Chapter 10 The policies and politics of industrial upgrading in Thailand during the Thaksin era

Chapter 10The policies and politics of industrial upgrading in Thailand during the Thaksin era Laurids S. Lauridsen EC 482

Agenda • Introduction • Industrial sectors – policies • Industrial upgrading – knowledge based economy • Institutional upgrading – public sector reform • Industrial upgrading – political aspect • Conclusion

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

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

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

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

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

Factors Holding Back • Political structures and processes • Unrealistic and seemingly ambitious politics • Corruption • The ‘will’ of state elites

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

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

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

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

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)

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)

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.

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.

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

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.

Institutional upgrading – public sector reform • Bureaucratic reform programme • Public Sector Development Commission (PDC) • The Public Sector Development Strategy (PSDS) 2003 - 07 • Aimed at improving the quality of public services, right-size of bureaucracy, increasing the competences, and promoting good governance • Reforms to public management, restructuring of public organization and public financial management • Results: minimizing functional duplication

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 2003 • Partly implemented • Trouble devolution of financial management • The system remains inoperative • Result: by April 2006, the Cabinet had not approved the Budgetary Procedure Act

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

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

Industrial upgrading – political aspect • How to attain? • Populism to appeal rural and urban voters • Bring many huge factions in TRT party • Merge with other parties When become the government • Make it fast, easy, and centralised

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

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

Drawbacks • 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

Drawbacks • Delay of implementations • Frequent rhetoric and marketing • Less transparency • Many policies doesn’t make economic sense

In the end ofThaksin’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”

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

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

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

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

Conclusion • Unique opportunity to bring industrial forward and more development direction • More concerning with macro and micro level of international competitiveness than previous ministers

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

Exodus to London • Being homeless one

Chapter 10 The policies and politics of industrial upgrading in Thailand during the Thaksin era