Where do we go from here?

Since the first five-year National Economic and Social Development Plan (NESDP) introduced in 1961, until the seventh plan started in 1996, emphasis was always placed on growth by utilising comparative advantages in terms of natural resources and low labour costs to produce goods for export (see sidebar). Significant growth was achieved and infrastructure developed, yet unfair income distribution persisted, the family institution continued to break down and the environment continued to deteriorate. All these negative impacts were seen as being precipitated by a failure to improve human resources. Hence, the eighth plan (1997-2001) gave priority to improve the quality of the workforce.

WRONG AGAIN

The eighth plan started on a high note. Among other things, it aimed to reduce the current account deficit to 3.4% of Gross Domestic Product (GDP) by 2001, keep the rate of inflation low at around 4.5% per year, and reduce the poverty rate to less than 10% of the total population. Unfortunately, the recent economic turmoil has made achieving most of those targets an uphill task, if not impossible. According to Prof. Sombat Thamrongthanyawong , dean of the School of Public Administration at the National Institute of Development Administration (NIDA), when the plan was being drawn up, there was an upbeat feeling about the economy. "The economy had been booming since the middle of the seventh plan. So when they started outlining the eighth plan, there were a lot of dreams and good feelings about everything," he said.

But the dreams were badly shattered. By the time implementation of the plan began in 1997, the crisis already loomed, he said. All budgets, particularly for human resources development, were slashed. Instead of being implemented by joint-public offices as originally planned, the plan was weakened by being separately executed by individual public offices, Prof. Sombat explained. Although the National Economic and Social Development Board (NESDB) has tried to improvise, the results are still way off target.

By the end of the seventh plan in 1996, there were 6.8 million poor people. In 1998, the figure climbed to 7.8 million, with an estimated 3.59 million living below the poverty line. This was largely as a result of the crisis, which led to bankruptcies and high unemployment. In 1998, the number of jobless, including educated workers, had risen to 1.6 million-2.6 times higher than the previous year. The impact was severe, said Prof. Sombat. "More than 100,000 students were forced to leave school after their parents found themselves jobless. About 276,000 primary and secondary students couldn't afford to further their education. "The NESDB reported that only 46.8% of children go to high school and 19.3% to university-much lower than in neighbouring countries. The gap between the rich and poor in Thailand is the widest in East Asia and it is getting worse. The gap actually widened from 47% in the early 1990s to 48.1% in 1998, one year after the eighth plan was implemented.

The government has tried to solve the crisis by injecting money into the economy, including the Miyazawa fund. The money has been spent on creating jobs in government projects, social investment and providing low interest loans. But the administration's efforts have been criticised as straying away from the plan's priority - human resources development - and reverting to the conservative target of development that stresses growth. However, Prof. Sombat argues that this is a temporary diversion, which the government had to take in order to generate income and bring about economic recovery. "The results have been quite marked. Our GDP growth increased from -10.18% in 1998 to 3.5% in 1999. Our national reserves, inflation and current account are in a better shape. Foreign investors have more confidence in our economy," he noted.

ROOT CAUSES

Experts suggest that the failure of the eighth plan be largely as a result of developing an unsustainable and fragile economy. Since the mid 1980s, foreign firms, particularly Japanese, began to move their production here. The economy started to grow rapidly. Surplus labour in the agricultural sectors flooded factories in cities. Manufacturers stressed exports. The industrial sector replaced agriculture as the main contributor to the country's GDP. At the same time, private firms borrowed huge loans from abroad to take advantage of low interest rates. At first, the mood was upbeat as the economy climbed high. Leading figures started talking about Thailand joining the clique of newly industrialised countries (NICs). The NESDB even set a target for Thailand to become a fully developed nation by 2020. Throughout all this, the development concept was dominated by the mainstream economy, stressing free trade and industrialised policy. Then the economic crisis hit the country in 1997 and many blamed it on too heavy reliance on industry, particularly the export sector. Prof. Sombat disagrees. Rather, he says, the core of the problem lies in labour intensive industry. We are crippled by low technology production, inadequately skilled labour and non-value added production. "Our labour cost is too high to enable us to strengthen the country's labour intensive industry. We cannot compete with cheaper labour from countries such as China, Vietnam and many South Asian nations," he said.

BACK TO BASICS

Now the focus is on how to improve the next NESDP, the ninth. Some economists have suggested that it would make more sense to return to being a self-reliant agricultural society. After all, they argue, a large percentage of the population still works in the sector. But in Prof. Sombat's view, it is not economically viable to turn the clock back. "At the moment, the agricultural sector contributes only 10% of GDP, while 90% comes from the industrial and service sectors. We wouldn't be able to afford to service our foreign debts, let alone compete with others. And if that's the case, how could we create a better life for the people," said Prof. Sombat.

Prof. Kriengsak Chareonwongsak, director of the Institute of Future Studies for Development (IFSD) agreed. In his book Mid-stream Economy he argues that too much stress on agriculture and self-dependence will bring about negative rather than positive results. He says it will create problems in the economic structure, which has long been connected with the global economy, including international trade, services and investment. Furthermore, the economic system would be weakened putting the country at a disadvantage in terms of quality, economy of scale, benefits from external productive factors and competitiveness.

Turning the clock back would also reduce the Gross National Product (GNP) per capita which would, in turn, increase poverty. Finally, it would cripple the country's chances of keeping pace with the trend towards globalised development, leaving it relatively backward and uncivilised. Other experts argue that there is a way-out of the problem. They say that agro-industries-for example, canned fruit-could complete the country's production system. But according to Prof. Sombat, such a system can only work under certain conditions, for example, low cost production and primary production, which is not the case in Thailand. "What's more, commodity prices fluctuate greatly depending on world markets. So we cannot rely on the agricultural sector," he said.

In addition, as the country produces more educated people, they too will converge on the cities looking for work.

According to the new constitution, children are entitled to 12-years of free education. As such, it is expected that within the next 10-15 years, 50% of the population will live in cities. "If Thailand only relies on agriculture as the main mechanism for boosting the economy, what will happen to all those people in the cities?" wonders Prof. Sombat.

THE NINTH PLAN

According to Sansern Wonchaum, secretary-general of the Office of the NESDB, the ninth NESDP will aim to create jobs, improve the quality of manpower and raise incomes. Prof. Sombat agreed, saying that people need jobs to earn a living. "But we must continue to improve the quality of the workforce as the core of the development plan. The root problem of the economy is that Thailand lacks qualified human resources," he said. In the past, Thailand failed to attach importance to research and development (R&D) in science and technology, he said. "We only spent 0.1% of GDP on R&D compared with 2.8% by South Korea. It is high time we seriously invested in this area." In his book, Prof. Kriengsak suggests that the "mid-stream economy" is most appropriate for Thailand. This means a free economic system based on self- reliance, strong production sectors and a flexible approach that could easily switch from free trade and globalisation connected policy under normal circumstances to self-sufficiency when faced with crises. "To develop the country, we need to stress both agriculture and industry. We must consider what kinds of agricultural and industrial production are worth supporting and what is the appropriate rate of development in the agricultural and industrial sectors. Only then will we be equipped for all eventualities."

(Bangkok Post, February 27, 2000)