Broader rebalancing strategies are basically aimed at promoting a more balanced growth in Thailand. Focusing on investment to make it a more significant growth driver in the future and taking up some of the slack created by a smaller role for exports is certainly very important, but there are also many other policy areas that will promote a more balanced growth path.

4.1 Productivity Improvements

The great benefit of increasing total factor productivity (TFP) for a more balanced growth path was already discussed in Jitsuchon and Sussangkarn (2009) and will only be mentioned briefly here. Clearly, if one can create more output from the same inputs, then growth will be boosted, and can replace growth that was previously generated by other factors, such as exports. In Thailand, there appears to be room to increase TFP. Past study of TFP by Tinakorn and Sussangkarn (1998) showed that industrial and services sectors tended to have negative TFP, and this reflects casual observations by many that Thai enterprises invest relatively little in research and development, mostly buying in technology and operating as assembly type enterprises. If Thai enterprises are to move up to the next level, then a focus on productivity will be crucial. Appropriate policies also need to support technological acquisition and innovation, entrepreneurship, and worker skill acquisition and formation.

4.2 Increasing Economic Efficiency

Since efficiency is fostered by a competitive environment, it is important that various sectors of the economy are promptly exposed to competitive forces in the market. Nikomborirak and Lertampainond (2009) found that the Thai economy has become increasingly concentrated as large businesses assume an ever larger share of the revenue. In 2008, the top 20% of listed firms claimed 86.28% of the total revenue of all listed firms, a marked increase from 81.02% in 2004. The authors found that almost all of these large businesses operate in the non-traded service sector such as construction, energy, telecommunications, and finance. Moreover, several large companies are state-owned. In fact, state-owned enterprises and their subsidiaries contribute to 48.7% of stock market capitalization.

Decades of successful export-oriented economic policy strategy have made the services a forgotten sector. Economic achievement is often described by impressive export and GDP growth, even though services have always contributed to a larger share of the country’s GDP than manufacturing does (Figure 11 [ PDF 46.6KB | 1 page ] ).

The service sector in Thailand remains highly protected and hence inefficient. The Foreign Business Act of 1999 prohibits foreign entities from engaging in any service businesses and state-owned enterprises continue to dominate many of the infrastructure services, in particular transport and utilities. As a result, labor productivity growth in the service sector has remained stagnant in comparison with that of manufacturing (Figure 12 [ PDF 19.9KB | 1 page ] ).

Boosting service sector productivity can significantly increase the level of income and hence domestic consumption, since the service sector employed 45.6% of workers in the labor force in 2008 compared with only 14.7% in manufacturing, a number which remained stagnant despite spectacular manufacturing output growth (Figure 13 [ PDF 19.9KB | 1 page ] ). If Thailand can rely more on the domestic market to be the engine of growth, then it will be in a better position to correct the external imbalance. At the same time, improved service sector efficiency will have a direct positive impact on the level of competitiveness of the manufacturing sector, since services such as logistics, finance, and telecommunications constitute important inputs in manufacturing activities.

To boost service sector productivity the government needs to expose the sector to greater competition. State monopolies in many service sectors need to reviewed, as do regulatory rules that favor large incumbents or limit entry of new players into the market. The highly restrictive foreign investment law will certainly need to be revised to allow foreign investment into service sectors where competition and technology are lacking, such as telecommunications, transport, and finance. Finally, investment promotion that has long focused solely on attracting export-oriented manufacturing will have to refocus on productivity-enhancing service businesses.

In addition to opening up the service business sector and privatizing inefficient state enterprises, Thailand also needs to properly implement its competition law, promulgated since 1999, in order to prevent large firms from exploiting their market power to entrench their market dominance at the expense of smaller, and perhaps more innovative, firms.

To ensure an effective implementation of the competition law, an overhaul of the current structure of the competition committee will be required. Private sector representation on the committee would need to be abolished and the Trade Competition Office would need to become more independent of the Ministry of Commerce in order to shield competition law from politics, which often involves vested business interests.

To conclude, significant efficiency gains can be made from exposing the non-traded sector to greater competition by opening up the service market to foreign players and by circumscribing the role of state monopolies in the provision of many basic services. Enforcement of the competition law will help to ensure that competition is not only free, but fair. It should be noted that market liberalization and privatization will also bring much needed private investment. Public and private investment is reckoned to be the second type of rebalancing that will be required for a sustainable global economic recovery.

4.3 Deepening the Production Structure and the Creation of New Dynamic Industries

This was also discussed in Jitsuchon and Sussangkarn (2009) and is related to the discussion above on the need to increase or deepen Thailand’s capital goods industries to lower investment’s dependence on imports. Deepening other industries will also have similar impacts on the economic system as a whole. For example, a deepening of the parts and components industries can lead to less dependence on imported goods (which is very high in some industries, such as electronics). This will lead to more domestic linkages among industries, and will also increase the GDP multipliers for all types of exogenous demand increases.

The deepening of industries also creates new industries, which could become dynamic industrial leaders in the future. A concrete example is Thailand’s strategy to develop a new niche segment in the automobile industry. The Eco-car project gives special tax breaks for a new type of Eco-car, cars with a small engine size (less than 1,300 cc for gasoline cars and less than 1,400 cc for diesel cars) that can cover more than 20 km/liter, and must comply with the Euro-4 environmental standards and stringent crash safety standards. This type of strategy can bring about numerous simultaneous benefits. It creates a new niche product in line with current concerns about energy and the environment, and can become an important future source of growth of Thailand’s auto sector. As well, it would provide a more energy-efficient transport system, reducing the energy ratio of GDP, which is friendlier to the environment and leaves more external resources to be used in other investment areas. A number of manufacturers are now producing these cars and the first model (Nissan March) has come on to the market in 2010.

4.4 New Growth Poles and Better Distribution of Growth

Finally, in addition to creating new industries to be future sources of growth, one can also try to create new growth poles in a geographical sense. In the Thai context, the areas of great potential are those linking Thailand to her less developed neighbors, more specifically the other Greater Mekong Sub-region (GMS) countries. 12 This is in line with the current renewed attention by many countries and organizations to the potential of cross-border connectivity to bring about new sources of growth. Much infrastructure has been built to provide better links between the GMS countries and more is planned. This should create a great deal of new economic activity along Thailand’s border areas. These areas have much lower income levels than the central parts of the country. Thus, better connectivity to Thailand’s GMS neighbors should also help to reduce income gaps within the country. Reducing income gaps is generally accepted as an important step in increasing domestic consumption. If new growth poles along Thailand’s border areas can be created, this will be part of an effective strategy to bring about a more balanced growth path for the country.

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