Regulatory
Reform and Competitiveness in Thailand
By: Sakda Thanitcul*
Thailand boasts one of the strongest track records for long-term economic
growth in the developing world. Successful economic development efforts
have led to three decades of sustained GDP growth, averaging more than
6% per annum. Moreover, the benefits of this growth have been shared widely
across Thai Society, elevating living standards of the lower classes and
creating one of Southeast Asia's largest middle classes.
The
economic crisis, which started in 1997, however, has cast doubt on the
sustainability of Thailand's earlier growth models. GDP growth has slowed
substantially since the early 1990s. As in many Asian countries, the regional
financial crisis reversed several years of development. The dramatic economic
contraction in 1997 was followed by a brief rebound, but modest GDP growth
in 2000 and 2001 suggests that a return to robust economic growth is not
imminent.
The
two administrations that have governed Thailand since 1997 have explored
a variety of strategies for reviving economic growth. These efforts have
included fiscal stimulus spending. Technical support to SMEs, trade liberalization
and the plan to privatize state enterprises. The current administration
(Thaksin government, 2001-present) is now exploring sectoral Regulatory
reform as another effort to get Thailand back on a sustainable growth
trajectory.
This
paper will examine the current regulatory reform, privatization and deregulation
in Thailand. Then it will evaluate whether or not the regulatory reform
can achieve its goal of improving Thailand's productivity and competitiveness.
I. Why Regulatory
Reform (Privatization and Deregulation) in Thailand?
The OCED research paper (1997) argues that regulatory reform is more urgent
than ever(1). The reform is urgent because a fundamental
objective of regulatory reform is to improve the efficiency of national
economies and their ability to adapt to change and to remain competitive(2).
Reform that sharpens competitive pressure provides powerful incentives
for firms to become more efficient, innovative and competitive. These
improvements can boost the productivity of entire industries and often
bring sharp and swift price reductions and improvements in the quality
and range of products and services, to the benefit of consumers and user
industries (3).
What exactly is regulatory reform? Again, the same report gives Avery
comprehensive definition of regulatory reform: "Regulatory reform
is used in the OECD work to refer to changes that improve regulatory quality,
that is, enhance the performance, cost-effectiveness, or legal quality
of regulations and related government formalities."(4)
What
is the argument for privatization in Thailand? Since the economic crisis
in 1977 (sic), the Thai administrations have been arguing that privatization
will restore economic growth and improve the efficiency of the Thai economy
to the benefit of Thai firms and Thai consumers.(5)
What is the argument for deregulation in Thailand? McKinsey a well-know
consulting firm undertook research on Thai productivity. This report argues
that in order to restore economic growth and increase competitiveness,
Thailand must strengthen productivity throughout its economy). The report
gives two main reasons why a return to growth will require broad-based
increases in productivity.(7)
1. Productivity is the basis of economic growth. As with many ASEAN input-based
competitive advantages, particularly labor costs and natural resources.
New international competition is now emerging, notably China (in goods)
and India (in services), which makes factor input-based competitiveness
harder to sustain. In any case, to return to attractive economic growth
rates and sustain higher standards, Thailand needs to shift from labor
cost advantages to productivity advantages so as to remain competitive
as wages rise. However, Thai labor productivity is comparatively low--just
23% of the US level and below many developing countries in Asia. Consequently,
the key to boosting GDP growth lies in enhancing Thai productivity.
2. To be effective, productivity gains must span the entire economy. Much
of the recent academic literature on competitiveness and growth focuses
on traded sectors of the economy. Export competitiveness is seen as proof
of the vitality of an economy. But what about Japan? Japan has some of
the most competitive traded sectors in the world --auto, electronics,
advanced materials, among other--and yet it has suffered a decade of malaise.
The reason is simple: the non-traded sectors of Japan's economy, about
90 % of the total-remain woefully unproductive. The European Union, on
the other hand, has systematically attacked productivity challenges across
all sector of the economy, and has reaped substantial economic benefits
as a result.
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*
Associate Professor, Faculty of Law, Chulalongkorn University, Bangkok,
Thailand. This Article was presented at the APEC Competition Policy and
Economic Development Conference, jointly organized by Japan External Trade
Organization (JETRO), Japan Economic Law Association, Whitney R. Harris
Institute for Global Legal' Studies in the Washington University School
of Law and Chinese Academy of Social Science (CASS), Beijing, China, September
17-21, 2002. The author wish to express sincere appreciation to Chulalongkorn
University and the Japanese Ministry of Education, Culture, Sports, Science
and Technology for their financial support. Special thanks to Professor
Hiroko Yamane for her very helpful comments and editing assistance.
(1)
OECD, The OECD Report on Regulatory Reform, 1997, at 10
(2)
Id.
(3)
Id.
(4)
Id, at 11
(5)
See generally, The Master Plan on State Enterprise Reform, Sertember1,1998,
at 10 (in Thai)
(6) McKinsey &
Company, Thai Productivity Report: Prosperity through Productivity, 2002,
at 5
(7)
Id, at 7-9
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