Over the past four decades of development, Thailand has been among the top 10 countries with the highest economic growth as well as the widest gap in terms of income inequality, Prof Medhi Krongkaew reported.

Starting from the first economic plan of 1961, the annual average economic growth rate was 7.8 per cent, 6.7 per cent and 7.9 per cent respectively in the first, second and third decades.

The 1997-financial crisis caused growth to plunge to minus 10.5 per cent in 1998 and then rebounded

rapidly, achieving 6.9 per cent in 2003 before a slowdown to 6.1 per cent in 2004.

High growth has led to a drop in the number of poor people: from 57 per cent of the population in 1963 to 11.4 per cent in 1996. That rose to 14 per cent in 2000 before dropping to 9.8 per cent in 2002.

Although the absolute number of the poor has fallen, overall income distribution continues to be an issue of concern, according to Medhi's paper.

It is a trade-off between high growth and a widening income gap. The gap measured by the Gini coefficient - a measure to assess income distribution - was as high as 0.56 in 1963, and only slightly lower at 0.5 in 2002.

The income gap between rich and poor should be much narrower, said Medhi.

Several factors have contributed to a deterioration of income equality. One is the inheritance of history, the feudalism that existed during the absolute monarchy before the reforms of 1932.

Until now, however, the Kingdom has not succeeded in land reform.

A large proportion of land is still occupied by a small group of rich people.

Medhi suggests that the government buy land from the rich and distribute it to the poor.

He does not agree with government policy of giving deforested

land in conservation areas to the poor.

Past development of the industrial sector was at the expense of the agricultural sector, with the government collecting export tax from rice exporters. This policy contributed to the current widening of income distribution.

Meanwhile, past education policy focused on primary school education but paid less attention to secondary schooling, while vocational schools suffered in terms of future wages and prestige in comparison to universities.

The tax system collects more tax from the middle class and professional groups than from the rich and also worsens income equity, according to Medhi. The top rate of 37 per cent for personal income is a tax burden for salary earners. But capital gains from trading in the stock market are free from tax and benefit the rich.

Furthermore, populist policies implemented by the Thaksin Shinawatra government over the past five years have not helped the poor because they have not received as many benefits as they should have done.

The Village Fund and other handouts benefited other groups as well, he said.

Medhi presented his paper at the celebration of the 24th anniversary of the Public Affairs Institute on March 14.

Kosit Panpiemras, executive chairman of Bangkok Bank, said he agreed with the paper, adding that populist spending has left the Thaksin government with little money to spend on the welfare of the disabled and the elderly.

Kosit said globalisation forces could also damage economic equality. 

Wichit Chaitrong

The Nation