, creation of local political units, and the encouragement of effective public interest groups.”[21] Strengthened oversight institutions empowered by legislated authority would be necessary to ensure the transparency and equity of the decentralisation process, and to monitor corrupt and discriminatory practices.

Challenges to institutional reform in Thailand

Apart from obvious opposition to reform by members of the political elite, institutional reform that penetrates the most entrenched power structures in the Thai bureaucracy will have to contend with a Thai public that is largely disenchanted with the state of public affairs. Populist policies have split the country into opposition groups: the predominantly southern yellow shirts on one side and the northern red shirts on the other. Any move would have to be genuinely apolitical and inclusive of both sides.

Furthermore, institutional reform would have to take into strong consideration the influence of the Thai royal family; such is the respect for the office in Thai society. For example, dismantling the influence of the military in civil-political affairs may prove difficult without first navigating the structural nuances of the relationship between the military and the monarchy. Consequently, institutional reform in Thailand would need to be both a ‘bottom-up’ and ‘top-down’ process. Pierson and Skocpol suggest that as institutional conventions become farther entrenched, the “path not taken”, or the political alternatives that were once quite plausible may become irretrievably lost. [22] Evidently, Thailand cannot afford to allow a more time to pass without institutional change. The reform task will be arduous but has the ability to deliver significant long-term economic and social benefits.

After 35 years of remarkable growth Thailand is in the grips of a slowdown. Entrenched institutional inefficiencies exacerbate binding constraints making Thailand unable to progress from middle-income to high-income status. Institutional reform that aims to break down the power structures that have entrenched elite actors at the top of the Thai political hierarchy is a critical area of reform necessary to accelerate economic growth. The cumulative effect of institutional reform would be to assist in the restoration of investor confidence, encourage equitable welfare distribution across the country and modernise the economy through the establishment of an educated and innovative consumer class that has a direct stake in the preservation of a stable and genuinely democratic political system.

Jack, 25, is an educator in Victoria and a graduate of the Crawford School of Public Policy at the ANU.

[1] Jitsuchon, S. (2012), ‘Thailand: Achieving Social-Economic Development Balance’, Moving Toward a New Development Model for East Asia-The Role of Domestic Policy and Regional Cooperation, eds Zhang, Y, F. Kimura and S. Oum, ERIA Research Project Report 2011-10, Jakarta: ERIA. pp. 255-278.

[2] Farrelly, N (2014), ‘Why democracy struggles, Thailand’s elite coup culture’, in Australian Journal of International Affairs 67, no.3, pp. 281-296.

[3] Jitsuchon, S. (2012), ‘Thailand: Achieving Social-Economic Development Balance’, Moving Toward a New Development Model for East Asia-The Role of Domestic Policy and Regional Cooperation, eds Zhang, Y, F. Kimura and S. Oum, ERIA Research Project Report 2011-10, Jakarta: ERIA. pp. 255-278.

[4] Warr, P (2011), ‘ Thailand, a nation caught in the middle-income trap’, East Asia Forum, viewed 9 August 2014, accessed at: <http://www.eastasiaforum.org/2011/12/18/thailand-a-nation-caught-in-the-middle-income-trap/>.

[5] Mostly in the form of agricultural subsidies, artificially lowering the cost of rice for example.

[6] Ibid.

[7] The Guardian, ‘World Bank cuts China and Thailand’s growth forecasts’, Guardian online, viewed 10 August 2014, accessed at: <http://www.theguardian.com/business/2014/apr/07/world-bank-cuts-china-and-thailands-growth-forecasts-live>.

[8] Jitsuchon, S. (2012), ‘Thailand: Achieving Social-Economic Development Balance’, Moving Toward a New Development Model for East Asia-The Role of Domestic Policy and Regional Cooperation, eds Zhang, Y, F. Kimura and S. Oum, ERIA Research Project Report 2011-10, Jakarta: ERIA. pp. 255-278.

[9] Aiyer, S, Duval, R, Puy, D, Wy, Y and L Zhang (2013), ‘Growth Slowdowns and the Middle-Income Trap’, IMF Working Paper 13/17, accessed at: <http://www.imf.org/external/pubs/ft/wp/2013/wp1371.pdf>.

[10] Ibid.

[11] The other six determinants presented are demography, infrastructure, macroeconomic environment and policies, economic structure, trade structure and ‘other’.

[12] North, D (1990), Institutions, Institutional Change and Economic Performance, Cambridge: Cambridge University Press.

[13] Egawa, A (2013), ‘Will income inequality cause a middle-income trap in Asia?, Archive of European Integration, Bruegel Working Paper 2013/06, accessed at: <http://aei.pitt.edu/44892/>.

[14] Warr, P (2011), ‘ Thailand, a nation caught in the middle-income trap’, East Asia Forum, viewed 9 August 2014, accessed at: <http://www.eastasiaforum.org/2011/12/18/thailand-a-nation-caught-in-the-middle-income-trap/>.

[15] Acemoglu, D, Johnson, S and J Robinson (2004), ‘Institutions as the Fundamental Cause of Long-Run Growth’, in The Handbook of Economic Growth, National Bureau of Economic Research, Working Paper 10481, accessed at: <http://www.nber.org/papers/w10481>.

[16] Rodrik, D (2000), Institutions for High-Quality Growth: What They are and How to Acquire Them, National Bureau of Economic Research, Working Paper 7540, accessed at: <http://www.nber.org/papers/w7540>.

[17] Collier, D (1991), Shaping the Political Arena, Princeton: Princeton University Press.

[18] March, J and J Ohlsen (1984), ‘The new institutionalism: organizational factors in political life’, American Political Science Review 78, pp. 734 – 49.

[19] Nelson, M.H (2009), ‘Political reform in Thailand: Structural and ideological issues’, New Mandala, viewed 12 August 2014, accessed at: < http://asiapacific.anu.edu.au/newmandala/2009/05/18/political-reform-in-thailand-structural-and-ideological-issues/>.

[20] Although decentralisation also has its sharp critics. I recommend viewing Meitzner, M (2013), ‘Indonesia’s Decentralisation: The Rise of Local Identities and the Survival of the Nation-State’, Indonesia Update Conference, 20 September, ANU, accessed at: < https://crawford.anu.edu.au/acde/ip/pdf/update/2013/Indo.Update.13.I7.Mietzner.pdf >

[21] The World Bank, ‘Political Decentralization’, Decentralization of Subnational and Regional Economics, viewed 14 August 2014, accessed at <http://www1.worldbank.org/publicsector/decentralization/political.htm>.

[22] Pierson, P and T Skocpol (2002), ‘Historical Institutionalism in Contemporary Political Science’, in Political Science: State of the Discipline eds H.V Milner, New York: W.W Norton, pp. 693 – 721.