Yingluck warned of 'boom' policies

Renowned global-competitiveness expert Professor Stéphane Garelli believes that the world is moving towards a "great economic stagnation", arising mainly from the weak economic recovery and looming elections in major Western economies.

He is perhaps best placed to make such a judgment, as director of the International Institute for Management Development's World Competitiveness Centre, making his comments about Thailand's government policies all the more weighty.

He began on a sobering note:

What is your assessment of the world economy?

We have one of the weakest economic recoveries in history. We usually have a recession every nine to 10 years. Then, the economy recovers much faster than it has [this time] - especially in the United States, which usually leads the economic recovery like a locomotive. It seems to be growing at the same level as Europe - 1.6 per cent. It is not enough.

On the positive side, I have to say yes, there is a problem with governments. No doubt. The debt of governments is about US$27 billion, between the US and Europe together, and this is enormous. Yes, there is a problem with some financial institutions - banks that need to be recapitalised. But on the other hand, let's face it: the enterprises are still in very good shape. 

If you take the US: the big success stories of the past 10 years - whether it is Facebook, Google, Amazon - all those companies are immensely successful. Apple has $72 billion in cash on its balance sheet.

This is the situation: on one hand, governments and financial institutions are struggling, but on the other hand, companies seem to be more or less okay. The key question is, can you do better even if governments and financial institutions are not doing well?

What is the chance of a double-dip recession?

I don't think we will have a double dip. I think we will have a slowdown, and frankly, if you're growing at zero or 0.5 per cent, it's not very different to a recession of zero [or] zero minus 2 per cent.

I think the real issue is [the approach of] what we call a "great stagnation". We were very worried about a depression. We haven't had one. A great recession, we haven't had one. But maybe now we're heading towards a great stagnation - stagnation of the economy for some time.

Do you mean an L-shaped recovery?

Yes, maybe an L-shaped [economic recovery]. I think that the worry is not so much about a double-dip. It's the fact that it hasn't taken off again very quickly. It means that instead of going back, for example, to 3.5-per-cent growth in the US - which is what they need - they continue to remain under 2 per cent, which is not enough.

This creates a problem because we have some of the largest economies in the world - the US, Germany and France - facing elections next year.  And whenever you are getting close to elections, governments are unable to make decisions.

How about Asia?

I think Asia is doing very well because you have a very different [economy]. In Europe and US, we have economies of replacement, which means that consumers have almost everything. They buy something to replace something they already have - you buy a new telephone, but you have already one; you buy a car to replace the old one. So when the economies go bad you can stop buying for one or two years and you don't experience a drop in your standard of living.

Then you have a "first-buy economy", which is the one you have in Asia, where a lot of people are buying products for the first time. And there are people that absolutely need this.

So I think that in Asia, consumption is still very strong; Asia is far better-off. The problem with strong consumption in Asia is the risk of inflation and the risk of excessive credit. Private credit is growing between 17 and 20 per cent a year in many countries, which is too fast. And the measures in Thailand may increase that. You have a kind of "boom" policy.

If you were appointed as an advisor to Thailand's new prime minister, what would your recommendations be?

First of all, I have to be very humble and modest as a foreigner. But there are certain principles that we believe are very efficient in terms of competitiveness. The first one is to provide a stable and predictable environment. Some of the biggest problems for countries we have seen is when governments change direction by 180 degrees all the time. Businesses can adapt to anything, but it has to be stable and predictable.

The second thing that I feel is important is obviously infrastructure investment. But within infrastructure, as everybody knows, is the connectivity of infrastructure; to connect the various types of infrastructure so that harbours are connected to trains, which should be connected also with the Internet or customs clearance [systems], for example. This connectivity of infrastructure is what Singapore is very good at. It's very important if Thailand wants to achieve its objective of being an added-value logistic centre.

The third aspect is to continue to develop the diversity of the Thai economy. What is absolutely essential is not to rely on one or two sectors. I think tourism is a fair industry and business, but you have to be careful that tourism does not prevent the country from developing its other industries. It can attract a lot of investment and jobs, but at the end of the day, the competitiveness of a nation is far more than tourism.

What we have seen in Europe…most of the countries that have problems today, like Spain, Portugal and Greece, are probably over relying on tourists. It was a quick way to make money, but actually the money was not reinvested elsewhere. The "elsewhere" for me is manufacturing industry. I would say: try to develop manufacturing industries making Thai products. Thailand is good at manufacturing for other companies, but now it needs to begin manufacturing Thai products [and] Thai brands.  I think the branding of Thai products is very important. You have a good image, so you should be able to do it.

The last point is small- and medium-sized enterprises. Wherever you go around the world, you will find that countries have large companies everywhere - even the poorest countries - and between the top and the people [near the bottom], there is nothing; no industry, no craftsmanship. There are big companies [at the top, then] nothing [until you get] people with little shops. What really makes a difference in terms of competitiveness is what there is in between: the medium-sized enterprises.

It's possible to develop medium-sized enterprises that maybe one day will learn to export; may be to develop products that are typically Thai. This is the secret of the competitiveness of Germany, Sweden, Denmark and Switzerland. You need a number of measures. One example is what we have used in Switzerland with some success: transform your diplomatic services abroad and instruct them to help medium-sized enterprises. We have a lot of economic counsellors for what we call "Swiss houses". The big ones do not need any help, but the smaller ones can go to Shanghai, to Los Angeles [or wherever] and they have help from the diplomatic service, telling them where to go, which lawyers [to use] and so on. 

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