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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.
* 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
(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