Policy Watch

Policy Watch-April 2014

8 OBSERVATIONS ABOUT INEQUALITY IN THAILAND


There are 22 million households in Thailand.  Suppose we were to sort all these households by their income, from   poorest to richest, and group them into 10 villages of equal size such that village 1 comprises the poorest 10% (poorest 2.2 million households) and village 10 comprises the richest 10%.  What do these villages look like?


In village 1, the poorest village, the average household earns only 4,300 baht per month.    The single largest group (40% of the village) are the elderly.  The poorest village in Thailand resembles a retirement home more than a farming community.  This resemblance will become even more pronounced given Thailand’s rapidly aging population. 


Village 5 looks like a community near urban and industrial areas, with most heads of households working as clerical and sales staff (20%) or self-employed and factory workers (16%).  People here earn near the middle in terms of income, averaging about 12,000-15,000 per month.


Village 10, the richest village, not surprisingly comprises mostly professionals (40%) and business owners (12%), earning an average of 90,000 baht per month. (Of course, as we shall see, the richest households in the richest village earn way, way more than this average.)


With the above in mind, we can make 8 observations about inequality in Thailand:


1. Inequality in Thailand has got worse over the past 3 decades. While real GDP in Thailand has almost quadrupled over the past 3 decades, inequality has got worse.  Incomes in the richest village have grown faster than those in the poorest village.  In 1986, average incomes in the richest village were 20 times those in the poorest.  By 2011, that ratio had increased to 21.


2. The poorest are the elderly, not farmers. Contrary to what one might think, the poorest are not farmers.  The single largest group in the poorest village are the elderly (40%), significantly higher than farmers (25%).  Nor are all farmers poor.  Some even manage to live in village 10 alongside the professionals and business owners.  About 9% of those in village 10 are farmers, mostly from the South of Thailand. 


3. Almost half of Thai households still earn less than 15,000 baht per month. Who is the “typical” Thai household and what does it earn?  Average household income in Thailand is around 23,000 baht per month, but that can be misleading because income distributions in Thailand (as elsewhere) are very skewed: there are a few households earning a whole lot which tends to drive up the average.  The household that earns 23,000 baht per month lives in village 8, not village 5.  Only a third of Thailand’s 22 million households earn more than 23,000 baht.  Almost half earn less than 15,000 baht (about the median).  Most households still only earn between 7,000-8,000 baht only.


4. Official figures probably understate inequality by at least 25%. Official figures are computed from the official socioeconomic survey (SES), which understate household incomes by nearly 1 trillion baht, compared to equivalent figures in the GDP accounts.  Wh is most of this missing or unsurveyed income likely to reside?  In all likelihood in village 10.  Why?  The very richest household surveyed in the SES had a total net worth of only 205 million baht.  By contrast, the average net worth of those on the Forbes 50 list for Thailand was 52 billion baht.  Incorporating the missing or unsurveyed income into village 10 would increase its income relative to the other villages and would increase measures of inequality.  One common measure of inequality is to look at the income of the top 20% (villages 9 and 10) relative to the bottom 20% (villages 1 and 2).  In Thailand, according to the official figures, this ratio is 11.  But incorporating the missing income would increase this ratio to 14, causing our already dismal inequality ranking (#121 in the world) to deteriorate further (to #135).


5. Thailand ranks near bottom on wealth inequality. Wealth inequality is even higher than that of income.  Of every 100 baht earned in income by the whole country, 38 baht accrues to those in village 10, while only 2 baht goes to those in village 1.  In terms of total net worth, however, those in village 10 own almost 60%, while those in village 1 have negative net worth as their liabilities (debt) exceed their assets.  Not surprisingly, Thailand ranks #162 out of 174 in terms of wealth inequality according to the Credit Suisse Global Wealth Databook.


6. The wealth of the average Member of Parliament (MP) is higher than that of 99.999% of Thai households. MPs are representatives of the people.  One might therefore expect them to be drawn from perhaps a variety of villages and constituencies.  But it turns out that they are all from the very, very richest households in village 10.  In fact, the total asset of the 500 MPs is equal to the total net worth of the 2 million poorest Thai households.


7. There is also inequality in access to quality health and education.  Children from village 10 get access to better schools and are twice as likely to obtain a passing score on the Math PISA exam as children from village 1.  Not surprisingly, they are 3 times more likely to go to university.


8. The most important inequality to address in Thailand is inequality of opportunity. Income inequality has been with us for a long time and is not likely to go away any time soon. Most people can probably also accept that some inequality in income is inevitable.  Many Thais might attribute it to bad karma.  But persistent inequality in opportunity is much more difficult to accept, and can lead to a sense of injustice, resentment and conflict.  People can accept losing the race, but not being prevented from competing.  Such a focus on addressing inequality in opportunity requires policies to improve the access and quality of public services, especially education.  By contrast, a focus on addressing income inequality would lead us towards (zero-sum) redistributive tax and populist-spending policies which in the current political climate would only exacerbate conflict.  

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