‘Economic freedom’ calls for reshaping of Thai policies

Economy March 02, 2016 01:00


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WE ALL agree that business transactions or economic activities will occur in the right environment. Such environments have long been investigated, and it is widely believed that they will encourage economic growth and prosperity.

The “Index of Economic Freedom” by conservative US think-tank the Heritage Foundation is one of the indicators that show how right your environment is. The index measures the freedom of a society in an economic sense.

“Economic freedom is the fundamental right of every human to control his or her own labour and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please,” the think-tank says on its website, www.heritage.org.

“In economically free societies, governments allow labour, capital, and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.”

The index averages out the scores of 10 indicators, which can be segregated into four categories: rule of law (property rights, freedom from corruption); government size (fiscal freedom, government spending); regulatory efficiency (business freedom, labour freedom, monetary freedom); and market openness (trade freedom, investment freedom, financial freedom).

Economic freedom mainly indicates whether a government imposes policies that encourage people to engage in productive economic activities. Besides, economists Terry Miller and Anthony Kim claim that a country with higher economic freedom tends to be richer, have more innovation, have better environmental performance, and have higher levels of democratic governance and social progress.

Economic freedom, therefore, seems to be about much more than just economic activities. It reflects the well-being of people in the country as well.

In the 2016 Index of Economic Freedom, Thailand’s overall score is 63.9 out of 100, which is better than the global average of 60.7, and ranks 67th among 178 countries.

Still, Thailand is in the “moderately free” zone, which is in the middle of five zones (free, mostly free, moderately free, mostly un-free and repressed).

The category that does not let us get beyond the middle group is rule of law. We have low scores on property rights (40) and freedom from corruption (38). Both numbers are below the global averages.

Our best category is government size, with an average score of 81.7 (global average 70), which implies that our government does not cause too much fiscal burden.

For regulatory efficiency, we are a little better than the global average. Doing business in Thailand is not that difficult but we still have some problems with informal labour activities.

Finally, the market-openness score is a bit higher than the global average.

We are in good shape in terms of trade freedom and financial freedom. However, investment regulations are is still restrictive for foreigners in some sectors. If we look at the index since 1995, the year it originated, (see the picture below), Thailand started off with a high score of 71.3, whereas the global average was 57.6. Over the past 22 years, Thailand has regressed and become less economically free, while the world has been improving.

The main culprits are weakening property rights, worsening corruption and aggravating labour issues.

It is up to us to decide where we are heading. We can, through social engagement, help shape our policy and achieve a better society – an economically free society.

Prasopchoke Mongsawad PhD is assistant professor of economics, School of Development Economics, National Institute of Development Administration; e-mail mongsawad@yahoo.com.