David R. Henderson  

The Thai Economy

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Earlier this month, I returned from a 10-day trip to Thailand. Here are some impressions of the Thai economy: "street-level" impressions, not impressions based on looking at aggregate data. Also, I didn't make it to Bangkok, spending the whole time in Chiang Mai and its environs. So take the following with any dose of salt that you care to add.

1. The "work ethic" is strong there. Of course, there's selection bias. The people I observed working were--working. But here's what I mean. People, whether waiters, masseuses, drivers of Song Tows or Tuk-Tuks were always hustling. They were trying to please the customers and did so with a smile. Also, when we went to a cooking class and, at the end, told the lady who taught us that we had a particular Muay Thai boxing match we wanted to go to later that night, she told us she could get the tickets for us. She made it clear that we wouldn't get a discount from her but we would pay the same as at the door. My daughter's boyfriend explained to me that "everyone's a Ticketmaster."

2. For reason #1, I could imagine a lot of those people thriving in the U.S. economy and making our lives better here.

3. The transportation system is highly efficient. The Song Tows get you from point A to B for, typically, 20 baht, which is about 67 cents. You hail a Song Tow by holding out your hand, he stops and you tell him where you want to go, he quickly assesses whether that works in light of the commitments he's made to his current passengers, and, if he says yes (he typically did), you get in the back on one of two parallel benches facing each other. With the Tuk-Tuk, essentially a motorized tricycle, you are the only passengers. You tell the driver your destination and the price is typically 150 baht or $5. You can fit 3 passengers, or, in a pinch, 4 passengers in one Tuk-Tuk.
If our local governments allowed such transportation, some people, especially young people, would probably do without cars.
The other major form of transportation there is scooters. You will often see whole families--two parents and two small children--on a scooter. Again, very efficient. (Early in my time there, I looked out my daughter's apartment window onto a busy street and saw a huge number of scooters at a stop light that had made their way to the front of the cars. That's typical. For a second, I hallucinated that an Asian motorcycle gang had come to town with particularly underpowered motorcycles.) We wouldn't see that here, not just because of laws, but mainly because of our huge wealth. People here can afford cars for roughly the same percent of income that they pay for scooters.

4. The Thai immigration laws are screwy. You can stay in the country on a certain visa for 90 days and then you must leave the country to renew. Of course, a market response to this regulation has happened: you can pay a relatively small amount to get a bus to Burma. You get on the bus and take about a four-hour ride, it drops you off at the border, you pay the Burmese official a small amount of money to get into Burma (you walk across), you turn your documents over to the Thai official, you wait around at an outdoor market, and then, typically within an hour, you have your papers and are on the bus back to Chiang Mai. Of course, my economist's brain came up with a more-efficient alternative: let people pay a fee somewhat higher than the price of the bus fare plus fee to the Burma government plus half of people's time value and people, to save time, would pay it to renew. All that wasted transportation and wasted time is saved, plus governments get additional revenue. But governments are governments. Who in the government has the incentive to implement that reform?
Even retirees don't have secure rights to stay. I talked to an older Australian who had moved to Thailand a year earlier. He kept the minimum amount he needed in a Thai bank (under $30,000) to get a visa for a year. But the law made it clear that when he went to renew the next year, he would have no assurance of being renewed even if he had kept that minimum amount in the bank.

5. The Thai investment laws are holding the economy back. I can't legally buy a house in Thailand or buy or start a business in Thailand. If I want to, I must find a Thai partner who will own a majority share. Think of the unseen: the businesses that would have started and grown and made the Thai economy more prosperous that will not start because of that regulation.



COMMENTS (23 to date)
KenF writes:

As a foreigner, you're probably paying the Tuk-Tuk driver 2x or 3x the local rate.

David R. Henderson writes:

@KenF,
As a foreigner, you're probably paying the Tuk-Tuk driver 2x or 3x the local rate.
Thanks, KenF. Wow! So the system is even more efficient than I had thought. Do you see why? If not, think about relative elasticities of demand between foreigners and locals.

Left Outside writes:

Yeah, those Tuk Tuk drivers took you for a ride (haha!), you should have haggled for the market price.

There is a thriving market in thai brides and one con I've heard is quite common is to get the man to buy a house in thailand with his wife holding 51% of ownership without paying anything. She divorces and gets to keep the house. He gets deported.

My impression abroad is always that poor people are hard working because they have no choice. When you see people hustling you're generally seeing people exhausting themselves for a pittance. It generally makes me happy they are unable to be lazy and well off as in the west.

John Wilkins writes:

You say the Thai immigration laws are screwy because you can only stay for 90 days before leaving, crossing a border, and returning. Well, how long do you think you can stay in the United States without a visa? Ninety days. And what then can one do? Cross the border into Canada and mexico, have your papers stamped and then return.

I was in charge of building a chemical plant with a Thai-US joint venture. I then was in charge of the business for a few years. Of all the countries I have worked and lived in, Thailand is by far the hardest place to manage people I have ever known. They are an extremely sensitive but revengeful people. Make an enemy of a Thai at your peril. One reason it is so hard to manage the people is that age seniority -- even one day - is unbelievably strong. In the Thai language, if you asked someone if he/she is older than someone, the answer is : I am ___ days, months, years BETTER than him.

Ken B writes:

I am trying to learn about Keynesian 'aggregate demand'. I used to think the only people with aggregate demand were cement makers but your example helps me see there is more to the question.
There are
1) Thais seeking to leave
2) Ozzies seeking to arrive

We can just add these together. Mostly they just cancel, and then we have a number for the aggregate demand for Thai residential influx.
The Thai government can then issue only that many entry or exit visas: only a few people actually need cross a border.

David R. Henderson writes:

@John Wilkins,
Thanks for your evidence that U.S. immigration laws are also screwy. That will not surprise many people who read this blog regularly and understand Bryan Caplan’s and my criticisms of U.S. immigration law.
Interesting story about age. I’m guessing that your venture was harder than otherwise because of the investment laws I referred to.

tom writes:

You mention the lost opportunities for Thailand because of its limits on foreign capital investments.

But didn't the Asian success stories (S. Korea, Vietnam, China) limit foreign ownership the same way while starting to grow?

Are there any examples of 3rd world countries that grew from 3rd world status while allowing unlimited foreign capital to buy and control local companies and properties?

Ken B writes:

In my industry there are a lot of workers here on visas (me amongst them). I have friends who had to arrange their vacations around trips to China or India at visa renewal time. One guy had to arrange his (arranged) marriage at visa renewal time, not when he (or more properly his and her parents) wanted it, because of the expense of 2 trips to India. One other was delayed returning to our project for weeks. I also have to leave and come back on my (longer term) visa. All wasteful.

David R. Henderson writes:

@tom,
But didn't the Asian success stories (S. Korea, Vietnam, China) limit foreign ownership the same way while starting to grow?
I think you’re right but I’m not sure. Can anyone else shed light on this?
Are there any examples of 3rd world countries that grew from 3rd world status while allowing unlimited foreign capital to buy and control local companies and properties?
I think Hong Kong but again I’m not sure. Does anyone else know?
@Ken B,
Good point. Lots of waste.

Ken B writes:
Are there any examples of 3rd world countries that grew from 3rd world status while allowing unlimited foreign capital to buy and control local companies and properties?
Quite a large one with a huge sustained influx of immigrants. That was a while ago though.
Maximum Liberty writes:

Q: Are there any examples of 3rd world countries that grew from 3rd world status while allowing unlimited foreign capital to buy and control local companies and properties?

A: Almost every country in the western hemisphere during the 16th through 19th centuries. Remember that countries like Argentina were richer than the United States for much of their histories.

Max

Mr. Econotarian writes:
But didn't the Asian success stories (S. Korea, Vietnam, China) limit foreign ownership the same way while starting to grow?

Perhaps, but maybe they would have grown even faster without these limitations!

After 1998, South Korea became fairly open for FDI. Only a small number of industrial sectors are closed to FDI.

david writes:

@David R. Henderson

Among the high-performing Asian economies (the World Bank ancronym is HPAEs), Singapore and Hong Kong famously minimally limited foreign ownership during their 70s growth periods, whereas South Korea and Taiwan aggressively did. Singapore and Korea did pursue more nationalization of perceived key industries, albeit Korea pushed heavy industry (to back Park's cronies and weaken regional bosses - similar to Mahathir, Suharto, etc.). whereas Singapore pushed the politically-volatile transport, telecoms, shipping, etc (i.e., the industries that had become used to being politically active during decolonization). and let foreigners invest in light/heavy industry. Hong Kong was more laissez-faire outside of housing/education/etc. and Taiwan was more preoccupied on shooting alleged communists than economic issues.

The results are a little ambiguous; briefly speaking all four countries resulted in high productivity but the high-FDI countries continue to reliant on FDI rather than local innovation. It's not just a purely economic trap; there are also political considerations - if Singapore or Hong Kong tries to aggressively push local industries now, investors would get spooked and the existing beneficiaries of foreign investment would lose power. Conversely Korea and Japan have trouble liberalizing their conglomerates after the fact.

I don't think the marginal benefit/losses from FDI are primarily economic. It is possible for local capital to hire foreign skills - Korea preserved its local conglomerates by having their companies hire Japanese engineers briefly instead of letting Japanese conglomerates do the engineering and the management. The only thing capital does is contribute management, and after a given level of education the marginal difference in management labour quality is not plausibly large.

No, the problems are political - Latin America has had problems with dominant foreign capital outright dictating local politics (hence 'banana republic'!). The HPAEs had less problems with this for self-evident reasons, but Park CH and Lee KY both aggressively razed postwar anti-Japanese memorials and shot anti-Japanese protestors in order to avoid repelling Japanese investment. In all the HPAEs, local government was careful to retain control of politically-sensitive industries, and this includes Hong Kong.

For very small open economies the difference between public and private ownership/management always blurs anyway - Singapore GLCs managed personally by senior civil servants make a majority of its GDP, does it matter? Hong Kong owns all of its land and its legislators lead its major industries personally, does that? South Korean conglomerates are often nominally private, can anyone plausibly claim their senior management plays no personal role in public policy? - but this may be a good or bad thing.

Jonathan Goff writes:

Point #4 is the same in the Philippines (at least as of when I was there from 2000-2002), and yeah has probably killed more wealth than most other stupid economic policies there.

~Jon

Jonathan Goff writes:

And on the tuk-tuk prices, I agree with the others that you probably paid the rich-looking-foreigner premium. IIRC, I was paying about 25 pesos (~$0.50 at the time) for a typical "Trike" ride (their motorized tricycles), and only a little less for a Jeepney ride. That said, in the Philippines, they like packing people in on trikes, have silly cartels in a given neighborhood for the trikes that will take you into the neighborhood from the main road, etc. Methinks the Filipino situation is definitely less efficient than what you were describing though.

~Jon

David R. Henderson writes:

@david,
I’m pretty sure that limiting who can invest in a country causes there to be less investment. That’s why I’m pretty confident that the Thai economy is less prosperous than it would have been.
@Jonathan Goff,
Thanks. What is IIRC?

david writes:

@David R. Henderson

True! Foreign ownership is however not necessary for FDI, as I'm sure you are aware. Joint ventures, etc. But even if the company is formally and fully privately owned by a foreign investor, that can easily mean exactly nothing if rule of law is weak or the legislature decides to micromanage said company (which is typical: many developing countries are at the stage where megaprojects are necessary, and third-world governments typically cannot build these nor want to leave them wholly without oversight).

Conversely a company that is formally and fully owned by the state can be easily in practice privately managed and the rent-stream delivered to foreign investor (see: Singapore. But many other countries have sovereign wealth funds).

It's a little odd to pick out Thailand as an example of limited foreign ownership as, among the second wave of East Asian industrializing states, it's probably one of the more liberal ones in terms of capital markets. Compare both Malaysia and Thailand in their car industry, for instance.

Regarding foreign ownership at all, the limiting factor in many of the relevant countries is corruption and inability to enforce anything resembling rigorous property rights anyway. The Newly Industrialized Countries are beyond this stage of development but all of them now have the 1997 financial crisis in mind, which taught them that no matter how sound your state finances are, you cannot rely on foreign hot money flows to finance an investment boom. The prosperity is not worth the instability - riots and pogroms and all. Nobody who advocates laissez-faire capital markets has any credibility in East Asia now, not after Malaysia ignored the IMF and got away with it.

David R. Henderson writes:

@david,
It's a little odd to pick out Thailand as an example of limited foreign ownership as, among the second wave of East Asian industrializing states, it's probably one of the more liberal ones in terms of capital markets.
It’s not odd at all. I was reporting on my trip to Thailand. I didn’t go to those other countries. That’s why I discussed Thailand.

JoeFromSidney writes:

With regard to the scooters moving in front of the cars, I saw the same thing in Taiwan. At a stoplight, there is an area just short of the stop bar that is blocked off for scooters. Cars stop behind that area. Scooters filter through the cars to the area blocked for them, and taken off like the Indy 500 when the light changes.

Finch writes:

IIRC = If I Remember Correctly

Also, does it bother anyone else that the list is 1,2,3,3,4?

David R. Henderson writes:

@Finch,
Thanks on both. Correction made? It certainly bothered me. :-)

Parinda Wanitwat writes:

"The "work ethic" is strong there."

As an American-educated Thai person, I'm a little surprised by and very interested in your observation here. May I ask, which other groups of people you are comparing these Thais you've met/observed with? Americans of the same socioeconomic status? Other Asians?

Thank you.

Sean writes:

I was in Chiang Mai a couple months ago. The price for the song tow is what the locals pay. I didn't ride any tuk-tuks, so I don't know about those (renting a motorbike is the way to go).

But this brings up the issue of two-tier, or "foreigner", pricing in places (Vietnam and Thailand are my direct experiences). I almost invariable found that when I was being charged more than the local price (and I was aware of the fact) that a merchant would rather forgo a sale than sell to me at the local price. I couldn't make much sense of this with my limited economics knowledge. They must be gaining from the transaction at the local price, so how would they be better off by passing up a sale at that price?

On a side note, Chiang Mai sure does offer a nice quality of life for a small amount of money (when that money is dollars, euros, ect.)

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