The New York Times

November 5, 2009
Op-Ed Contributor

Betting on Thailand


BANGKOK — Thais are naturally preoccupied with immediate issues — their convoluted politics and the succession to the revered but ailing King Bhumibol, 81. But in the long term they may need to be thinking about how the country will rate 20 years from now against its traditional rivals, Vietnam and Myanmar, long-established nation states of roughly similar size, as well as against the nearby giants, India and China.

As of now, Thailand is well ahead of all but China when measured by G.D.P. per capita and all of the other countries by most social and quality of life indicators. But there is a sense of unease that the nation has lost its momentum and that others, perhaps even Myanmar, are catching up.

To some degree, that may seem inevitable. For 40 years Thailand profited from having both an open economy and an open society, while Vietnam was bogged down by war and ideology, China by Maoism, and India by an inward-looking mind-set. Myanmar, once the leading state of mainland Southeast Asia, continues to hobble itself, but may not do so forever.

Like Korea, Taiwan and Malaysia, Thailand flourished from its access to Western markets and attraction to Japanese and Western capital. It led the way in Asia in the 1960s and 70s in adopting successful but noncoercive family planning to dramatically bring down birthrates and release capital for development.

But some of these successes have caught up with it. Natural population and workforce growth is now minimal, so economic growth must come from enhanced productivity — and from relying on low-paid migrants from Myanmar. China has a decade, and Vietnam has two decades, before aging population becomes a restraint.

Productivity gains are now much harder to achieve as Thailand lacks indigenous manufacturing know-how and faces enhanced competition for foreign capital from its neighbors. Meanwhile, Vietnam is eagerly following Thailand’s own path of export-led growth based on a mix of natural resources and foreign investment in low-technology industries.

For the next several years, Vietnam will continue to close a still-wide economic gap thanks to demography, trade opportunities and the dynamics of a recently liberated economy. Meanwhile, Thailand will continue to struggle with an education system inadequate for moving up the value chain. Political turmoil, corruption and social divisions may continue to obstruct needed public investment and cause an outflow of local private capital. If agriculture continues to stagnate, competition may come from Vietnam in rice and rubber. Reform in Myanmar, the world’s biggest rice exporter, could be even more damaging.

So is Thailand doomed to be caught by its neighbors? Perhaps not.

In some ways, Vietnam’s demographics may be more favorable in the short term. But because of its late start to family planning, Vietnam now has 85 million people placing huge pressure on a small land area. It may now be benefiting from a shift of light industry from southern China, but the days of export-led manufacturing for middle sized countries may be ending as Western markets stagnate and competition from poorer ones like Bangladesh increases.

Corruption in Vietnam is a bigger problem than in Thailand. Like China, Vietnam has yet to show that it can allow genuinely private capital to operate freely. And at some point, probably not far off, it will have to face the issue of political freedom.

Indeed, Thailand’s long-term strengths could be in the areas in which Vietnam is weak. Thailand’s successes, from sex tourism to medical tourism, owe much to freewheeling attitudes and individual initiatives, as well as to its superb location and diverse geography. For sure, public investment helped but Thais have been uniquely successful in creating a huge tourism industry. Big foreign-owned industries like cars are important but less so than a myriad of smaller enterprises that flourish in a society that is at one level very nationalistic but is sufficiently self-confident to be open to foreigners. It may be well suited to a transition to a higher-valued-added economy based on services and — like Italy — a source of niche products and creative design.

It may not get there. But if Thailand’s history of adaptation is any guide, do not bet against it. In 20 years Vietnam will have a bigger economy, will have made more money for today’s investors, and may carry more international weight. But for quality of life in an open society, my money would still be on Thailand.