By Mehmet Enes Beşer
Thailand’s recurrent economic growth in previous decades has too often been explained by its performance of exports, locational advantages in the supply chain, and resilience of the tourism sector. Whereas these sectors have undoubtedly had large roles to play, they get most of the public’s notice at the expense of more pedestrian but less showy drivers of growth: labor re-allocation out of unproductive agriculture into more productive industry, and internal capital accumulation by means of investment. These two drivers—investment-led growth and reallocation of labor—have been leading the way in Thailand’s evolution from low-income to upper-middle-income economy, and they deserve reemphasis in the context of decelerating growth and shifting global circumstances.
Until the latter part of the 20th century, the economy of Thailand was agrarian. Most of the labor was absorbed by agriculture, but it contributed a decreasing share to GDP. Beginning in the 1980s and picking up speed during the 1990s, there was a structurally revolutionary phenomenon: rural laborers moved to cities, infiltrating manufacturing and then services. That migration diversified occupations beyond measure. It actually boosted labor productivity across the economy. A factory or city-center retail worker contributes a lot more to GDP than a subsistence rice farmer—and this repeated reallocation, spread over decades, was one of the behind-the-scenes drivers of Thailand’s rising incomes and falling poverty.
Besides that, the transition was reasonably inclusive. As millions moved from rural to more productive industries, the economy opened doors to them with little social dislocation. Thailand’s rural investments in education, basic infrastructure, and healthcare in earlier decades paid dividends, getting the country ready to transition to formal and informal city economies. Remittances they remitted back closed rural-urban gaps and paved the way for a consumer economy.
Perhaps, though, this driver of growth is losing momentum. The share of employment in agriculture declined spectacularly, but not all of this surplus labor has been channeled into high-productivity industries. Much of the growth of the services sector has been founded on low-productivity casual employment, such as street hawking or unlicensed taxis. Meanwhile, industry—its source of structural change over so many years—has leveled off in terms of jobs and share of production, partly due to mechanization and foreign competition. As Thailand seeks to become a high-income country, further labor reallocation gains will become progressively elusive, and productivity growth in sectors will need to become the centerpiece.
This puts domestic investment into sharper relief. Public and private capital accumulation have propelled growth in Thailand for decades. Housing, industrial estates, infrastructure, and SME development have given the physical and financial foundation of Thailand’s economy. More particularly, Thailand’s transformation into the region’s automotive and electronics-producing hub has been made possible not so much by foreign direct investment (FDI) but by augmenting domestic investments in power generation, logistics, and education.
But recent trends reveal a worrying decline in investment-to-GDP ratios, particularly in private sector capital formation. Political leadership volatility, overregulation, and weak investor confidence have deterred domestic investment, with public infrastructure spending trying to fill the gap. To restore long-term growth in Thailand, Thailand must revive a dynamic private investment culture—i.e., one that encourages risk-taking, encourages startups, and streamlines finance and permit constraints.
Policies need to encourage more rational capital distribution. Investment has tended to be sunk too heavily into speculative real estate or low-multiplier-value megaprojects with massive capital values. Investment in green technology, high-value agriculture, and IT upgrading could release more balanced and sustainable growth opportunities. Furthermore, there needs to be more regional equity in investment in order to counter geographic inequality and prevent overconcentration in Bangkok and some industrial provinces.
Conclusion
Thailand’s long-term success has not been any geography or business opportunity. It is the outcome of persistent in-migration of labor into high-productivity areas and persistent accumulation of domestic investment. These underlying determinants, as much as or perhaps more than such glittery alternatives as exports or tourist travel, are basic for understanding the course of the country’s development.
With Thailand faced with both demographic aging and global economic reorganization, it is more pressing than ever to revisit and re-ignite these sources of growth. Policymakers must shed the stimulus obsession and re-establish a strategy agenda that promotes productivity across the board and fuels domestic investment. By doing so, Thailand is thus in a position to move towards a new era—one based on the learnings of history and prepared to take on the future’s challenges.