Regulatory Reform and Competitiveness in Thailand

By: Sakda Thanitcul

(1) The Master Plan on State Enterprises Reform

As discussed earlier, since the 1980s, Europe has been moving away from nationalization toward American-style regulation. State enterprises in various industries, especially in public utilities, have been privatized and American-style regulation (independent regulators) have been established to oversee those industries. Thailand's Master Plan on State Enterprise Reform was carefully drafted under the current "European Regulatory Reform" influence. In fact, a number of European consulting firms, commissioned by the Thai government, contributed substantially to the drafting of the Master Plan.

The "inefficiency" of the Thai state enterprises--high costs and poor quality of goods or services--is well known to the Thai public. Indeed, since the early 1990s, Thai policy makers have been planning on privatizing state enterprises but there has always been political opposition from politicians and trade unions. After the 1997 crisis, Thailand was under the IMF program (1997-1999) and was required as "condition" to privatize its SIDES. Thai policy-makers welcomed the IMC condition and incorporated "privatization" into a number of Letter of Intents submitted to the Executive Board of the IMF. As a Japanese commentator accurately pointed out, the objectives of privatization in Thailand would bring about (a) free entry and competition, (b) cost and price reduction, (c) improved services, (d) increased efficiency and efficient resource allocation, and (e) temporary assets sales income to the government (which helps reduce fiscal decifits)(36). Privatization of SOEs in public utilities destroys monopoly. Privatization shall release the government of fiscal difficulty and asset sales will boost the government(is avenue, which could be channeled to external debt repayment(37).

In essence, the Master Plan on State Enterprise Reform is a move to replace monopolies (by SOEs) with competitive markets, often accompanied by privatization, This move is backed by strong evidence (especially in OECD member countries) that vigorous competition is the best way to produce dynamic and innovative industries that can meet consumer needs and compete in expanding global market.

(2) The Mckinsey Report : Too easy to believe?
The counter-argument to the Mckinsey report is that it is too easy to believe. The most current draft Master Plan on Strategies and Action Plan on Industrial Development (a synthesis of various studies including the McKinsey report) recommends vastly different approach to achieve productivity and competitiveness.

The draft Master Plan fully recognizes (exactly the same as the McKinsey report) that labor productivity in Thailand is low and Thailand largely lost factor input-based competitive advantage, particularly labor cost and natural resources. In order to return to attractive economic growth rates and sustain higher living standards, Thailand needs to shift from labor cost advantages to productivity advantages. However, the dratt Master Plan recommends the following strategies and its importance is indicated in %
1. Strategy on Human Resource Development (25%)
2. Strategy on Industrial Technology Development (40%)
3. Strategy on Value Chain Development for Competitiveness.(20%)
4. Strategy on Environmental Protection (10%)
5. Strategy on Consumer Protection (5%)(38)

A brief description of the strategies and policies accommodating those strategies is given below (action plans are left out because of space limits)
1. Strategy on Human Resource Development
(a) Policy to increase labor force with higher education
(b) Policy to produce a labor force with the skills needed by the Thai private Industries.
(c ) Policy to upgrade the quality and skill of Thai labor force.
2. Strategy on Industrial Technology Development
(a) Policy to encourage Thai entrepreneurs to pursue in-house Technology development.
(b) The shift from state-initiated technology development to Demand oriented policy
(c ) Improve and establish new measures to effectively improve Industrial technology.
3. Strategy on Value Chain Development for Competitiveness
(a) The overall policy on value chain
(b) Policy on value food chain
(c) Policy on production value chain
(d) Policy on single agency
(e) Policy on value chain for SMEs
4. Strategy on Environmental protection
(a) Policy on environmental monitoring
(b) Policy on environmental regulatory refrom
(c) Policy on promoting green technology
(d) Policy on promoting the role of green NGOs
5. Strategy on Consumer Protection
(a) Policy on promoting free and fair competition and regulating monopolies
(b) Policy on strengthening consumer groups.
The McKinsey report was mentioned during the process of the conference. However, almost all Thai participants seem to doubt its recommendations. The basic question is, in order for Thailand to shift from labour cost advantage to productivity advantage, is all the
Thai government has to do is to amend the laws? This suggestion seems, to Thai policymakers and the public alike, too easy too believe.

IV Conclusion

The economic crisis, which began started in 1997, has cast doubt on the sustainability, of Thailand's earlier growth models. Successive Thai have explored a variety of strategies for reviving economic growth. These efforts have included fiscal stimulus spending technical support to SMEs, trade liberalization, and state enterprise reform. The Mckinsey report is clearly a non-conventional recommendation. At this stage, it is too soon to make a judgement that it will be put on the shelf and stays there forever. We should wait and see whether this report's recommendations will be included in the Thai government's strategies for reviving the Thai economy in the future or not.

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(36) Mitsuhiro Kagami, "Privatization and Deregulation : The Case of Japan," in Mitsuhiro Kagami and Masatsugu Tsuji (ed.) PRIVATIZATION, DEREGULATION AND INSTITUTIONAL FRAMEWORK, Institute of Developing Economies, 1999, at 2.

(37) Id.

(38) Proceeding of the Seminar on -A study To Determine Strategy and Action Plan on Industrial Development During the 9th Economic and Social Development Plan (2005-2009)", held at Siam City Hotel, March 21,2002. (in Thai)