Inequality: why does Thailand get richer, but people feel poorer?

The junta is always claiming that the Thai economy is on the rise, but how true is this? And is it rising in a healthy manner? According to one analyst, the Thai economy is good when we look at the overall figures, but when we go into detail, it is a totally different story. 
 
Is Thai economy doing well now? The answer to this question can vary tremendously as it depends on who answers. If it is a businessman, investor, or the junta, you might say the Thai economy is improving since there has been an increase in GDP, exports and the stock market.
 
But if you are labourer, taxi driver, or street vendor, you might say the economy is horrible because of rises in taxes, food prices and the cost of living. 
 
The reason behind these totally different opinions is economic inequality and the illusion of statistics. According to Pipat Luengnaruemitchai, Assistant Managing Director of Research and Financial Institutions Analyst at Phatra Securities, Thailand is developing only the topmost globalized part of economy while the local economy is left behind.
 
In his view, it is true that the Thai economy is getting better, yet significant challenges and risks still exist.
 
 
Pipat Luengnaruemitchai
 
Judging from statistics, Pipat stated that the Thai economy is growing gradually, but at a relatively slow annual rate of 3.7% compared with a GDP growth rate in recent years of between 7% and 8%. Even after the Tom Yam Kung Crisis in 1997, the growth rate was still between 5% and 6%. 
 
Although 3.7% seems to be low, Pipat points out that it is the highest for a number of quarters, which is a good sign of economic recovery. But where does this number come from?
 
Pipat explains that economists normally use Gross Domestic Product (GDP) to indicate the economic performance of a country. A country’s GDP is a measure of consumer spending, business investment and government spending, plus net foreign trade.
 
He notes that the agricultural sector has greatly contributed to the 3.7% economic growth. Agricultural production grew 15.7% year-on-year in the second quarter. But that does not mean that Thai farmers are prospering. The reason behind the increase is last year’s severe drought which lowered productivity.
 
When farmers started to produce more this year, prices went down. The farmers’ real income, therefore, does not increase much even though they can produce far more than last year. 
 
National consumer spending has grown only 2%, meaning that though Thailand is producing more, people are spending less. 
 
Another factor contributing to Thai economic growth is the worldwide economic recovery which leads to greater business activity. This has increased foreign demand, so Thailand’s foreign trade has gone into surplus after being in deficit for three years in a row. 
 
Tourism also plays a crucial role in boosting the Thai economy. Thanks largely to Chinese tourists, this sector has grown significantly during the past four years. Tourism accounts for 10% to 15% of national income but these numbers do not guarantee improved wellbeing for all Thai people.
 
“When we say that GDP has grown by three per cent, around one of that three per cent comes from tourism. Whatever is related to exports and tourism has benefitted fairly well, leading to better figures. But the problem is that the tourist industry is very concentrated. There might be only 10 provinces that can earn directly from tourism,” Pipat argues.   
 
Even though Thai exports, like tourism, are improving, it does not guarantee that the income of Thai workers will rise. In fact, some still have to work without overtime pay. 
 
This is because exports have just started improving after a long period when supply exceeded demand and companies had to stockpile their products. When the world economic recovery brought back foreign demand, many companies sold off their stock for profit without increasing production.
 
When production rates remain the same, there is no demand for more labour. Some companies have hired more workers, but the workers’ income remains unchanged. So the increase in national exports has not led to more domestic consumption as workers do not have any more money to spend. 
 
Meanwhile this year the agricultural sector, where earnings directly contribute to higher domestic consumption, cannot fuel the local economy because of the drop in agricultural product prices. 
 
“30 to 40 per cent of Thai national income is still related to agricultural product prices. In the years when the agricultural sector does well, motorcycles sell and pickups sell well. It all goes around. But nowadays, prices of agricultural products are low, leading to less money in farmers' wallets. So consumption growth is not clear,” Pipat stated.
 
Another weakness of the Thai economy is the decline in private investment. Many companies see that this is not a good time for new investment as the Thai economy has just recovered. The Industrial Production Index shows that Thailand’s production now is even lower than after the great flood in 2012. 
 
This is partly because foreign investors have shifted to other countries because of political instability, given that Thailand is no longer the only destination in the region. 
 
Government spending has been a key contributor to Thai economic growth during the past two years but right now it has reached capacity. Right after the coup, government spending increased significantly because the pre-coup political deadlock prevented the government from using the national budget. But now government spending is facing a deficit because it has been spending too fast. 
 
Pipat emphasised that the root cause of Thailand’s economic problems today is inequality. In the past when Thailand’s economic growth rate was five to seven per cent, people did not feel the effects of inequality since they could still get enough money to live on. But when the growth rate is only three per cent like now, inequality becomes more obvious. 
 
The economy of the poor is totally different from the rich because they have to rely on basic income, while the latter rely on wealth and assets. The rich, therefore, are not much affected by low economic growth since the prices of their shares and land are still rising. Meanwhile, the poor suffer from the increasing cost of food and housing.
 
“It’s an issue of a lack of thoroughness. When we try to judge economic conditions by numbers alone, we must ask whose numbers they are. If we take averages, then that means there are people who are above average and people who are below average. And as it turns out, those who are below average are the bigger base,” said Pipat.
 
In order to escape economic inequality, Pipat suggests the government focus more on improving labour productivity through education, investment and technology. Other countries facing similar low economic growth, like Taiwan, Japan and Korea, invested enormously in developing technology to increase productivity by using the same size workforce, or using a smaller workforce but still getting the same productivity.
 
But Thailand is lucky and unlucky at the same time, because it has plenty of cheap immigrant workers from neighbouring countries. On the positive side, industries can function profitably at a lower cost. But on the other hand, companies have less incentive to replace their workers with better technology. 
 
“Many say that the best way to solve the problem of poverty is to increase [economic] growth. What can we do to increase the economy to bring people at the bottom along?  At the same time, we cannot leave them behind. We must monitor inequality to ensure that they will receive services from the state at an appropriate level,” Pipat added. 
 

Advertisements

Since 2007, Prachatai English has been covering underreported issues in Thailand, especially about democratization and human rights, despite the risk and pressure from the law and the authorities. However, with only 2 full-time reporters and increasing annual operating costs, keeping our work going is a challenge. Your support will ensure we stay a professional media source and be able to expand our team to meet the challenges and deliver timely and in-depth reporting.

• Simple steps to support Prachatai English

1. Bank transfer to account “โครงการหนังสือพิมพ์อินเทอร์เน็ต ประชาไท” or “Prachatai Online Newspaper” 091-0-21689-4, Krungthai Bank

2. Or, Transfer money via Paypal, to e-mail address: service@prachatai.com, please leave a comment on the transaction as “For Prachatai English”