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Economic strategy and the roots of Thailand crisis

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In his presentation at the 21 April 2010 ANU conference on “Thailand on the Verge,” Peter Warr highlighted the importance of inequality, especially rural-urban inequality, as a key factor underlying Thailand’s political turmoil. Inequality, along with a persistently high level of informality in the labor market, were first highlighted a couple of years ago by Pasuk Phongphaichit and Chris Baker.

I want to push the causal arrows back a bit and address the roots of this inequality and informality, along with the country’s fall in absolute poverty noted by Warr.Thailand’s uneven performance — its overall poverty reduction and generally healthy growth rates, along with its persistent inequality and informality — are the result of a distinctive economic strategy.

The core of this strategy has been an emphasis on resource- and labor-intensive exports. In terms of policy, this has meant an emphasis on macroeconomic stability, logistics, and financial flows, especially to large firms. With brief and largely ineffective exceptions e.g. after the 1997 crisis, leaders have neglected the promotion of technical skills and linkages between small and medium-sized firms on the one hand, and larger producers on the other.

The result has been a form of uneven development. Thailand has been hugely successful at diversifying, at becoming a world player in sectors such as rubber, autos, and hard disk drives. But some 90% of Thai rubber is exported in largely unprocessed form, whereas the same percentage of Malaysia’s rubber is consumed domestically in locally produced manufactured goods. Thailand has been astute in encouraging automotive production for particular niches, especially pick-up trucks and more recently “eco-cars.” But the country’s impressive automotive “clusters” include only a small and dwindling number of local auto parts suppliers. Thai suppliers are even scarcer in disk drive production.

As the World Bank argued several years ago, Thailand’s ‘high-tech exports” are a misleading indicator of technological capacity; the country remains an assembler, rather than a manufacturer or designer.

via Economic strategy and the roots of Thai political turmoil.

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