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03 15 Lecture Notes - Thailand's Development Strategy.docx

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Geography 3312A/B
Haroon Akram Lodhi

Boom, bust & beyond – Thailand’s Development Strategy (1958-2012)  Until the 1980s agriculture dominated Thai economics, politics and society  In the 1980s the ‘Sarit system’, in which the business-military-bureaucratic elite, markets and agricultural exports structured the operation of the political economy, hit the wall o Alliance between the military & bsns  In agriculture, in particular, the end of the agrarian frontier was approaching as the limits of clearing and the extension of the cultivated area were drawing near o Agriculture – 16% of GDP, 68% of workforce o Industry – 32% of GDP, 12% of workforce o Services – 52% of GDP, 22% of workforce  There was, at the same time, a crisis of import-substituting industrialization in the late 1970s and early 1980s, driven by o oil shocks (if you’re going to have business, you have to fuel them)  Import oil (in 1073, oil prices tripled… and again in 79). Rising prices = rising cost o cuts in US military and official development assistance  This led to a deepening set of problems for the agricultural export-led import-substituting Thai economy  However, ISI had not been central to the economy o the purpose of ISI had not been so much to build capitalist development as to produce revenue for the central government, and especially the military  Create business to fund the economy – and thus, the military. o lots of ‘manufactured’ exports were really (semi) processed natural resources, including agricultural products, which were finished outside Thailand o there was, however, a broad military-business-bureaucratic coalition committed to keeping ISI in place, for reasons of social stability and elite profitability  The response of the elite in response to the crisis was, at first, to try and deepen ISI by increasing protection  However, the 1979 oil price shock demonstrated the folly of such a strategy, dramatically pushing up the cost of imported oil, and hence inflation, to which the state in particular had a deep aversion  As a consequence, in the early 1980s there was a growing push for a policy shift  This came to partial fruition in November 1984, when the baht was devalued and there was a partial liberalization in an already quite liberal economy, demonstrating once again the strong preference of the state to avoid intervention in the economy o Devaluing the currency makes exports cheaper and imports more expensive – get it?  This led into 1985, and the onset of an economic boom that lasted until 1996 o The economy today looks more like the results of this boom.  A key trigger of the boom was changes in the value of the yen versus the baht  As a result of the monetary policy undertaken by the US Federal Reserve in 1979, which triggered a global recession, the onset of monetarism, and the debt crisis, the value of the US dollar rose on world currency markets o As the dollar goes up, so do other currencies – like the Japanese yen (they become more expensive in terms of Thai baht). The Japanese faced increasing costs – harder to export, but easier to import, meaning they buy more things in other countries (or move production to other countries – FDI)  The exchange rate of the baht at the time was pegged to the dollar  This rise in the dollar created balance of payments deficits for the US economy which threatened the stability of the global economy  Therefore, in October 1985 the Reagan Administration negotiated the Plaza Accord, by which the value of the dollar fell, particularly against the yen, through until 1988  As the yen became relatively more expensive in global terms, Japanese TNCs undertook a strategy of endaka: the restructuring of production out of relatively more expensive Japan and into relatively less expensive countries, such as, for example, Thailand  Thus, there was a significant inflow of Japanese FDI into Thailand after 1985  The inflow of Japanese capital after 1985 led to other countries following suit  Inflows of foreign direct investment substantially boosted total investment, which we have seen is very important for economic growth, and moreover FDI flows probably underestimated the importance of foreign capital, because o it ignored the re-investment of profits into Thailand o it ignored the debt financing of investment (loans) o it ignored the new production technologies brought in by TNCs o it ignored the skills that can be transferred to local employees by TNCs  Moreover, domestic capital was heavily involved in the foreign direct investment-led boom: of the 1000 largest Thai firms in 1980 28% had foreign partners but these accounted for 51% of the total sales of these 1000 firms  The FDI boom thus triggered a local investment response amongst the conglomerates that dominated the Thai economy  This resulted in a huge increase of both exports and imports (when companies move to Thailand, they may need products that aren’t available in the country) o The most important exporter is the US – producing and selling products from Thailand is cheaper than selling them from Japan because of the currency difference  Thailand had of course been an export-oriented economy  However, the 1980s Japanese-led FDI boom was based not on agricultural exports, which did continue, and not on production for the home market, which also continued, but on export- oriented manufacturing, which was new, and which rose fourfold between 1985 and 1991  Thus, in a sense, Thailand was involved in what we now call outsourcing: investment and imports came from Japan, into Thai factories, and were turned into exports, destined in the first instance for the US, but also for Japan, as well as for other Asian newly-industrializing countries, in that Thailand was acting as one part of a ‘southeast Asian factory’  The initial export surge was in labour-intensive products such as textiles, but later moved to so- called ‘medium technology’ industries such as computer peripherals and motor vehicle parts  This boom had major implications for the Thai political economy: while growth reflected o improvements in productivity as a result of the technological modernization brought about by FDI o improvements in efficiency as liberalization was pursued and hence the need for global competitiveness disciplined exporters to be cost and quality conscious  it nonetheless required labour to work in these export-oriented manufacturing industries  The Thai labour force rose from 13.5 million in 1960 to 33 million in the late 1990s  Where did this labour come from? The declining agrarian frontier o in the 1950s 80% of the population was employed in agriculture o in the 1950s 50% of GDP originated in agriculture o in the 1990s 60% of the population was employed in agriculture o in the 1990s 10% of GDP originated in agriculture  Despite diversification, agriculture was hampered by low yields, a lack of investment, a lack of government support, and a declining ability to expand the cultivated area: thus, agribusiness expanded even as farming went into crisis, and farmers, with their livelihoods under threat, looked elsewhere to make a living  There was also a significant change in the gender composition of the labour force: over 70% of Thai women work in paid employment, and this was and is especially the case in textiles and garments, electronics, and tourism, all of which are heavily reliant on female labour  As the economy boomed, the source of domestic finance for investment also changed: o up until the 1970s, banks relied on household savings that were then channelled to the conglomerates for investment o from the 1980s onwards, corporate savings (i.e. profits) became the major source of finance for investment  The role of the big banks became, therefore, if anything more important than had previously been the case  The role of the state in the boom was limited: historically, imperialist treaties had limited the capacity of the Siamese state to intervene, and barring the nationalist episode of the late 1930s and 1940s, this had remained the case  The state therefore provided: o macroeconomic stability  cautious fiscal and monetary policy  fiscal: how the gov’t taxes and spends (don’t spend more than you earn)  monetary: how much money is sloshing around – interest rates  low inflation  stable exchange rate  macro policy shielded from politicians and military by bureaucratic technocrats o infrastructure  Public goods – roads, airports, etc. o Education  Provided at primary & secondary level to produce a good workforce o strong control of labour, which is tightly repressed  Limited ability to press for higher wages. Oppressing labour is pretty o low food prices  Emerged because Thailand is a big food producer – don’t have to spend so much on food means you don’t have to pay them as much.  The state was predatory—that is, corrupt, earning money off business—but in a limited way, and while governments changed policies remained the same  Indeed, macroeconomic stability allowed a major economic liberalization to happen during the boom, which is comparatively unusual  Thus, the business elite was given a free hand in pursuing profits in exchange for offering perks to elements within the bureaucratic state elite  Thailand in the late 1980s and early/mid 1990s thus had a dynamic capitalist class and a pro- capitalist state  There were differences in this: capital around metropolitan Bangkok was far more internationalized than those in the provinces, which required closer patronage by the state in order to ensure ongoing profitability—but Bangkok capital dominated the state overall  The capitalist/state nexus completely broke up the coalition that had supported, for political reasons, ISI—and of course the Thai state had not been very interventionist except in agriculture  This meant that for a time after the events of 1976 the relationship between the state and business moved from the backroom and into the political arena, with elections being dominated by money and political parties exclusively representing the interests of business o Politics dominated by business  Indeed, in 1988 a government without ties to the military or bureaucracy took office, explicitly in support of business interests  This was sustained despite a bloodless coup in 1991 and a more bloody one in 1992—both demonstrated that the military sought a piece of the economic cake but not control of politics as such, as the military was willing to return power to political parties, and in so doing demonstrates that there had been a systemic shift in power to political parties representing business interests  The democratic opening of the 1990s did however lead to greater political machinations around the content of economic policy—the central bank became less independent, and the ability of technocrats to control the levers of policy was challenged  The growth of the 1980s and 1990s led to the emergence of an economic bubble o When people buy stuff for speculative purposes – pay too much because you think the price is going to keep raising forever and you can get lots of money later  Economic bubbles are sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, or a speculative mania. It is witnessed when people buy and sell assets in high volumes at prices that are considerably higher than ‘market fundamentals’, which are theoretical calculations that reflect what might be construed as being an appropriate price based upon the income that might be derived from holding the asset  The Thai bubble was caused by the financial liberalization of the capital account—the inflow and outflow of money, rather than goods and service--by the government between 1990 and 1992, which increased the ease of global capital to both flow into and flow out of Thailand even though the value of the baht was fixed against the dollar  In theory, this is done in order to boost investment from all sources, but o Thailand was awash with savings that could be channeled into investment o one consequence of the boom was that Thai companies were heavily in debt to local banks o the liberalization occurred without  an accommodating monetary and exchange rate policy  a framework to regulate
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