Thailand Somboon Siriprachai

1 This paper will be published in Anis Chowdhury and Iyanatul Islam (eds) Handbook of Asian Economies – Southeast Asia and Northeast Asia (Edward Elgar, 2007) Forthcoming. Thailand Somboon Siriprachai A SHORT POLITICAL HISTORY Like any other traditional society, from the time of Sukothai (The first kingdom and First City of Thailand, circa 1260-1350 AD) to the Coup d’etat of 1932, the king was at the centre of Thai political structure. The king held extensive power – responsible for the administrative, judicial, military, religious and cultural life of the country. He also appointed central and provincial officials, issued edicts on a variety of subjects, made decisions on legal issues, oversaw preparations for war, protected the Buddhist faith, and provided generous support for the arts, which was essential for any king of Thailand. Many Thai monarchs represented leading intellectuals, poets and others, for instance; King Mongkut (1851-1867) and King Chulalongkorn (1868-1910) preserved Thailand’s independence from the West in an era of colonial expansion. The journey of modern Thailand began when King Chulalongkorn initiated the reform programme which included the introduction of Western-style education and public health systems, railways, and public security apparatus such as police. Under the Sakdina (The Thai Feudalism) regime which had survived for centuries, the Thai monarchy was unable to present its great power in the twentieth century. By the 1920s, the storm of change in the political system was emerging among military officers, civilian officials, and students who had studied abroad, particularly in France. The coups of June 24, 1932 brought the military to a dominant position in the Thai political structure, and the Provincial Constitution of June 27, 1937 ended the absolute monarchy. The critical event took place on the March 2, 1935 when King Prajadhipok abdicated the throne. The throne was vacant between 1946 and 1950. After that King 2 Bhumibol Adulyadej returned to Bangkok in 1950 and was very popular with the Thai people. The “1932 revolution” also opened Thai politics to a new group of people, mainly bureaucrats, who originated from the great reforms of King Chulalongkorn. The bureaucracy was the major source of employment for educated Thais and became the main source of power in Thai politics for decades. Some observers regard the Thai bureaucracy as a social system with its own values. Between 1932 and early 1973, the Thai politics was a matter of competition between bureaucratic cliques for the control of the government. There is no doubt that the most powerful group was the army, which was well organised and well established, and as a result, had come out on top of the political competition. Some political writers term this period as a semi-democratic era. Thailand has had a bicameral system since 1932 with a constitutional monarchy. Although the King Bhumibol Adulyadej had ensured some degree of political continuity, there have been 17 military coups (the last in 1991) since 1932. A genuine civilian government was restored in 1973, but over the following decades, administrations were always shorted-lived and unstable (see Table 1). Table 1 here The critical change occurred in January 2001, when the newly formed Thai Rak Thai (Thai loves Thai) –TRT party under the leadership of a former policeman and telecommunication tycoon, Thaksin Shinawatra, won a resounding victory in the general election. The Thaksin government is the first administration to complete a four-year term. Furthermore, in the 2005 elections, the Thai Rak Thai party won an unprecedented second term, and could form a single party government. Thus, this represents a new era of Thai politics to the extent that the parliament is controlled by a dominant political force (see Table 2). The Thai Rak Thai won 377 seats in the lower house to enable it to govern alone, while over the last decades a government coalition had been the case. 3 Table 2 here The political market in Thailand has become chaotic again in early 2006, when Thaksin sold his telecom company- Shin Corp - shares to a Singapore’s state-owned Thamasek Holdings for a tax free $1.9 billion. The deal to avoid paying tax on capital gains made a large number of people angry and disappointed. Anti-government protests grew rapidly leading to many big demonstrations by middle class and professionals in Bangkok. Opponents of the billionaire leader accused him of abusing the country’s system of checks and balances and bending government policy to benefit his family’s business. Instead of using parliament to respond to the opposition’s demand, he dissolved the parliament and called a snap general election, which was boycotted by all main opposition parties. Although the Thai Rak Thai party was returned to power, the no votes (abstention) were substantial, in particular in Bangkok and in the south. This has tainted Thaksin’s legitimacy and to defuse the political crisis, Thaksin handed over the premiership to his deputy. What role Thaksin plays in the future remains to be seen. ECONOMIC PROGRESS AND STRUCTURAL CHANGE Economic growth during 1855-1950 The Thai economy stagnated for at least 100 years (1855-1949). The growth rate of per capita income over this period averaged just 0.2% per year (Manarungsan, 1989). Why did the Thai economy stagnate for such a long period? Some attribute this to the unequal relationships with the colonial powers. For example, Ingram (1971) and Feeny (1982) suggest that Thailand remained de jure independent, but the economy de facto was similar to a colonial economy. The unequal Bowring treaty that the British Empire set up for Thailand in 1855 turned the Thai economy into a colonial economy. It prohibited high import duties (maximum 3% of imports and exports) under which domestic industries could not have been created. The cheap imports substituted local industrial products easily, while the country was severely weakened by limited government revenue from trade tax. Feeny (1982) goes further by arguing that the Thai elites chose to use all scare resources to invest in railways instead of putting money into 4 irrigation projects, which would have improved productivity in the agricultural sector, especially in rice production. The second explanation lies in the fact that Thai Sakdina (The Thai Feudalism) did not create any institution to nurture the entrepreneurial class. Most entrepreneurs working in Thailand at that time came from Europe and China. Chinese merchants were very active in the Thai economy in all aspects of life. The Chinese traders and unskilled workers migrated to Thailand to earn money and then send this back to mainland China. According to Ingram (1971), the amount of such money sent back to China was quite substantial, and rendered the Thai economy stagnant in terms of capital accumulation. The Thai Miracle since 1950 The Thai economy turned the corner in the 1950s. It grew by 6.2% annually between 1950 and 2003 (Table 3). During the decade (1987-1996), prior to the crisis, the economy was growing at 9.2% per annum. The economy contracted by –6.1% during 1997-98. It managed to come out of the crisis quickly and the economy has been growing by over 6%. As can be seen from table 3b, Thailand’s average inflation rate remained moderate throughout these years. Tables 3a & 3b here It is quite surprising that frequent military coup d’etats did not have the same pernicious effect on growth, as they did in some Latin American countries. As pointed out rightly by Feng (2003), political instability did not translate into economic uncertainty largely because both the overthrown governments and the coup leaders shared the same commitment to a market economy, and left the difficult job of managing the economy in the hands of technocrats from Ministry of Finance and the Bank of Thailand (Christensen and Siamwalla, 1993). Additionally, the monarchy in Thailand as a traditional institution keeps national conflicts at a low level. Thus, a country with many coups d’ etat was still capable of managing growth quite well as its fundamental principles of macroeconomic stability remained intact. 5 Sources of growth Table 4 summarises the findings of growth accounting studies for Thailand. Thailand ranks second among East Asian economies with respect to the contribution made by 1 TFP growth per worker over the period 1970-85. However, rapid accumulation of capital made the highest contribution. This is quite evident from the sharp increase in the investment ratio from a very low level in the 1950s to very high levels in the late 1980s and 1990s (Table 3b). The saving ratio jumped from 11.5 in the 1950s to 34.1 during 1990-96. The Thai capital accumulation was largely domestically financed until the mid 1980s, and household savings played a major role. Since the middle of the 1980s, however, corporate and foreign savings have assumed a significant role. Table 4 here Table 5 shows that the contributions owing to labour became rapidly superseded by an increase in quality. Quality adjusted contribution of labour input increased from 4.4 percentage points (25.1% - 20.7%) during 1980-1985, to 12.1 percentage points (21.4% - 9.3%) during 1986-1995. What is striking is that the quality adjusted contribution of TFP was at a rate of 31.3 over 1986-1990, but it was almost negligible in the later period of 1991-1995. Therefore, total factor productivity was exhaustive over 1991-1995 before the crisis broke out in 1997. Table 5 here One empirical study (Jansen, 1989) identified sources of growth on the demand side into three categories, namely domestic demand, import substitution and export demand. Between 1960 and 1970, domestic demand contributed 89.1% to economic growth, with 11.4% stemming from export demand and the rest –0.6% from import substitution.

Load more