Highlighting the issue of inequality in Thai economy

Unfortunately, at least for the past five years, the artificial advantage created by the weakening of the baht has been eliminated, as the currency appreciated and the exchange rate returned to equilibrium. Exports are struggling for further growth and the economy is in need for an overhaul to boost its productivity and thus restore competitiveness. 

Over the past two decades the Thai economy has created or ignored fundamental problems that jeopardised further prosperity. For instance, we experienced industrial concentration in only certain areas (mostly Bangkok and vicinity, and the areas designated by the government), delayed decentralisation, and labour migration. 

These problems were given low priority because of a lack of political incentive to handle them. 

At the root of the problem, inequality has been pointed out as the key element, and the most mentioned is income inequality, which implies an unfair distribution of wealth. The consequences have emerged and erupted in the form of social unrest and a cry for social and economic reform. 

A number of misunderstandings on this particular matter have been argued publicly 

and privately in the country and the social classes have been divided into groups. A 

free-market economist would argue that inequality will be a problem when the economy fails to guarantee the same opportunities for everyone. 

This does not mean everyone in the economy should receive an equal amount of income in order to prevent inequality. To put it differently, the economy will be better off if resources are utilised by someone more specialised and those who perform better should receive a greater reward. Hence it is not such a bad thing to have a rich 1 per cent and a poor 1 per cent at the two tails of the distribution even though there is a vast income gap between the two groups. 

To deliver more appropriate (or rather designable) income distribution, we need the market mechanism to work properly, and that requires fair competition, which is certainly not what we envisage in the Thai economy at the moment. Inequality has led to unwanted practices in the form of seeking unfair advantage through various means, including corruption and bribery, which have become common features in market competition. Competition turns into a fight for private benefits and individual wealth accumulation. Wider income gaps between “the rich” and “the poor” have been observed for decades as the economy expanded. 

In addition, inequality has an impact on the efficiency and effectiveness of economic policy. Implementation of a policy might inevitably provide more benefits for certain groups (or industries) than for others. 

Therefore, tackling economic inequality will be a long process and requires an understanding of a need for economic restructuring. It involves participation from every part of the economy to adjust and in some cases sacrifice private benefits for social benefits as changes take place. 

Perhaps a better way for us to improve our productivity is just to get more people involved by generating more opportunities for those who are lagging behind. It would be much more desirable if we could have national productivity dictated by the majority rather than the average. This would be a great challenge for us as we move forward as a nation out of the “middle-income trap” and enter the next stage of economic development.

 

Assistant Professor Santi Chaisrisawatsuk is director of the Centre for Development Economic Studies, School of Development Economics, National Institute of Development Administration. He can be reached at [email protected], or via www.econ.nida.ac.th.