How did we get here? A 20-year retrospective
It often helps to take the long perspective. We can use the benefit of hindsight to distinguish between what were temporary blips and what were long-term underlying secular trends (12). We wanted to go back at least 20 years because this would span the boom years, the Asian crisis years, and the post recovery period. (13) We pulled together and sifted through pretty much whatever historical data we could find that was relevant and reasonably reliable.
Our goal is not to provide a comprehensive “data dump” of indicators, but simply to highlight salient developments which we felt were noteworthy and interesting in the economic, social, environment, and governance areas. It is also beyond the scope of this paper to provide a thorough analysis of the developments in each of these areas over the past 20 years. The experts interviewed in the volume accompanying this paper are far better placed to provide such an analysis.
The economy: More production but not productivity
In 1990, Thailand’s 5-year average growth rate was the 6th highest in the world, leading to some (infamous) predictions about how it was destined shortly to become a NIC (newly industrializing country) and among the 10 largest economies of the world. Twenty plus years later as of 2012, our average growth rate ranks 81st in the world and the country is the 32nd largest in the world measured at market exchange rates, about the same size as that of Colombia.
The drop in growth is readily explainable. Because the country is aging rapidly, the growth in the labor force (the population aged 15-60) has dropped off from a compound average growth rate (CAGR) of 1.5% in the 1990s to only an expected 0.2% during the current decade, and is expected to turn negative by as early as 2018. Fewer workers might not necessarily mean lower growth if those workers were more productive, but Thailand’s labor productivity growth has been lackluster. Between 1990-95, it was 7.4%. Between 2005-2010, it had dropped to only 1.8%, among the lowest in the region. By contrast, China’s labor productivity growth has remained consistently above 10%.
There are myriad reasons for the sluggish productivity growth, but one worth highlighting is the sluggish recovery in investment (14). Without investment—more capital and technology—it is hard for workers to be more productive. Thailand is the only country in the region where the actual level of investment (in real terms, excluding inflation) is still significantly below the level recorded prior to the 1997 Asian crisis. Total investment in Thailand in 2012—both public and private—stood at about 80% of what it was in 1996, its pre-crisis peak. Other Asian crisis countries have managed to get their investment above pre-crisis levels, e.g., Korea (117%), Indonesia (152%), Malaysia (111%) - as of 2011.
Neither has the country invested in knowhow. Central to a country’s ability to “move up the value chain” and escape the middle income trap is improving its technological capability. But not only is Thailand’s spending on R&D as a share of GDP low for its level of income (0.24%), it has also stagnated and even recently dropped. China’s GDP per capita is roughly the same as that of Thailand, but it spends more than 8 times more as a share of GDP than we do. Even Malaysia has seen a small but steady increase in its spending share from 0.2% to 1.0% over the same period.
(12) The past 20-year period can be divided into 3 different sub-periods in terms of GDP per capita – Booming sub-period (1990-1996), Recovery sub-period (1997-2003), and middling growth sub-period (2004-present).
(13) The past 20 years saw 16 different government administrations. We hope it is clear that by taking such a long perspective spanning so many different governments that we have no intention of criticizing any specific administration. The problems and challenges we discuss clearly have both preceded and outlasted any particular government.
(14) Other reasons include a slowdown in the movement of labor from lower productivity sectors like agriculture to higher productivity ones like manufacturing. Thailand is also quite striking for the relatively high proportion of its labor force (about 40%) still tied to agriculture given its level of income and development.