Experts: Thailand will be aged before becoming rich

Economic experts said Thailand needs human capital development to catch up with new global economic trends.

On Thursday, the Institute of Security and International Studies (ISIS) at Chulalongkorn University’s Faculty of Political Science held a public forum, “Moving Up the Global Value Chain: Thailand’s Upgrading and Growth Imperatives”, featuring four speakers: Pavida Pananond from Thammasat University, Kirida Bhaopichitr from the World Bank Group, Roong Poshyananda Mallikamas from the Bank of Thailand and Deunden Nikomborirak from TDRI (Thailand Development Research Institute).

Prof Pavida from the Thammasat Business School said Thailand tends to be the slowest performer in South East Asia. It is losing competitively and has economic structural issues alongside political conflict, thus Thailand needs more than manufacturing and must be more innovative and gain market sophistication.

Pavida gave a definition of the ‘Middle Income Trap’, which is Thailand’s current problem as it finds itself between low income countries and high income countries but incapable of moving upward.

Pavida emphasized that government and institutions need to be strong and transparent. Importantly, Thai perspectives on the macro-economy need to change. The economy is an integrated activity conducted by firms and companies as well as the government.

What is happening in the world is that production is being fragmented. This is what we called the global value chain. There is a division of labour according to what each actor is capable of. For example, iPhones are designed in California but assembled in China. Thailand has also been part of the global value chain as we supply textiles, food, electronics automobiles, etc., said Pavida.

Pavida pointed out that those who gain the most profit are those at the operating level, not manufacturers. It means that the idea of trading has shifted from trading goods to trading activities. Therefore, we need more research and development combined with market knowledge to increase the value of what we currently do.

For all these reasons, Pavida said that Thailand’s policy needs to consider international interaction under the global value chain. Thailand should give more recognition to what can be offered to investors, both tangible and intangible values, such as geographical advantage, and labour and firm productivity. As we are an agriculture-based economy, the question is how to make what we regularly do more valuable, said Pavida.

Kirida explained that human capital development and the ability to cope with the global market dynamic are key factors for the Thai economy to grow sustainably.

The Senior Economist stated that Thailand is an upper-middle income country with an income of 5,370 USD per capita. So the next step is to become a high income country, but given economic growth at two to three per cent, it will take too much time to achieve that goal.

Kirida was concerned that Thailand will become an aging society. This means Thailand is offering less intensive physical labour and productivity. She therefore suggested that Thailand should focus on increasing knowledge-based production.

Currently, Thailand’s productivity has not grown much in comparison with average wage growth, especially in the agricultural sector that has a 39.6 per cent share of employment but provides only 8.3 per cent of real GDP while services [which means high level services: doctors, engineers, etc.] and the manufacturing sector are more productive, said Kirida.

Transferring labour to more productive sectors should be considered while improving the quality of human capital. Education is the key factor for human capital development and is the only way to add value to Thailand’s economic activities.

Roong, Senior Director from the BoT, said that structural adjustment is the real challenge for Thailand in order to stimulate economic growth.

GDP has been growing by an annual average of only two to three per cent since 2008. Foreign Direct Investment was also in decline and had shifted from production to finance.

The Senior Director from the Bank of Thailand also added that current global demand in electronics is growing but Thailand has only 1.8 per cent export growth in this sector while the Philippines has 12.2 per cent. It means Thailand is less sophisticated in the new global trend.

Concerning solutions, Roong suggested that Thailand needs more technological readiness, higher education, and stronger institutions and infrastructure as well as being more innovative.

Regarding the problems of Thailand’s current development model, Duenden, Reseach Director from the TDRI, showed Thailand’s troubling development plan and suggested a long term plan in order to overcome the Middle Income Trap.

Duenden said that Thailand has been relying on natural resources and labour exploitation, thus resulting in high income inequality and an unhealthy environment, caught in the Middle Income Trap where increasing income is not available while becoming an aging society when the welfare budget rises.

She suggested that Thailand needs a long term plan in order to become a high income country before becoming an aging society, either becoming heavily industrialized or developing the agricultural and services sectors.

Agreeing with Pavida about adding value to agriculture and services, Duenden also suggested that the agricultural economy should be less diverse than now to yield more products. R&D in breeding, production management, logistics and marketing should be introduced to entrepreneurs.

To industrialize the country, Duenden said better infrastructure quality, labour specialization, innovative design and branding and outward investment and marketing promotion are needed.

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