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Regulatory Reform and Competitiveness in Thailand
By: Sakda Thanitcul


-- Public Warehouse Organization
--The Tourism Authority of Thailand
--The Botanical Garden Organization
--Office of the Rubber Replanting Aid fund
--The Marketing Organization for Farmers
--The 200 logical Park Organization
--Thailand Institute of Scientific & Technological Research

(2) Privatization and deregulation Compared

The failure of public ownership as a mode of regulation explains the current popularity of an alternative mode, whereby public utilities and other industries deemed to affect the public interest remain in private hands but are subject to rules developed and enforced by specialized agencies or commissions(20). Such bodies are usually established by statute as independent authorities, in the sense that they are allowed to operate outside the line of hierarchical control or oversight by the departments of central government. This mode of regulation represents a new frontier of public policy any public management in Europe(21).

By contrast, however, in America, the tradition of regulation by means of independent bodies combining legislative, judicial and executive functions (rule-making, adjudication and enforment in the terminology of American administrative law) goes back to the Interstate Commerce Act of 1887 at the federal level, and even earlier in states such as New York, Massachusetts and Wisconsin.(22) The rejection by American political leaders of nationalization as a politically and economically viable option reflected the generally held belief that the market functions perfectly well under normal circumstances, and that interference should be limited to clear cases of market failure(23).The expert commission represents the Institutional embodiment of this belief.
In the 1970s, the legal, political and economic criticisms of American-style regulation found expression under the label "regulatory failure", just as the market fails in certain circumstances to serve the public interest.

It is useful to compare two types of regulatory failure(24).

European-style nationalization
(State enterprises)
American-style regulation
(independent regulators)
capture of public managers by politicians
and trade unions
capture of regulators by regulated firms
over manning overcapitalization (the so-called Averch-
Johnson effect)
public monopolies anti-competitive regulation
Ambiguous and inconsistent goals given to public managers vague objectives ('regulate in the public interest')
poor coordination among different public Enterprises poor co-ordination among different public Regulators

no effective control over public Enterprises by parliament, the courts or the Sponsoring minister

insufficient political accountability of independent regulatory agencies

However, the very successful stories of deregulation in the United States, the deregulation of telecommunications and the deregulation of the airline industry in the early

1980s, were followed two with great interest in Europe. One Eyropean comentator made the following conclusions derived from the comparison between the deregulation of telecommunications in the United States and the privatization of the same industry in Britain, the pioneer of privatization in Europe.

"First, the great paradox of nationalization is that public ownership has weakened, instead of strengthening, the regulatory capacity of the state. By confusing the roles of manager and regulator, and effectively subordinating the latter to the former, public ownership has impeded the development of specialized regulatory institutions. Moreover, the persistence of old habits of thought and patterns of behavior-especially the habit of ministerial interference and secrecy-inherited from the age of nationalization, has had a negative effect on the design of new institutions. On the other hand, a mode of regulation emphasizing independence and expertise not only produces more incisive regulatory policies but, as our examples show, can also push through deregulation when economic and technological changes make public oversigh no longer necessary. Despite its conflictual beginnings and the criticism to which it has been subjected for more than a century, the American model of statutory regulation by independent agencies has proved to be remarkably resistant, and in fact has been widely imitated internationally(25)".

(3) The American Model : The McKinsey Report and The Emerging Deregulation

The author argues that the Thai Master Plan on State Enterprises Reform has been modeled after the European regulatory reform. The European regulatory reform starling in the 1980s, was influenced by the success stories of the American deregulation, especially the telecommunications and airline industries. Besides the state enterprise reform, deregulation American-style is emerging in Thailand. The McKinsey report on Thai productivity shows the clear trend of this emerging pillar.

The 2001 McKinsey report argues on three key points:(26)
--To increase international competitiveness and return to a path of Sustainable economic growth, Thailand needs to strengthen productivity throughout its economy Only broad-based gains in productivity can allow Thailand to remain competitive in the face of globalization.
--McKinsey's research has shown that sectoral regulatory reform can dramatically increase Thailandes productivity. The good news is that addressing regulatory barriers is less costly and can even have nearer-term impact than some alternative remedies such as fiscal stimulus spending or investments in education and infrastructure.
--To carry out the far-reaching regulatory changes needed, Thailand should develop the institutional capability to guide and direct reform. The current administration's strong public mandate creates a unique window of opportunity for taking the necessary actions to boost productivity, but a dedicated agency is needed to ensure that reforms are executed and sustained.

The report identified sector-specific regulations bound to be major productivity barrier in Thailand as below (ranking from the sector of highest level of regulation to the lowest one)(27)

--Unclear policy objectives leading to regulatory inconsistencies
--regulated entry
--current concession structures leading to distortions in industry behavior
--government ownership
2. Retail Banking
-- "soft regulation" and bureaucracy of regulator
--historical constraints on foreign competition

Page 7

(20) Majone, supra note 8 at 15

(21) Id.

(22) Id.

(23) Id.

(24) 18.

(25) Id., at 23.

(26) The Mckinsey Report, supra note 6, at 5.

(27) Id., at 21.