In his thoughtful presentation at the 21 April 2010 ANU conference on “Thailand on the Verge,” Peter Warr highlighted the importance of inequality, especially rural-urban inequality, as a key factor underlying Thailand’s political turmoil. Inequality, along with a persistently high level of informality in the labor market, were first highlighted a couple of years ago by Pasuk Phongphaichit and Chris Baker. I want to push the causal arrows back a bit and address the roots of this inequality and informality, along with the country’s fall in absolute poverty noted by Warr.
Thailand’s uneven performance — its overall poverty reduction and generally healthy growth rates, along with its persistent inequality and informality — are the result of a distinctive economic strategy. The core of this strategy has been an emphasis on resource- and labor-intensive exports. In terms of policy, this has meant an emphasis on macroeconomic stability, logistics, and financial flows, especially to large firms. With brief and largely ineffective exceptions (e.g. after the 1997 crisis), leaders have neglected the promotion of technical skills and linkages between small and medium-sized firms on the one hand, and larger producers on the other.
The result has been a form of uneven development. Thailand has been hugely successful at diversifying, at becoming a world player in sectors such as rubber, autos, and hard disk drives. But some 90% of Thai rubber is exported in largely unprocessed form, whereas the same percentage of Malaysia’s rubber is consumed domestically in locally produced manufactured goods. Thailand has been astute in encouraging automotive production for particular niches, especially pick-up trucks and more recently “eco-cars.” But the country’s impressive automotive “clusters” include only a small and dwindling number of local auto parts suppliers. Thai suppliers are even scarcer in disk drive production. As the World Bank argued several years ago, Thailand’s ‘high-tech exports” are a misleading indicator of technological capacity; the country remains an assembler, rather than a manufacturer or designer.
Why are these outcomes important for inequality and informality? First, the lack of downstream linkages for natural resource sectors such as rubber and upstream linkages for manufacturing sectors such as disk drives reduces formal employment opportunities. It thereby pushes workers into less stable and more vulnerable informal work. Second, foreign producers, who dominate Thai manufacturing, tend to increase demand for skilled workers. This intensifies the relative scarcity of skilled workers who can then demand a higher wage, thereby reducing the GDP share captured by unskilled workers (as noted by Peter Warr). All this intensifies wage inequality.
The main way to offset this dynamic is through an education and training system that increases the supply of high-quality workers. Unlike in the East Asian Newly Industrialized Countries, such a system has been largely absent in Thailand: The country’s vocational education at the secondary level has been weak, tertiary enrollments in technical subjects have been low, and university-education linkages have been thin.
This analysis suggests three further considerations that bear on the country’s political future. First, the weakness of the country’s technological and supplier base increases the danger that Thailand will get stuck in a “middle-income trap:” squeezed by lower-wage rivals such as Vietnam but lacking the technological capacities to compete with higher-wage, higher productivity rivals such as Taiwan. Such a trap undermines the sustainability of even the resource- and labor-intensive growth on which the country has depended. Second, Thaksin’s popularity was a function not simply of a healthy global economy, as stressed by Peter Warr, but also of his willingness to address both rural-urban inequality and the need to deepen the country’s economic structure. His efforts in this latter area were ineffectual, plagued by corruption and the need to satisfy the demands of diverse political factions.
But, and this is the third point, his efforts were also plagued by the absence of an organized political constituency for economic deepening. I’m speaking here not only of the lack of organized backing from local manufacturers, but especially of the absence of influential organizations representing labor. Given the prevalence of informal labor, such an organizational vacuum is not surprising. But it makes labor vulnerable to manipulation by diverse political factions, discourages orderly bargaining, and bodes ill for Thailand’s ability to resolve the present crisis.
Rick Doner is a Professor in the Department of Political Science, Emory University