Can Pheu Thai Deliver On ‘Economic Transformation From ‘Bottom-up’?
Six months in, since the formation of PM Srettha Thavisin’s cabinet and the critics are already doubtful about whether PM Srettha can deliver on people’s expectations that Pheu Thai has the ability to turn the economy around, given the fact that the ‘Digital Wallet’ scheme has met with strong resistance from various institutions, ‘Soft Power’ is trying to find its footing and the implementation of the ‘Land Bridge’ project still seems in the distant future.
Expectations ran high from the day Pheu Thai formed the coalition government due to Pheu Thai party’s reputation for exceptional economic governance and the added bonus of having Srettha Thavisin as Prime Minister, a successful business tycoon.
Perhaps its unfair to judge too soon as it’s not easy to undo years of economic policies based on the trickle-down effect.
For over decades now, the assumption is that development will take place from industrialization, which generates income or capital to the owner first and then will trickle down to the lower income people. Large businesses and wealthy investors have been beneficiaries of tax breaks and other forms of benefits that derived from close ties between politicians and big corporations resulting in an economy dominated by business giants and monopolies.
In the same manner that it did not have the desired effect in other countries that employed trickle-down effect policies, the same story also applies to Thailand, the country did not see reduced wealth inequality in Thailand but instead saw only a widening gap.
In research first published in 2020, David Hope and Julian Limberg, of LSE’s International inequalities Institute and King’s College London, analyzed the economic effects of major tax cuts and benefit policies for the rich across five decades in 18 wealthy nations.
Their conclusion was that the rich got richer and there was no meaningful effect on unemployment or economic growth. The paper went viral, attracting extensive global media coverage and was the most downloaded paper in the history of LSE Research Online-the database of all research produced by LSE academics.
The current government seems to be on a mission to correct income inequality through flagship policies such as Digital Wallet Scheme and Soft Power along with debt restructuring measures, visa exemption for tourists, energy and electricity cost subsidies and push for lower interest rates.
However, these measures have been criticized for failing to address underlying systematic and structural issues.
The problem seems to be that each policy is promoted and executed on its own merit and is not part of one cohesive strategy that complements and works in unison to deliver a specific target.
Now more than ever Thailand requires new, bold policy actions to tackle widening gaps of income inequality in the backdrop of a global environment that is unpredictable and high on geopolitical risks and tension.
The worsening income inequality gap and the increase of household debt problems points to the fact that poverty at the base and middle level of the pyramid is simply masked by credit where most of a household’s income goes towards servicing of these debts. Structuring of loan payments will alleviate the situation for a while but will not help in the long run as new household debts will incur as long as the income stays the same.
The major contributing factor to the problem is the slow or negligible improvement in the income of low-income earners and low labor productivity.
Increasing minimum wage as a solution for low income earners is counterproductive as Thailand’s labor costs is already high compared to other competitive Asian countries.
Implementation of programs and policies to skill up the workforce and reform the education system is what is needed to scale up labor force productivity, analysts say. However, implementation of such policies takes years for it to bear fruit and can only be looked at as a long term investment.
Is there an alternative way for the government to increase the income of lower income earners?
The alternative to the failed trickle-down effect theory is the bottom-up theory.
Theoretically, bottom-up economic plan is all about investing in local entrepreneurs and small-scale businesses to spur growth and increase production.
Lack of capital is top of the list of barriers to economic growth for entrepreneurs whilst bottom-up economics gives capital to entrepreneurs who then utilize the capital to create jobs, improve technology, increasing production and ultimately economic growth.
A few years ago, India employed a bottom-up approach with the use of technology to increase the income levels of low income earners and small business owners which transformed India’s economy. Today,India’s GDP registered a growth of 7.6 percent in the second quarter of FY24. India’s GDP growth rate is higher than major economies such as Russia, the USA, China and the UK, which have registered a growth of 5.5 %, 5.2%, 4.9% and 0.6 percent respectively in the same period.
India is a rising economic might as it emerges from a pandemic amid a sluggish world economy.
As part of their bottom up approach, the Indian government incentivized smaller, micro players to grow in such a way that the effect of the growth reaches a larger section of the population and eventually the bigger players.
Rather than China’s way of top-down approach of building 100 new factories that employs thousands, India’s way was to use a single national ID card to get loans and grants to millions of micro businesses scattered throughout the country. The reasoning of policy makers was that if 10 million micro businesses have access to capital that let them start and each hire two more people, that’s 20 million new jobs.
For the first time in modern history, India used technology and concerted schemes to trigger bottom-up growth. With the help of technology the government has managed to disburse vast amounts of benefits at a minimal cost directly to the population that is in need of them.
Along with this, the country introduced legislations that frees up micro level business from unnecessary regulations, enhancing the ease of doing business even at the individual level.
India’s tax restructuring From VAT to GST ensured that the government’s tax collections were higher than before and at the same time served as an incentive for people to pay taxes. The higher tax collections enabled the government to be able to fund loans and grants back to the people who are in need of it.
Whilst the digital wallet scheme in its present form was designed to stimulate domestic consumption and may or may not alleviate the financial crunch of the people in need, the tweaking of the digital wallet scheme, a restructuring of the country’s tax system and de-regularization of legal formalities at the individual level to foster growth of micro and small businesses may well bring about an economic transformation to Thailand from the bottom up.
If Pheu Thai is able to bring about such an economic transformation, their reputation of delivering on economic prosperity will be cemented .
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