Regulatory Reform and Competitiveness in Thailand

By: Sakda Thanitcul

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.

II. The Two Pillars of Regulatory Reform in Thailand : Privatization and Emerging Deregulation.

The author argues that generally, regulatory reform in Thailand means privatization. Deregulation is largely a new mode of regulatory reform to Thai policymakers. This explains why the McKinsey report is being questioned by high-ranking Thai officials who are in charge of economic policy.

(1) The European Model : Privatization

Historically, the author argues, influenced by the European model, public ownership has been the main mode of economic regulation in Thailand.
In Europe, economic regulation through public ownership became widespread in the nineteenth century with the development of gas, electricity, the water industry, the railways, the telegraph and, later the telephone services(8). These industries, or parts of them, exhibit the characteristic of natural monopolies; situations where, because of the economy-of-scale phenomenon, it is more efficient for production to be carried out by one firm, rather than by several or many. Public ownership of such industries was supposed to give the state the power to impose a planned structure on the economy and to protect the public interest against powerful private interests(9). Consequently, the nationalization of

key industries was advocated in the 19th and 20th century on various grounds: not only to eliminate the political power and economic inefficiency of private monopolies, but also to stimulate economic development, to favour particular regions or social groups, to protect consumers and foster democratic accountability and to ensure national security(10). Regardless of the multiplicity of objectives and ideological justifications, the central assumption was always that public ownership would increase government's ability to regulate the economy and protect the public interest. Public enterprises would shape economic structure directly through their production decisions and indirectly through their pricing decisions.

However, nowhere is the notion of "public interest" precisely defined. Two key factors have underlain the changing approach of the European government towards regulation. The first is the growing awareness of the extent and nature of regulatory failure(11). The second is changes in technology and a better understanding of organizational structure and behavior that have fundamentally altered the incidence of market failure(12). These two elements underpin the arguments at the heart of the recent micro-economic debate concerning the poor performance of the regulated (nationalized) sector, labour market rigidities, government financial needs and wider shared ownership(13).

The dissatisfaction with the performance of nationalized industries has led to regulatory reform in OECD Member countries. While it is generally agreed that the United States began the process of deregulation in the mid-1970s, with far-reaching initiatives in several sectors such as airlines, trucking, railways and banking, there were sporadic move earlier in other countries(14). For example, road haulage was substantially deregulated

In Australia, Sweden, Switzerland and the United Kingdom in the 1950s and 1960s Generally speaking, however, it was the decade of the 1980s which ushered in the related prooosses of regulatory reform and, especially, privatization(15).
During the first two decades of its postwar history, Thailand's economic development was generally successful. The focus of the authorities' development strategy during this period was to build up the manufacturing sector(16). At the same time, investments in irrigation and transport network contributed to high rates of growth in agricultural output and exports. After a brief--and generally unsuccessful--flirtation with state enterprises in the early 1950s,(17) from 1959 the authorities adopted an industrial strategy based on the private sector.

The Thai government actually began privatizing state enterprises in 1961 on a piecemeal basis. Privatization of state enterprises has always been included in the five year Economic and Social Development Plan since then. However, prior to the 1997 economic crisis, privatization was not carried out as an important strategy of bringing Thailand back on a growth track(18).
Similar to the European experiences, the energy, transportation (air, sea, road), telecommunication, and piped water sectors have been the particular object of the Thai Master Plan on State Enterprises Reform(19).
The essence of the aforementioned sectoral reforms under the current Master Plan are descibed below

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(8) Giandomenico Majone, Regulation and Its, Modes, in Giandomenico Majone (ed.),REGULATING EUROPE, 1996, at 11

(9) Id.

(10) Id.

(11) OECD, Regulatory Reform, Privatization and Competition Policy, 1992, at 17

(12) Id.

(13) Id.

(14) Id., at 23.

(15) Id.

(16) David Robinson, Yangho Byeon, and Ranfit Teja With Wanda Tseng, Thailand : Adjusting to success curcent Policy Issues, IMF Occasional Paper Number 85, 1991, at 5.

(17) The Thai government, under European Influence, established enterprises in various sectors. The total number of state enterprises in 1961 was 107.

(18) The Master Plan on State Enterprises Reform, supra note 5 at 2.

(19) State Enterprise Reforms, http:/www.mof.go.th/spec/sepcfnt2.htm (visited May 10, 2002)