Lessons from Thailand

In the center of Bangkok, a couple of kilometers northeast from the Grand Palace and roughly five kilometers west of the main Siam shopping district, at the corner of Ratchadamnoen Avenue and Dinso Road, is the Democracy Monument. In its center is a representation of the box holding Thailand’s 1932 constitution, the country’s first one after the coup that ended its absolute monarchy.

The monument is easy to miss — a moderately sized traffic circle that for most tourists is little more than a drive-by landmark caught somewhere in between Bangkok’s grand temples and its shopping district. Politically, it’s also easy to overlook. Counting the first provisional charter after the coup, Thailand has had 19 constitutions, including provisional charters, or an average of one every five years. And the distribution appears roughly even, with seven since 1991. In comparison, the Philippines has had only three constitutions, starting from the first one in 1935. And there is a possibility that we may see a new Thai constitution in the next few years. Thailand has had 13 successful coup attempts, and nine unsuccessful ones. In 1992, the Black May protests against military rule were held a few hundred meters away from the Democracy Monument and resulted in 52 deaths, with hundreds injured and an unknown number missing.

But economically, Thailand today is what we aspire to become: a manufacturing center for global value chains for white goods, autos, and computer components, among others. The Map Ta Phut Industrial Estate south of Bangkok, which opened in 1990, is the 8th largest petrochemical complex in the world, feeding those very same industries. Its 2022 per capita GDP, according to the World Bank, is $6,900 compared to our $3,500. In 2019, Thailand drew 40 million tourists, nearly five times our 8.5 million. During a recent trip to the east of France, when I mentioned that I was from Southeast Asia I drew recognition of Phuket and Bali, not Palawan or Boracay.

How did a country that was once our peer leapfrog over us in industrial development when its politics are several times more problematic and unpredictable than our own?

The answer is not some special and unique Thai political sauce that is not found elsewhere in Southeast Asia. The common refrain is that Thailand has a monarch, but the king, revered as he is, does not intervene in day-to-day decisions or long-term industrial policymaking. It is not in some magical quality of Thai workers. When I asked one Thai owner of an auto component original equipment manufacturer (OEM) some time ago what his biggest worry was, he said that it would be Indonesians learning to push the same buttons as his workers — a transferable and trainable skillset.

Rather, what Thailand has offered foreign investors are two Cs: credibility and coordination.

On the surface, the country’s politics are messy, unpredictable and sometimes violent. But beneath it is a substratum of familial, economic, and political interests that through the past four decades have generally recognized what foreign investors need in the country and maneuvered the country’s policymakers and bureaucrats to avoid killing the proverbial golden goose of manufacturing. In this network are families that own businesses that benefit greatly from the inward FDI, whether as partners or landlords to their production facilities. Others cater to domestic consumption, which have benefited from the increase in incomes as Thai agricultural workers found higher-paying jobs in the cities and industrial estates.

The other part is coordination, which is the Thai system’s ability to formulate policies for foreign investors and implement them in a consistent and coherent way, across agencies and between central and local governments, and within reasonable time frames. One example is how local governments regularly work with their polytechnics and vocational institutions to deliver the skilled workers needed by factories or new manufacturing facilities ahead of the planned investments.

What Thailand has taught us is that learned lessons and narratives can be sometimes be more effective than formal rules. The bureaucrats and agencies that oversee the auto industry have significant political clout, sometimes more than the politicians who run the country, because of the broad recognition of the sector’s value to the Thai economy. Furthermore, the narrative that manufacturing and industry need to be accommodated, and that their flourishing in Thailand works to the broader benefit of the country, constrain local governments or vested interests from rent-seeking or other extractive activities.

Networks that derive economic benefits from Thailand’s manufacturing sector then pressure the government to avoid disruptive policies that would threaten Thai industrial competitiveness and its credibility with foreign investors. With millions employed in manufacturing, any warning from the business sector that policy changes could weaken the sector generates significant attention, both privately and in the media. This system has been key to Thailand’s attractiveness to foreign investors — unstated, unwritten, but understood and tested across multiple governments and constitutions, under both civilian and military rule.

But Thailand did not plan it out, it evolved as it took in foreign investors.

Of course, some luck was involved. During the rule of the generals in the late 1980s and early 1990s, they entrusted policymaking to some technocrats who not only pushed trade liberalization and bureaucratic reforms, but also ensured that before they left office that there were appointed officials who’d see their reforms through into the succeeding administrations.

With Philippine politics now thrashing around on the issue of constitutional change, Bangkok’s lesson is that there is no magic bullet for the economy. Thailand’s credibility with foreign investors was built through years, if not decades, of consistency and predictability in the investment environment for the manufacturing sector. Opening up the economy is one step, but it will not be enough. Rules matter, but so do narratives, in shaping bureaucratic behavior and investor perceptions. And narratives are, in turn, the net result of complicated interactions, across the whole range of stakeholders in the community and the economy. Change must lift all of them up, otherwise resentment will follow for those left behind.

The question now is: are we changing the Philippine system to deliver the credibility and coordination that foreign investors seek, especially for the large capital projects whose payoff will span two or even three administrations? What is our narrative, and how do we change it?

BOB HERRERA-LIM is a managing director at Teneo, a New York-based consulting firm that advises companies and investors globally. He covers all of Southeast Asia for the firm’s clients. He is also a fellow of the Foundation for Economic Freedom.