One of the prosperous East Asian economies is the economy of Thailand. It has achieved impressive growth rates. This growth per capita has remained positive for several decades. In Thailand the state has intervened in economy, but in a passive way.
Government polices have been the most effective in maintaining a macroeconomic equilibrium that is conducive to trade, investment, and the growth of firms. Most resource allocations have contributed factor productivity. The market and private sector institutions, but not state economic policies determine them.
Thailand differs from other newly industrialized countries (NICs) in Asia. There governments helped repair market failures. But Thailand has relied on the market to overcome government failures.
The World Bank’s East Asian Miracle report concludes that stable macroeconomic policies are necessary for strong growth. And Thailand is a confirmation of this conclusion. Thai technocrats in the Central Bank, Ministry of Finance, and Prime Minister’s Office have provided macroeconomic policies conducive to export, domestic and foreign investment, and the growth of a strong private sector, which has emphasized productive investment over pure rent seeking. The stable macroeconomic environment, marked by low inflation and a stable exchange rate, has encouraged the diversification of agricultural exports away from rice and rubber. Stable prices have also encouraged foreign direct investment and a shift away from exporting light manufactures to higher value-added wares, notably electronics (World Bank. 1993)
Until the economic growth surge of the latter 1980s, the Thai government had had a fairly good record in its provision of roads, railroads, electricity, and ports. Today’s transport bottlenecks are primarily the result of the slowdown in infrastructural investments during the economic austerity program of the mid-1980s, which coincided with an anticipated surge in investment and economic growth. Government capital expenditures, which are directed primarily at infrastructure, declined from 5.4 percent of GDP in the 1970s to 4.0 percent in 1980, falling further to 2.7 percent in 1990(Siamwalla, Ammar. 1990).
Industrial policies have not been marked by industrial sector planning or by any industrial targeting strategy. The Thai state doesn’t control the markets for credit and foreign exchange. There also has been little coordination or coherence in the use of existing industrial policy instruments—tariffs, investment promotions, capacity controls, and local content regulations.
A calm monetary environment has made it possible for the private sector to grow and for the banks to assume investment coordination functions. The Thai state’s information base at the sectoral level has been quite inadequate. Intelligent intervention requires some vision of the changing industrial structure. Moreover, there needs to be some investment coordination not only among private firms, but also between the private and public sectors. Thailand’s experience here has been variable. Finally, Thailand could have used more sectoral vision concerning infrastructure. Privatization of urban projects has now yielded a whole new set of problems, but there is a big opportunity for policymakers to better coordinate infrastructure development in the provinces.
The state is struggling to keep up with the demands of a rapidly changing economy. Even though Thailand has enjoyed success, it is not well prepared for the next stage of industrialization. Its investments in secondary education and its output of technicians and engineers fall seriously short of the country’s needs. The state is institutionally ill equipped to assume the monitoring, enforcement, and social welfare functions for regulating an advanced industrial economy. At present, Thailand hardly needs an activist state. Instead it needs a more effective minimalist state able to anticipate the complex problems that will inevitably arise down the road (Christensen, Scott R. 1993).
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