Thailand is no stranger to military seizures of power. The Thai system has developed built-in resilience to absorb and overcome political uncertainty and economic shocks from putsches. However, its 13th coup two years ago, spearheaded by Gen Prayut Chan-o-cha, coincides with a new pattern of economic challenges, requiring a more holistic and integrative policy framework that hinges on an open and stable political environment.
For several decades from the 1960s, Thailand's proven economic development model relied on exports to propel expansion, fuelled by foreign investment in labour-intensive manufacturing, and later branched out into services at the expense of agriculture as a share of national output. This pattern of growth was not confined to Thailand but also pursued by other economies in East Asia. It may be seen as akin to export-led growth 1.0, a tried and tested development track that has now run its course.
Over the past decade, Thai exports have been in the doldrums, halved from prior years into single-digit growth annually, even contracting slightly at times. And Thailand was not alone, as other economies in East Asia were also beset by lower export expansion.
Even China's galloping exports that had underpinned its phenomenal GDP growth in the 8-10% range have slowed, resulting in more modest growth of around 6% in the mid-2010s. Part of the problem for Thai exports was an extended worldwide economic slump associated with the 2008-09 global financial crisis and the slowdown in the Chinese economy, but declining competitiveness was to blame as well.
Mechanics work on an assembly line at a car factory. Thailand needs to upgrade its export strategy and strengthen its competitiveness.
Under normal circumstances, without the political volatility over the past decade, this adjustment and upgrading would already be daunting. With the prolonged political turbulence prior to and since the May 2014 coup, such upgrading becomes that much harder to reach.
Upgrading from the usual factors of production that drove export-led 1.0, such as cheap and relatively unskilled labour, requires more sophisticated skills and higher quality resources. In other words, back in the "1.0" years, the prevalent practice was merely for investors to exploit readily available and basic factor endowments countries have to offer. For developing economies, cheap and abundant labour was key to attract foreign investors who were looking to relocate their production to lower-cost countries, making it a win-win situation for both.
For a "2.0" upgrade, the dependence on the old and easy exploitation of basic factor endowments is no longer effective, as international competition becomes stiffer and more complex. As a result, "2.0" upgrading means having to boost the quality of factors of production and to use them more efficiently.
The increasingly interconnected nature of today's global economy is characterised by the fragmentation of economic activities across geographic locations. These globally integrated chains of activities span from simple and basic manufacturing in low-cost developing economies to advanced research and development (R&D) or marketing and branding activities in destination markets. The interconnection of economic activities through these linkages, known as "global value chains" (GVCs), has become the new lifeblood of global economic growth and commerce.
In other words, GVCs encompass the full range of activities that bring a product or service from its conception to final consumption, and they do so across countries. Economies and firms participate at different points along GVCs in pursuit of economic development. Their participation depends on their resources and comparative advantages. For example, developing economies like Thailand often undertake basic production activities while advanced countries with more sophisticated and skilled labour can engage in R&D and innovation. This pattern of development is a key feature of many globally integrated industries, like food, textiles, automotive, and electronics. Thanks to its export-led 1.0 policy, Thailand has become a major supplier in those industries, particularly the latter two.
To maximise benefits from GVCs, developing countries like Thailand need to cultivate advantages that can "stick" to their location and not easily be replaced and substituted by others. Cheap and unskilled labour can be found in many developing countries but high-quality human resources and infrastructure cannot.
In the "2.0" era, governments and firms need to do much more to retain and reap value from foreign and domestic investment. This means providing not only "hardware" infrastructure of roads, airports, harbours, and public transportation networks that can physically create connectivity, but also "software" systems of reliable public institutions, sound legal frameworks, well-defined rules and regulations, and forward-looking education and cutting-edge research and innovation. The development of both physical hardware and institutional software must go in the same direction in tandem.
An environment that fosters the "2.0" infrastructure needs to be anchored around openness, transparency, good governance, and clear policy directions based on sound ideas and firm commitments. This is a tall order for any government. On the face of it, a government that assumes power by force with absolute authority should be in a better position to formulate and implement development policies at will, as opposed to an administration that is beholden to vested interests and answerable to electoral constituencies.
But sadly, this has not been the case with Thailand's coup administration over the past two years. To do it right, the coup authorities have had to be outward-looking, holistic and inclusive to come up with technocratic policies that restructure and upgrade the Thai economy towards the 2020s but this has not been the case. Instead, we have seen only more political uncertainty, civil-military division, unclear and inconsistent policy positions at times. Such moves further weaken public institutions and the rule of law. A clear example is the increasingly frequent use of Section 44 of the interim constitution, even in economic affairs. Consequently, it will be doubly hard for Thailand to deliver the hard and soft infrastructure that is necessary in its next phase of economic growth.
Thailand's military governments in the past, such as the dictatorships in the 1950s and 60s, were not faced with similar economic challenges as the country still had a low economic base to rise from and the global economy was not as interconnected and complex. With economic policy-making delegated to capable civilian hands, Thailand managed to separate its economic administration from the country's political manoeuvrings.
Any two-year appraisal from Thailand's recent experience would have to conclude that today's economic challenges are much more demanding and complicated. Unaccountable governments cannot be expected to be transparent and effective to meet the needs and demands of the economy they oversee and the people they govern. The sooner Thailand reaches a governing framework that is accountable at home in the minds of its citizenry and legitimate abroad in the eyes of investors, the better its chances of coming up with some of the fundamentals that are imperative for its export-led 2.0 era, especially when its neighbourhood is more competitive than ever.
Pavida Pananond is Associate Professor of International Business at Thammasat Business School, Thammasat University.