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16 September 2013
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State intervention ‘hits productivity in 2 sectors’

GOVERNMENT intervention and protection for some services is partly to blame for significantly lower productivity in Thailand’s service and agricultural sectors compared to the industrial sector, according to a research paper.

In the report titled “State Rules and Market Efficiency”, the author, Duanden Nikhomborirak, a researcher at the Thailand Development Research Institute, said the Kingdom’s current stage of productivity in the service and agricultural sectors was at the same level as less developed countries’.

She referred to research by Professor Michael Porter of Harvard Business School as saying that owning resources or low wages did not guarantee economic competitiveness. Germany and Switzerland, for instance, could compete well despite few natural resources.

But macroeconomic policies such as weak currencies did not result in higher competitiveness, as Germany and Japan had enjoyed increasing competitiveness though their currencies had strengthened. They showed that economic success came from the strength of the private sector in terms of domestic and international competition.

Deunden’s own research showed that Thailand’s manufacturing sector had gained strength because of competition in the global market, and not government interventionist policies.

In the service sector, productivity is low for two main reasons. First, there are few private players in some major services like transport, communication and energy, in which state enterprises operate. Second is the vested interest of state enterprises, through revenue sharing, allowances for officials-cum-directors, and procurement contracts. These discourage the government from increasing the number of private players in the service industry.

In the agricultural sector, strengthened subsidies discourage farmers from increasing their productivity, by improving product quality or inventing new approaches to reduce their costs. An example is the rice-pledging scheme, which, with its above-market prices, also hurts the market mechanism.

Without a focus on free and fair competition, some enterprises are benefiting from government protection. Examples are extended concessions to private companies, rules that prevent competition, and access given some connected private companies to the government’s data pool.

The report is one of six to be presented at an annual Board of Trade symposium on Thursday and Friday.


Deunden Nikomborirak, Ph.D.
Research Director, Economic Governance