Social infrastructure improvements key to escaping middle-income trap

Prime Minister Yingluck Shinawatra recently announced a seven-year (2013-2019) Bt2.27-trillion logistics investment programme in part to help Thailand's economy leapfrog out of its current middle-income trap.

The government's infrastructure development efforts will undoubtedly help increase Thailand's competitiveness in an era of increasing globalisation.

However, many leading economists insist that to be effective, any infrastructure improvements must also be accompanied by drastic social infrastructure improvements.

Last year, in his keynote speech delivered while receiving the Puey Ungkaporn Gold Medal Award as the Best Young Economist, the Bank of Thailand's Piti Disyatat said the sustainable growth challenge lies in the fact that not one particular factor is crucial, but a combination of ingredients must be in place.

"Having world-class highways and railways won't help to increase efficiency much if corruption is endemic and people spend much of their effort seeking rent," Piti said.

At the same time, a strong legal system and enforcement of property rights won't boost innovation much if the education system fails to provide a skilled workforce. First-rate education systems are also of little use if graduates face limited opportunities in depressed economies because of mismanaged macro-policies.

"The ingredients of growth complement each other in such a way that the whole is greater than the sum," the economist said.

Piti said growth determinants include capital accumulation rates, efforts devoted to research and development (R&D), and human-capital accumulation rates. Economists, he said, have also identified a set of influencing factors including political stability, financial development, macroeconomic stability and competition policy. "Economists have done a very good job explaining growth but the problem is achieving it."

Perhaps equally as important, appropriate attitudes and mindsets are critical elements that can affect growth rates as well as society's development. For instance:

Attitudes toward corruption: Everyone, Piti said, knows corruption's enormous costs to economic growth and efficiency. Yet the degree of stigma and the legal penalties attached to corruption vary across societies. Even though countries that have achieved high-income status are not corruption-free, the key is that in these countries, corruption is viewed by the public as highly scandalous, shameful and accompanied by harsh legal punishment and social sanctions. "As long as we cannot change our attitudes toward corruption, I'm pessimistic as to our chances of escaping the middle-income trap," Piti said.

Meritocracy: A society that bases rewards on merit or meritocracy is a critical element. Having the best people in leadership positions should improve the chances that a society will make the right choices and promote efficiency.

When the best people are recognised and rewarded, the best ideas usually win out.

However, if reward structures and economic opportunities are based on who you know, and who you are, rent-seeking opportunities and inefficiencies are created.

Scientific attitude: R&D, Piti said is cited as a leading growth driver, but effective R&D that yields tangible results, relies not only on funding, but on a critical mass of researchers with highly inquisitive minds and the ability to think outside the box.

To a large extent, this depends on the way society evaluates knowledge on an ongoing basis. For instance: Is something true because our teacher told us, or because it's in textbooks, or because it has been practised for a long time or because everyone says so? No!

Having a scientific attitude, he said, implies an unrelenting quest to search for answers based on impartial data evaluations and open minds. It also involves constant verification and updating to make the most informed choices.

Piti said his personal impression is that the scientific attitude is somewhat lacking in Thailand. For instance in Thailand we tend to rank the importance of statements by who says it, rather than what is being said.

This methodology, he said, shows an unscientific approach. He said that when Nobel economists Paul Krugman and Joseph Stiglitz make comments, the rebuttals and critiques receive equal attention.

"Ideas are valued more on the merits, as opposed to who says them."

As a society, Piti thinks Thailand could realise much greater growth dividends if it improved its scientific attitudes in evaluating how land is farmed, how its children are educated, how political policies are formulated and how the public votes.