this is thailand the thai economy is the second largest in southeast asia being
right in the center of one of the most vibrant economic clusters on the planet famous for its
sun sand and sea thailand is so much more than just a tourist hotspot we're here to discuss
thailand's overall economic journey not just more recent events given the time available
the nation went on an incredible growth run in the second half of the 20th century however economic
growth has been trending downwards leading some to suggest thailand's economy is stuck
in a middle-income trap so what are the factors behind this in thailand's case how did a scheme
to increase rice production impact the economy and what is thailand pinning its economic hopes on as
always to understand an economy today it's vital to get a sense of its history how colonialism
impacted thailand without even being a colony thailand is fairly unique in being
the only country in southeast asia to avoid direct colonial rule excluding the areas actually invaded
you see back in the 19th century thailand or as it was known then siam was virtually surrounded by
british colonies to the west and south and french ones to the north and east being a buffer state
to both empires however this certainly didn't mean the colonial powers weren't influential
particularly when it came to trade in 1855 thailand signed the bowering treaty with great
britain which basically meant tariffs were kept to 3 percent or below similar treaties were quickly
made with other colonial powers though it's important to point out that such treaties should
not be mistaken with the free trade agreements we have today the terms were very much geared
to extracting natural resources and importing expensive machinery at the expense of any domestic
competition these treaties became even more important after the opening of the sewers canal
in 1869 which sharply increased trade particularly for rice it's estimated that rice exports
increased 25-fold between 1850 and the 1930s with the nation comprising about a third of the world
trade and this agricultural focus on exports was reflective of the wider economy being heavily
dependent on agriculture despite the low tariffs many argue that poor trade terms stifled domestic
industry and deprived the government of revenues counter-intuitively such an open trade regime
meant that whilst thailand ran a trade surplus its domestic market remained pretty stagnant one
very good reason for this was that a significant proportion of profits weren't reinvested locally
but sent abroad this profit leakage was partly due to foreign companies repatriating profits however
by skipping over a lot of history here the second world war saw the decline of the old trading
houses a period of radical change which helped the domestic economy to really start growing as we're
about to find out how did thailand's economy take off by the late 1940s the economy was still one
based on agriculture particularly rice cultivation which accounted for an estimated 25 percent
of gdp and half of exports as we've discussed in other videos a post-war emphasis was placed
on rapid industrialization achieving a great deal of economic growth through structural transition
from low productivity agriculture to higher productivity industry yet it's worth noting that
land reform was not as far-reaching or effective as other nations who rapidly industrialized the
un reports that only a quarter of farmers have irrigation with average farming plots fairly small
limiting economies of scale and investments in capital today around 30 percent of the workforce
are still employed in agriculture with the nation reaching the important milestone of becoming a
majority urban country in 2018. now tracking back to how thailand industrialized at the start by the
1960s an attractive idea doing the rounds amongst pretty much anyone who would listen was import
substitution as usual in theory this was a great idea yet the reality was completely different
thailand's relatively small domestic market meant the strategy was ditched being replaced with one
favoring export-orientated growth so focusing on export-led growth with a bit of help from our old
friend comparative advantage helped the country raise its income importantly in thailand's case
macroeconomic stability in the decades following world war ii was crucial now
this economic stability was largely the result of the setup of thai governance note i said economic
stability which was a hangover from beliefs from the colonial era that financial failures
risked foreign intervention a point we'll come back to in a minute you see economic
governance was largely separate from politics technocrats ran day-to-day economic affairs
and set a lot of the rules though to be fair more recent times have seen this separate technocratic
governance fade as we've discussed before the 80s and the early 90s were in general a period
of rapid growth for the region thailand was no exception experiencing some of its best growth
during this period as part of a macroeconomic stability strategy the thai currency was pegged
to the dollar however as the economy grew credit exploded with vast sums of foreign capital pouring
into the market from the outside the fundamentals looked strong though rumors started to circulate
over just how stable the system actually was by 1997 the thai currency had come under increasing
attack to abandon its currency peg with the central bank's reserves to defend the currency
quickly being depleted resulting in a forced free float and an imf bailout if you're interested in
learning more about the asian financial crisis then check out our malaysia video where we go
into this in much more detail a shameless piece of self-promotion i know now back to the video
ultimately the crisis-induced reforms and a much more competitive exchange rate which was floating
led the nation to export its way out though to be fair thailand like many countries has been
criticized for currency manipulation featuring on a watch list of currency manipulators so with the
historical aspects covered it's time to consider the economy of thailand in more recent years one
often associated with tourism though it's fair to ask is thailand's economy more than just tourism
thailand for a lot of people is closely associated with tourism and for a very good reason bangkok
is routinely the most visited city on earth with tourism before the events which shall not be named
accounting for roughly a fifth of both gdp and employment a vital source of foreign currency
with its lockdown induced collapse in 2020 being a big reason why thailand was tipped to be the
second poorest performer amongst southeast asian nations however saying all of this thailand is
much more than just tourism putting down your beach towels for a second or more likely a year
plus it has a substantial manufacturing sector which accounts for a third of gdp electronics
and store production are large industries but car manufacturing is a flagship industry
it's become some sort of detroit of asia one in its prime of course what the nation does well
is provide the car parts and assembly hubs for most major car brands with this sector accounting
for roughly 10 percent of gdp yet this doesn't hide the fact that thailand's economic growth
has slowed down considerably long before 2020. why has economic growth trended downwards a slowdown
in growth is natural as an economy develops though thailand has routinely underperformed
its benchmarks in recent years don't get us wrong incomes have on average been rising
for example the country reached upper income status in 2011. yet given the inputs available
economists were anticipating just a little bit more suggesting that certain factors are dragging
on growth here is where similarities with malaysia for example can be drawn both countries suffer
from low productivity in thailand's case a strong source of historic productivity gains has been the
sector shift from agriculture to manufacturing though this is a short-term strategy as once the
shift is made the initial boost fades away less than half of the labor force has primary schooling
through no fault of their own but what this means in practice is that low-skilled productivity
employment whether that be tourism or agriculture is a big employer another factor is thailand's
declining rate of foreign direct investment directed appropriately fdi can certainly stimulate
an economy and in the right context facilitate the transfer of knowledge for a country which is
still urbanizing this can be a huge win in truth there is rarely one reason why fdi would decline
though in recent years growing concerns of a trade war between two of its largest
trading partners hasn't helped nor has political instability something we're definitely going to
be touching on later in the video but according to the world bank's political stability index
thailand ranked 142nd in the world between brazil and russia interestingly the top-ranked country
on this index was iceland pretty cool for a country based on an active volcano
foreign investment has also been hampered longer term by legislation take the ownership of land
which is notoriously restricted not to mention the foreign business act which effectively places
sectors into categories with harsher restrictions for industries deemed more worthy of protection
though to be fair the list isn't static and moves have been made to liberalize but it still doesn't
help the investment climate now when discussing productivity and investment it's hard to avoid
the role of thailand's state-owned enterprises which in excess can often be taken as a red
flag for non-competitive practices in 2010 they accounted for an estimated 32 percent
of gdp and five years later 40 percent so yeah they are a pretty big deal frequently expanding
at a faster rate than the thai economy itself it's worth noting that these mega corps focus
mainly on the provision of public services think electricity telecoms and transport
what's most interesting about these organizations though is that on average they make a profit but
why after all we've mentioned numerous times on numerous videos how eventually industries have to
become competitive to be sustainable in the long run well there are three main reasons firstly they
are often monopolies so can charge monopolistic rents secondly they are granted preferential
treatment in procuring goods and services and thirdly where necessary the government provides
cheap loans or just straight up cash plus there's a useful loophole that if they're not
incorporated they pay no corporation tax instead they're treated as a department of the state
though this does come with making contributions to the state treasury contributing over five percent
of all state revenue in recent years we never said they'd get a free lunch sticking with the theme
of government we stated earlier how political instability can weigh on an economy and depending
on who you ask thailand has had about 13 coups in about 80 years putting it at or near the top
worldwide the truth is though the exact number is unknown as many failed coup attempts go unreported
talk about the political landscape can often give us a good insight into why economic strategies are
pursued why populist policies have not always worked out for thailand whilst all countries
have their fair share of questionable policies it's worth highlighting two of thailand's and
for balance we'll also be mentioning some of their more positive policies afterwards one
of the questionable policies was thailand's rice pledging strategy between 2011 and 14. this seems
like a long time ago but it's had far reaching consequences essentially the strategy was to
offer money to farmers in exchange for their rice or a rice pledge you can see the appeal thailand
is the world's second largest rice exporter with a third of its workforce based in agriculture
so it sounds simple enough the trouble though was that the price offered to farmers was way
above the market rate up to 50 percent above with massive uncapped uptake at the start this ended up
costing well over 15 billion dollars an amount not expected to be paid back for another eight years
according to thailand's debt management office even going so far as to be cited as a credit
rating risk factor and one of the many reasons for the 2014 military coup sadly critics claim
it also hasn't spurred on rice productivity with thailand notoriously lagging in this sector
to be fair though increasing incomes for an often marginalized group such as farmers is a
policy within itself just an extremely expensive one in this case another great idea on paper
was thailand's first time car buyer scheme the basic idea behind it was being to kick-start
domestic consumption of cars in a country which has discussed already produced a lot of cars
though as you can see whilst car sales didn't prove this higher consumption wasn't sustained
again not something unique to thailand with the country also launching schemes to stimulate demand
since now so far we have discussed a number of challenges and issues facing the thai economy
but what is its economic plan to build the economy something called thailand 4.0 4.0 represents the
next stage in growth stage 1 was agriculture 2 light industry and 3. advanced industry
with stage 4 being all about tech and innovation in fairness the plan is aimed at addressing
some of the challenges we mentioned earlier targeting productivity wealth inequality and
human development key to acting out this plan is thailand's new economic growth hubs starting
with the east economic corridor a corridor which covers 13 000 square kilometers across the bay of
thailand the plan being to turn the area into a tech manufacturing and services hub with strong
connectivity by land air and sea infrastructure development and job creation are also fundamental
think high-speed rail better roads and airport expansion however a key way of funding this is by
offering tax breaks to foreign firms and workers which economists have questioned primarily whether
this truly addresses the nation's investment barriers with lingering concerns regarding
bureaucracy stability and high perceived levels of corruption noting that thailand ranks 101st in the
world according to the corruption transparency index whether thailand can address these issues
will be just as important as anything they build so overall we've seen that thailand has a unique
history though not escaping the influence of the powers of the time agriculture has and to some
extent still is a large part of economic reality which is despite a strong process to industrialize
and substantial services sector albeit one skewed towards tourism which is crucial to thailand as
the economic fallout of 2020 proved but by far not the only sector the trend down in economic growth
is attributable to a variety of factors including legislative barriers to investment the dominance
of state-owned enterprises and poor productivity at times questionable policies have been adopted
though to be fair thailand is far from alone in this regard its thailand 4.0 strategy
is testament to a country looking to the future and let's not forget the country has
made significant progress thailand has a lot going for it and whilst we could never cover everything
we hope we've provided a sense of the economy and now it's over to you do you think thailand
has made incredible progress are its questionable policies overstated will thailand 4.0 work
let us know your thoughts in the comments below something we also came across while researching
for this was the proposed thai canal project a huge mega project which would be a game changer
not just for thailand but the entire continent and beyond so let us know if this is something
you would like us to make a video on lastly if you enjoyed the video consider giving us
a like or if we've earned it subscribing and as always see you in the next video