Chapter 10The policies and politics of industrial

upgrading in Thailand during the Thaksin era

Laurids S. Lauridsen

EC 482

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Agenda

IntroductionIndustrial sectors – policiesIndustrial upgrading – knowledge based

economy Institutional upgrading – public sector reformIndustrial upgrading – political aspectConclusion

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Introduction

Thailand Weak industrial infrastructure After 1997-1998 crisis, loose competitiveness

with rising QCD

Studies show: Relatively weak competitiveness Widening trade deficit due to over-reliance on

imported capital goods, intermediate goods and technology

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Thailand - The Regional Laggard

Current intensity of R&D lags 1980’s Korea by 10-15 years > 4/5 of Thai enterprises didn’t conduct R&D > ¾ no innovation activities Low technology capabilities < ½ had design capabilities < 1/3 had abilities to conduct reverse engineering

Intensive export industries high import contents

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The Thaksin Government

Development strategy Inward-looking

Dual-Track Policy Expand export-led sector Boost domestic economy

Modernization of the traditional bureaucratic culture

Upgrading Policies

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Industrial Upgrading

Strategic Industrial Policies Higher technology and higher value-added Focus: technological advance and organizational

learning Improve product quality, productivity

Intra-firm efforts Inter-firm knowledge spillovers

Willingness to implement adequate and coherent policies

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Effective Policy Making

Policy-makers: May lack knowledge of actual workings of private

sector May prioritize issues concerning their political career Political elites’ preferences towards existing firms

Implementation may fail since: Bureaucracy depends on support of political elites Little autonomy from business Insufficient connections with business sector Concentration on maximizing budgets

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Factors Holding Back

Political structures and processes

Unrealistic and seemingly ambitious politics Corruption

The ‘will’ of state elites

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Thaksin Policy on Industrial sectors

Injecting funds into SMEs through Banks and some taxes cut

Promoting 5 niche industries

Giving chances to venture capitalists

Create more employment

More supportive than the Democrat party for Industrial sectors

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Pros

Increasing opportunity throughout country

Increasing the cash flow circulation

Strengthen the already strong Industries

SMEs “good time”

Create concrete long term plan for Industries

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Cons

Create more debts through failure of SMEs borrowers

No precise framework to achieve better success

Not equally distribute the funds

Weak SMEs would never get the real helping hand

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Thai policies of industrial upgrading – towards a knowledge based economy

Develop Thai to be knowledge-based economy through the formation of a class of new innovative

entrepreneur Use of local wisdom Development of Technology

science and technology promotion of information technology Information technology for modern

administration and management

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Introducing policies aim of improving Thailand innovation system

More specifically, to promote technology Intra-firm Inter-firm Extra firm

Both initiatives indicated stronger focus on technology upgrading and broader range of innovation activities in policies making(inter firm)

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For promotion of private sector technology efforts(intra firm)

Conclude that Thailand’s system of incentives don’t focus on enhancing basic engineering and design capabilities, building knowledge networks between large and small firms (intra firm)

Two important change in Thaksin government National innovation agency, to promote innovation for

competitiveness. BOI, investment promotion focus on long-term

competitiveness, tax exemption for skills, technology and innovation in firms(intra firm)

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Introducing policies aim of improving Thailand innovation system

Strengthening of inter-firm knowledge flows Main policy focus, horizontal linkages and clustering Vertically innovation related link is weak and limited

(no policy implemented)

The extra-firm links to public research technology organizations (RTOs) RTOs is weak in Thailand RTO service were little used and were considered as

unimportant sources of innovation-relevant information

Most firms were below investment threshold.

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Introducing policies aim of improving Thailand innovation system

Evaluation, there were sign of more focused and strategic approach in relation to RTOs

However, this does not indicate that Thailand has development to creating extra firm or for inter-firm linkages in term of technological development

A 2006 world bank study of the country’s technological capabilities; Thailand have difficulties in tapping into global knowledge and build technological capabilities in cooperation with other firms or RTOs.

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Human resources for industrial technology development

Thaksin policy to transform Thailand into knowledge based society by solving education problem Lack of coordination of fragmented education efforts Highly centralized in Bangkok Neglect of science and technology issues Inadequate incentives to promote good teaching Inadequate ICT and foreign language proficiency Traditional teaching method

Three areas of education reform were important for upgrading; vocational education, skill development and tertiary education Due to the very slow pace of the educational reform , the

action plan can be implemented first is to develop this 3 areas to upgrading the education

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Summing up

Visionary industrial technology policies developed around strategic industries and technology; stronger focus on international competitiveness, policies more relevant to industry.

Policy for private sector technology efforts was improve due to the promotion policy

On the other hand, lack of continuity in leadership led to delays and some inconsistencies in formulation and implementation of the human resource reforms

Despite the success of Hard disk drive industry inter firm and extra firm linkages generally remained weak point.

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Institutional upgrading – public sector reform

Bureaucratic reform programme Public Sector Development Commission (PDC)

o The Public Sector Development Strategy (PSDS) 2003 - 07

o Aimed at improving the quality of public services, right-size of bureaucracy, increasing the competences, and promoting good governance

o Reforms to public management, restructuring of public organization and public financial management

Results: minimizing functional duplication

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Institutional upgrading – public sector reform

Public Affairs Management Plan (PAMP) 2005 – 08 Required to develop four years and annual action plan The output-oriented budget system

(strategic – performance – based budgeting) in 2003o Partly implementedo Trouble devolution of financial management o The system remains inoperative

Result: by April 2006, the Cabinet had not approved the Budgetary Procedure Act

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Institutional upgrading – public sector reform

The reform tried to integrate related government policies, “ Management Clusters” The creation of One-Stop Service

Services Link Units (SLUs) Government Counter Services (GCSs)

The reform’s benefit Fixing Thailand’s slow-moving, inefficient, and corrupt

bureaucracy Showing stronger effort than previous governments

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Industrial upgrading – political aspect

What is his dream? Country as a company by CEO Thaksin with

strong, large government

Where did it come from? Inspired by Malaysian and Singaporean

absolute power government

Why he need it? Break the power of bureau and factions Push for more policies and easily get approval

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How to attain? Populism to appeal rural and urban voters Bring many huge factions in TRT party Merge with other partiesWhen become the government Make it fast, easy, and centralised

Industrial upgrading – political aspect23

Make it fast and easy

Reform to have discretionary power over and take away authority from minister and senior bureaucrats into his hand Creation of six new ministries

Allocate hugest amount ever to reserved central fund at PM discretion power

Not confined to parliament and intervene independent organizations

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Make it centralised

Divide and rule to undermine the power of factions

Power is organized by Inner circle of close people in his empire

Centralized decision making

Dynamic CEO management and provincial CEO

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Drawbacks

1. Focus more on distributive politics to the poor and his supporters rather than productive development policy

Use policies and discretionary power to benefit his coalition’s interest

Service business - telecom, real estate, entertainment and media, banking - benefit the most

Manufacturing sectors were less well placed Convert the poor to SME, but not change socio

economic structure

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Drawbacks

2. Delay of implementations

3. Frequent rhetoric and marketing

4. Less transparency

5. Many policies doesn’t make economic sense

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In the end of Thaksin’s policies

The first Thai PM to serve in full term

Centralization of political power in CEO’s hand

Presented as Dynamic and effective leader “could get things done” + for people benefit and cleaning up “The evil”

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Try to moving Thai state more developmental direction

But…As internal linkages, competitiveness,

industrial technology development block higher value added in industrialization

Competitiveness from lower-wage countries and innovators in first-tier NICs

Such as China and India

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SME

Promote small-scale entrepreneurs, capital injection into province, OTOP

Promote SMEs

But… not enough non-financial support

Long-term growth in specific policy took more time

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CEO PM transforms Thai state to be his own machine

Democracy as a tools rather than goal

As focus on rural poor

Well-prepared plans for selected industries and technologies but less in productivity and upgrading

Use his wealth to buy support Ex. Parliamentarians avoiding fragmentation, duplication and poorly coordination

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The others factors of lacking in industrial upgrading

Ensure that he or his team get some benefit from the policies

Administrative reform look like modern, efficient and effective but to ensure his loyalty and politics power

Insufficient autonomy of above and below bureaucracy

Lack of institution that connect industrial sectors, information provision

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Conclusion

Unique opportunity to bring industrial forward and more development direction

More concerning with macro and micro level of international competitiveness than previous ministers

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Conclusion

But too much selective promote the interest of his own business and associations

One party dominance support more conflict of interest

As challenged metropolitan interests and royal cycles

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Exodus to London

Being homeless one

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