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Journal of International Development: Vol. 7, No.

5, 745-757 (1995)


MICHAEL T. ROCK^ Associate Director, Center for Economic Policy Studies, Winrock International Institute for Agricultural Development, 1611 North Kent Street, Suite 600, Arlington, VA 22209-2134, USA

Abstract: The neo-liberal interpretation of the Thai state suggests that industrial policy was incoherent, subject to rent seeking and irrelevant to Thai development success. A more nuanced micro-historical analysis of the state's interventions demonstrates that this over-simplification misses important examples of effective selective interventions during first stage import-substitution industrialization in the 1960s, as well as in second stage ISI in the 1970s. In the 1980s there was a systematic turning of the entire industrial policy machinery to promote manufactured exports. Without these selective interventions there is reason to doubt whether Thailand would be where it is today a next tier NIE.


Between 1955 and 1988, per capita economic growth in Thailand averaged 3.9% per annum. High economic growth was accompanied by a rapid decline in the incidence of poverty, mild, but rising, income inequahty, and substantial exports of manufactures. By 1985 manufactured exports exceeded agricultural exports for the first time. Textile exports increased fourfold between 1983 and 1989; integrated circuits exports doubled between 1985 and 1987; and exports of plastics and shoes more than doubled in 1988 alone. This export (and foreign investment) boom contributed to an acceleration of growth to 6.4% per capita per annum between 1989 and 1992. This performance made Thailand one of the economic success stories of recent times. Not surprisingly, the World Bank included it among the high-performing Asian economies (HPAEs) in its The East Asian Miracle study. Neo-liberal wisdom, represented by the Bank study, attributes Thailand's success to 'getting the basics right'. Successive governments maintained macroeconomic stability, got prices right, provided public goods (infrastructure, education, pubhc health and family planning), and left growth to the private sector. When policy makers deviated from laissez faire, as they did with industrial policy, the intervention was
^ I would like to thank Sanjaya Lall, David Seckler and Robert Wade for comments on an earlier draft.

CCC 0954-1748/95/050745-13 1995 by John Wiley & Sons, Ltd.

746 M. T. Rock limited, incoherent and characterized by rent seeking. Neo-liberals conclude it was ultimately irrelevant to Thai performance (Christensen et al., 1993). The purpose of this paper is to question the accuracy of this interpretation of Thai industrial policy. For far too long this has rested on a static, outdated and unnecessarily narrow conception of the Thai state. It has also been rooted in neoclassical presuppositions and a paucity of the industry and firm specific studies that are necessary to confirm the neo-liberal hypothesis. By drawing on fragmentary evidence from a variety of sources, a more nuanced perspective on the Thai state is developed which suggests that industrial policy was selective, extensive and effective. Without it, there is reason to doubt whether Thailand would be a new NIE. The argument proceeds in three steps. Because neo-liberal wisdom exerts substantial infiuence on the way Thai pohcy making is viewed, section 2 outlines the neo-liberal argument in some detail. Section 3 critiques this interpretation and offers a more balanced interpretation of Thai industrial policy. The paper closes with a call for substantial research on the micro (industry and firm specific) aspects of Thai industrial policy about which all too little is known.

2 NEO-LIBERAL INTERPRETATIONS OE THAI INDUSTRIAL POLICY Two conditions must prevail for selective government intervention in export markets to work. First, there must be market failures in the learning process by which indigenous firms gain the technical, marketing and managerial skills necessary to be successful exporters (Lall, 1994). Because those failures are likely to be industry specific, interventions must be selective. Second, state policy makers must have the capacity to devise and implement selective interventions that promote exports and hmit corruption and rent seeking. While there is good reason to suspect market failure in information markets, experience suggests that it is not easy for state actors to design and implement effective programmes of selective interventions. At a minimum, a country's top leadership must be committed to export led industrial development. However, leadership commitment is not sufficient for export success. Able technocrats in government are needed to design, monitor and evaluate the success of selective interventions. They also need to condition unrestricted access to selective subsidies on export performance. For this to happen, technocrats responsible for industrial pohcy must be pragmatic, technically competent, relatively honest, fair in implementation and insulated from political pressures. How does this conception of the institutional requisites of effective industrial policy compare with what is known about the infrastructure of the Thai state? The neo-hberal answer is simple and straightforward. The Thai government lacked the institutional skills necessary for effective sectoral interventions: there is a longstanding interpretation of the ineffectiveness of Thailand's 'bureaucratic pohty' and of the 1958 decision to reject Thai-style dirigisme in favour of a private-enterprise approach to development. Throughout the nineteenth century, Thailand was a self-sufficient, semi-feudal economy. In 1855 the Bowring Treaty enforced an opening up to the West, and led to a series of poUtical and administrative reforms. By 1927 the centre (Bangkok) had moulded a loosely integrated collection of semi-autonomous provinces

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into a nation-state by a triad of forces consisting of a highly centralized bureaucracy that invested in national defence and the transport system, a freed peasantry that expanded the area under cultivation, and Chinese traders and European exporters who facilitated the rice trade. Subsequent political developmentsthe formal establishment of parliamentary democracy in 1932, accommodation with Chinese 'pariah' entrepreneurs in the 1950s and ceding of substantial control over economic policy to western-trained technocrats in the 1960sreinforced the traditional pillars of political legitimacy and the tendency toward a centralized state, a weak political party system and unstable democratic political institutions. Political scientists dub this particular political formation a 'bureaucratic polity'a political system where power and prestige were located within the bureaucracy rather than in extra-bureaucratic forces or political parties under parliamentary rule (Riggs, 1966). Dynamism in the bureaucratic polity was provided by an incessant rivalry among 'big men' within the pohtical elite over divisions of spoils extracted from Thailand's pariah Chinese entrepreneurs. After one rival defeated another, a cycle of dominance followed, only to be repeated when the latest 'big man' fell. This repetitive cycle of rivalry meant that the bureaucratic state was weak, fragmented and uninterested in developmental outcomes. It was also rife with factionalism, personalism, favouritism and nepotism. Decision making was opaque, cumbersome, subject to substantial delay and fraught with pecuniary abuse of office. The bureaucracy operated by avoiding the task of making hard decisions; keeping the tension between the bureaucracy and the public low; and taxing those least able to make trouble. These norms made it possible for those in the centralized state, especially cabinet ministers, to engage in a largely hidden rent-seeking feudalization of administration. While there is some merit in this perception of the bureaucratic polity, particularly between 1932 and 1958, it is difficult to square it with macroeconomic policy and development performance. A closer look at policy reveals surprising consistency in macroeconomic management. From at least 1960, the bureaucracy engaged in sound macroeconomic and exchange rate management. Infiation averaged less than 7.5% per year and rarely exceeded 10%.^ Fiscal deficits averaged 2.2% per year and rarely exceeded 5% of GDP. The exchange rate was generally near its market value, and the government did not shy away from devaluation when needed. Why, or how, was the bureaucratic pohty able to sustain macroeconomic stability? Neo-liberals explain this by attributing it to a split between macro and micro policy making following the decision in 1958-59 to curb state intervention in the economy (Christensen et al., 1993). This argument rests on historical and institutional developments that reinforced long-standing bureaucratic commitment to sound macroeconomic management. Concurrent with the decision to rely on the private sector as the engine of growth, the government created the institutions for modern macroeconomic managementa planning agency (the National Economic and Social Development Board), an Office of Fiscal Policy in the Ministry of Finance, and the Bureau of the Budgetand vested them with authority for maintaining macroeconomic stability (Muscat, 1994). Both legal norms and informal rules for budget preparation insulated the budget from bureaucratic politics. However, according to Christensen et al., (1993), these macro agencies
International Monetary Fund (1991). International Financial Statistics Yearbook, pp. 166-167.

748 M. T. Rock particularly the NESDB and the Ministry of Financewere divorced from real involvement with hne ministries. This meant that NESDB lacked the ability to get sectoral agenciesthe Ministry of Industry, Ministry of Commerce, or the Board of Investmentto restructure incentives to encourage labour intensive exportoriented industrial investments. Similar problems existed between the Ministry of Finance and the sectoral ministries that controlled trade policy. The Ministry of Finance rehed on tariffs to raise revenues, but it never developed the capacity to appreciate the impact of tariffs on industrial structure. Nor did it co-ordinate tariff pohcies with the non-tariff barrier incentives offered by the Ministry of Commerce, the Ministry of Industry, or the Board of Investment. To make matters worse, industrial policy making was spread across a wide array of agencies with hmited technical capacity. At least seven agencies were responsible for industrial policy. Neo-liberals viewed these agencies as either deficient or irrelevant.^ The lead agency, the Board of Investment (BOI), offered lucrative fiscal incentives to promote investment. However, neo-liberals argued, it was understaffed, lacked clear promotion guidelines and failed to hold promoted firms accountable for their performance. More often than not, promotions granted were ad hoc, and given with little understanding of their macroeconomic effects or of project viability. As noted above, the Ministry of Finance set tariffs and tax rates, but lacked the capacity to assess the impacts of changes in tariffs on industrial structure. The Ministry of Commerce (MOC) controlled the import and export of certain goods, including the ability to ban imports and exports of those goods, and operated an export services centre. The Ministry of Industry (MOI) issued licenses to build factories, regulated business conduct and enforced zoning laws. Neither of these ministries had much technical strength. The Industrial Finance Corporation of Thailand (IFCT), a private development bank, lent long term to medium and large scale enterprises. Its lending was small and irrelevant. Thailand's national planning agency, the National Economic and Social Development Board (NESDB), set the broad direction for the economy but its role was only advisory and its technical capacity was limited. The Bank of Thailand determined credit policy. Although it was a key macro player, it had limited influence over sectoral policy.'^ Inadequate co-ordination between these agencies and overlapping jurisdiction contributed to the lack of coherent industrial policies. At least four agenciesthe Board of Investment, the Ministry of Finance, the Ministry of Commerce, and the Ministry of Industrycontrolled trade policy. Until 1990, attempts by the core macroeconomic ministries to rationalize trade pohcy along neo-liberal lines failed. No less than five departments in three ministries controlled access to numerous permits and hcenses. Sometimes multiple offices were involved in obtaining a single permit. Efforts by BOI to facilitate the permit acquisition process through its Investment Services Centre (ISC) were routinely blocked by departments or Ministries who refused to rehnquish control over their prerogatives. As a result, BOI's Investment Services Centre was unable to serve as a one-stop shop and much of its work was limited to handhng minor visa problems. Overlapping jurisdiction also
^ Critiques of the industrial policy agencies are in Brown (1980, 1983) and Christensen et al. (1993, pp. 7-17). " * Unlike elsewhere in East Asia, neither the central bank nor commercial banks administratively allocated subsidized credit to particular industries. See Doner and Unger (1993).

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meant that industries banned from expansion due to excess capacity by the Ministry of Industry had either been aggressively promoted by the Board of Investment (BOI) or grown due to the high tariffs under control of the Ministry of Finance. Firms provided privileges by BOI often found those privileges undermined by the actions of other ministries. Neo-liberals argued that the fragmentation of industrial policy and its separation from macroeconomic policy making served an important pohtical function, providing rich opportunities for the 'big men' in the bureaucratic pohty to use sectoral policies to satisfy the demands of their supporters. Technocrats were rarely appointed to important positions in the sectoral ministries. Cabinet ministers used these portfolios to reward supporters. The Ministry of Industry (MOI) used its control over import and export bands to protect those who received MOI licences. The issuing of factory permits was used to restrict entry into an industry, to tightly manage industry expansion, and to impose domestic content requirements on those receiving licences. While this description might explain why the Thai government was unable to devise a coherent industrial policy, it does not prove that industrial policy was irrelevant to Thai success. As is well known, rent-seeking industrial policies usually increase returns to capital over labour and favour import competing industries over export-oriented ones. This can and has stified economic growth and the growth of manufactured exports. Why did this not happen in Thailand? The neo-hberal answer is that the country's political leaders and business community recognized the importance of trade and were committed to an open economy (Muscat, 1994; Pongpaichit, 1980). Because of this, price distortions, particularly those affecting trade, never turned too far against exports. 3 A NEO-STATIST ALTERNATIVE The neo-liberal interpretation of the Thai state seems to offer an internally consistent and powerful explanation of the irrelevance of Thai industrial policy. However, this comes at high cost. The focus on rent-seeking administration leads neo-liberals to overlook important contrary evidence of highly effective, long-standing and large selective distortions in agricultural markets. It leads them to miss equally important examples of successful selective interventions during first-stage importsubstitution industrialization (ISI) in the 1960s as well as in second stage ISI in the 1970s. It also contributes to a critical oversight of the systematic reorientation of the industrial policy machinery to promote non-traditional manufacturing exports during the 1980s. An important part of the neo-liberal interpretation of Thai industrial policy rests on the existence of low price distortions. While the exchange rate, the interest rate and the price of capital were kept close to their scarcity values, this was not true for agricultural prices, particularly rice prices, and by implication, the price of labour.^ These distortions were systematic, consistent over time, and large, and were aimed at stabilizing rice prices at a low level. This was achieved through a variety of taxes, including a variable export tax, on rice. This policy enabled the
^ Rice has been the primary wage good, hence government rice price policies have exerted substantial influence on the price of labour. See Bertrand (1980).


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government to take advantage of a large land frontier to manipulate an industrious but politically docile peasantry by giving peasants access to land while taxing them heavily. As a result, it was possible to extract resources from agriculture without impoverishing the peasantry and to build an indigenously-owned commercial banking system and an import-substitution industrial base in Bangkok behind protective barriers (Suehiro, 1992; Akrasanee, 1973). In both instances, policies were selectively applied to favour a relatively small number of private entrepreneurs. With the Commercial Banking Act of 1962, the government began prudential regulation of banks. However, intervention in the banking sector quickly moved beyond prudential regulation as the government banned new bank entry, severely limited foreign bank expansion, and undermined operations of informal credit markets. As a consequence, there was a rapid growth in bank deposits and in a small number of family-owned commercial banks, a decline in importance of foreign-controlled banks, and significant concentration in the banking industry. These outcomes virtually guaranteed easy credit to a small number of Thai entrepreneurs. Systematic government policy bias favouring large firms and a few entrepreneurs is also evident in industrial pohcy. Between 1959 and 1980, government requirements for promotional privilegessuch as BOI tax exemptions on imported capital goods and raw materials, tariff protection on local production, and tax holidays and IFCT's subsidized creditfavoured large firms. Large minimum investment requirements and equally large minimum production capacity requirements effectively discouraged small and medium enterprise entrepreneurs from applying for government promotional privileges. Preferential access of large firms to promotional privileges and subsidized credit were frequently combined with bans on new entry into promoted industries and removal of banned industries from ehgibihty for promotional privileges.^ This bias in favour of large firms and few entrepreneurs stands in marked contrast to the well-known ineffectiveness of government programmes designed to help small and medium enterprises (Rock, 1984). As in banking, the effect of this bias was the domination of Thai industry by large firms combined into a small number of family-centred conglomerates. By the early 1980s, large firms constituted a mere 1.6% of all industrial establishments but owned 54% of all industrial assets and accounted for 41% of industrial employment. They were overwhelmingly controlled by a small number of family-owned conglomerates: of Thailand's 100 largest manufacturing firms, 50 belonged to 1 of 16 conglomerates who together controlled 90% of the total assets of Thai firms (Suehiro, 1992). How did these policies affect the international competitiveness of Thai manufacturers? As experience elsewhere shows, business groups can help developing countries acquire industrial competence, internalize external economies, and overcome shortages of entrepreneurial talent, but they can also lead to substantial economic inefficiency. In particular, protected enterprises may never 'grow up' to achieve international competitiveness. Have any infant industries in Thailand graduated into export production? While research in this area is sketchy, some
^ As late as 1980, four industriesraw sugar, ice, new models of automobile assembly and textileswere subject to bans on new entry and 30 others were subject to conditions which limited new entry.

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anecdotal evidence is relevant. Take the experiences of two of Thailand's most influential entrepreneurs, their business groups, and their textilefirms.^ The founders of the Sukree Group and the Thai Blanket Industry (TBI), and of the Saha Union Group and the Union Textiles (UT) company, began as merchants and importers of manufactured consumer goods. When the government began promoting import substitution, both found that they lacked the technical and managerial know-how to begin production. Both responded by contracting with foreign capital, for technical and managerial assistance, while also seeking and receiving promotional privileges. The large size of the domestic market and the extension of promotional privileges to foreign firms engaged in joint ventures with Thai firms apparently made contracting with foreign capital relatively easy. Both firms used their easy access to governmental privileges, equally easy access to newly amassed private deposits in a small number of commercial banks, and joint venture agreements with Japanese capital, to acquire industrial competence in technology, management, and marketing. By 1965, the TBI Group showed signs of becoming a modem textile producer. It used its joint venture partners to move upstream by producing new synthetics, spinning them into cloth, and finishing and dyeing the cloth. By 1983, it dominated the country's spinning industry, and learned how to export. The Saha Union Group experienced similar growth and development. During the early 1970s, while Thailand was still promoting import substitution in textiles, Saha Union started ten firms producing yarn and sewing threads. At the request of the Bangkok Bank, the group also took over the country's largest spinning and weaving operation (Thai Durable Textile). By the niid-1980s, Saha Union's Union Textiles was the second largest spinning operation in the country and also used foreign technical assistance to move production upstream. However, it went further than TBI by moving into petrochemicals in order to gain access to raw materials for synthetic fibre production. Saha Union's UT company was also more successful than TBI in moving into exports. UT aggressively sought the MFA export quotas of Thai firms that let their quotas lapse and just as aggressively entered non-MFA markets. By 1988, 45% of UT's sales were in exports, and by 1993 UT held 25% of the Thai fabric export quota and some 40-50% of the quota to the US market. Once technical, managerial and marketing competence was acquired, both groups successfully wrested control of their joint ventures from foreign partners. When Japanese joint venture partners refused to remove restrictions on Saha Union's entry into textile export markets in the late 1970s, the company used personal ties to the Bangkok Bank to gain access to a soft loan to buy out its Japanese partners. Sukree used a variety of tactics to get a French investor to sell its shares in a polyester venture rather than submit to RPT's demands regarding management practices and pricing policy (Doner and Ramsay, 1993). However, these are not the only examples of effective selective intervention in markets. Thailand deepened import-substitution industrialization during the 1970s and early 1980s by extending protection to capital goods industries (Christensen et
^ The discussion focuses on two business groups and their firms in the textile industry because both the industry and these groups' firms were heavily promoted during the ISI period. For discussion of promotion of textiles during the ISI period see Ingram (1971) and Hewison (1989). For discussion of these business groups and their textile firms see Suehiro (1992), and Doner and Ramsay (1993).

752 M. T. Rock al., 1993). As a result, heavy industry's share in manufacturing value added increased from 31.9% in 1970 to 42.6% in 1979 while the share of agricultural processing industries declined from 39.3% in 1970 to 26.2% in 1979. An examination of the protection offered to one subsector, diesel engines with less than 20 HWP, reveals that protection was industry and firm specific and conditioned on firm performance (Wiboonchutikula, 1987). Starting in 1980, the BOI extended privileges to three joint venture firms to produce diesel engines for agricultural machinery. Import duties of 20% and a 20% import surcharge provided some protection against competing imports. Protected firms received a 90% reduction in import duties on raw materials and business taxes. BOI banned the entry of other firms into the industry. In exchange, it expected promoted firms to shift from assembly to pressing and forging parts within three years and to increase local content from 20% to 80% within four years. When promoted firms were unable to meet the local content requirements, the BOI proposed increasing the tariff but reducing the import surcharge. The promoted firms countered with a proposal to sustain the import surcharge. In the end, the BOI responded by rewarding only those firms that met the local content requirement with additional tariff protection. From 1985 onwards, the government intervened heavily to promote international tourism. It organized public and private sector agencies such as the Tourism Authority and the Airport Authority and the hotel industries and tourist companies to oversee development of a comprehensive promotion and investment programme for the tourist sector. Between 1985-88, tourist revenues tripled from about $1 to $3 billion, accounting for nearly 15% of export earnings. The promotion of international tourism may well have been the single most important export pohcy success of the 1980s (Muscat, 1994). In addition to overlooking important examples of effective selective intervention in agricultural and industry specific markets, the neo-liberal explanation rests much too heavily on an outdated, static and narrow conception of the Thai state and its relationship to Thai society. Because of significant changes in Thai society, the Thai state, and state-society relationships, pohtics and microeconomic policy making evolved over time. It is not that patron-client politics did not or do not existthey clearly did and do. It is not that industrial (micro) policy was not and is not fragmentedit clearly was and is. However, the balance of Thai politics has shifted away from rivalry between big men and their chents toward liberal corporatism (Laothamatas, 1992). The particularistic outcomes that characterized industrial policy of the bureaucratic pohty gave way to more rational outcomes. This would have been impossible without significant strengthening in the technical capacity of the Thai state, including closer integration between the core macro agencies and sectoral ministries reponsible for micro (industrial) policy. This also happened. Rapid economic growth over 35 years facilitated the emergence of a substantial urban middle class, a stronger and more dynamic civil society, and an independent bourgeoisie. Financial independence of the Sino-Thai business community, especially the large conglomerates, increasingly insulated business from the reaches of government. Over time, government control of trade associations declined, and representatives of those associations penetrated the public sector.^ The business
Prior to 1932, the government rigidly controlled and eliminated associational groups as they formed.

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community also began to play a more prominent role in Thai cabinets as it learned how to collaborate with the public sector and how to use its resources to influence and control political parties, and to use political parties and electoral politics to protect its interests. Although full democracy has not emerged, these changes facilitated the emergence of stable semi-democratic rule in 1978. As a result, the old bureaucratic polity was transformed into a semi-democratic 'broker polity' in which the key figure was the Prime Minister who could broker a free for all between a growing number of organized (particularly business) constituencies (Ramsay, 1985). All this coincided with a significant technical strengthening of the infrastructure of the Thai state. By 1986 nearly 40% of the top 400 civil servants in the country had Masters or Ph.D. degrees from western universities. While this was no guarantee of more development-oriented decision making, it provided an opportunity to rationalize industrial policy making and launch an export campaign. During the 1980s the government used an economic crisis to significantly restructure the relationship between the core macro agencies and the sectoral ministries. In 1981 Prime Minister Prem created, at the request of the business community and behest of the Secretary-General of NESDB, a peak public-private sector forum, the Joint PubHc and Private Sector Consultative Committee (JPPCC).^ The purpose of the JPPCC was to provide regular opportunities for dialogue between leadership of the business community and senior government officials in core macro agencies and sectoral ministries. The Prime Minister chaired the monthly meetings of JPPCC. Because the government feared JPPCC would be used by business to press individual demands, the government made it clear that JPPCC would focus on general problems facing business. In 1983 Prem established a subcommittee of JPPCC, chaired by NESDB, that included senior government officials from sectoral agencies and leadership in the business community. The subcommittee set the agenda for monthly JPPCC meetings and tracked implementation of JPPCC actions. This was followed by creation of government-business industry specific councils and government-business sectoral ministry councils. These institutional changes within government and between government and the private sector provided an opportunity to refonn industrial pohcy along neo-liberal lines. But efforts to do so were blocked by old patron-client ties between industrialists in the private sector and cabinet ministers in sectoral (line) ministries. For instance, the Minister of Industry blocked liberalization of the trade regime (Muscat, 1994), and the trade regime became more protectionist.^^ The government in fact turned its new found power to increase selective interventions. BOI promotional privilegesincluding exemptions and/or reductions in import duties and business taxes on imported inputs, machinery, and equipment and exemptions

After 1932, such groups were controlled by the government's power to attend and close association meetings, to investigate the origins of group leaders, and to punish and fine groups. By the late 1970s trade association leaders were interacting regularly with central government authorities and serving on government committees. Both business and government leaders saw JPPCC as an opportunity to create Japanese-like cooperation between business and government. Business wanted this to facilitate reduction in red tape and taxes. Senior government leadership saw this as an opportunity to promote manufactured exports, increase control over sectoral ministries, and reduce opportunities for corruption. ^^ By 1985 the effective rate of protection of Thai manufacturing reached 52%, nearly two times that of Korea, Malaysia, and the Philippines (Christensen et al., 1993, p. 10).

754 M. T. Rock from corporate income taxeswere extended to export projects, including those of foreign investors. This shift required changing the criteria for offering promotional privileges to foreign firms. The new criteria permitted majority foreign ownership for export-oriented firms and 100% foreign ownership for plants that exported all of their output. Foreign firms responded well to the BOI sponsored 'contest' as the average export propensity of foreign firms increased from 33% in 1984 to 50% by 1988 (Worid Bank, 1993). This was followed in 1985 by Japanese financing of a long term Export Industry Modernisation Program (EIMP) through the International Finance Corporation of Thailand (IFCT) at highly subsidized interest rates (interest rates for export loans were 3.5% below market rates, see Paitoon (1987)). From 1986, the Bank of Thailand's long-standing programme of subsidies for working capital needs of agricultural exporters was re-oriented to meet the needs of exporters of manufactures. By 1988, exporters of manufactures were receiving more than one half (53%) of the BOT's subsidized loans. ^^ The combination of rising effective rates of protection and countervailing export subsidies suggests that Thai trade policy during this period was closer to Korea's during its early export expansion (1965-68) than it was to neo-liberal prescriptions. Thai industrial policy mirrored that in Korea in several other ways. Korea's export oriented macroeconomic and trade policies were complemented by the creation of a high-level Export Development Committee (EDC) to deal with production and marketing problems facing exporters (Rock, 1992) and by large, selective investments in education. The Korean government believed that its potential for industrial and export growth was severely constrained by failures in information and labour markets. The first led to creation of several public sector organizations including one, the Korea Trade Promotion Agency (KOTRA), to deal with marketing problems. It also led to visits by high ranking government and business leaders to foreign markets and to the use of overseas embassies to promote exports. The second led to specific government interventions in education and labour markets, particularly the training of scientists and engineers. The Thai government reached similar conclusions and responded in similar ways. Market failures in export information markets led the Prime Minister and business leaders to make several overseas trips to promote Thai exports. Embassies were charged with responsibihty for promoting Thai exports. The government also created a highly effective Department of Export Promotion (DEP) in the Ministry of Commerce (McKean et al, 1994). DEP identified buyers, ran trade fairs, and matched buyers with local producers. While public sector export marketing agencies traditionally exert httle influence on large domestic firms with good foreign buyer contacts, DEP played a critical role in matching buyers with smaller wholly owned Thai firms with no prior export experience. During the post-1985 export boom, the DEP was also an important source of information on new supplies for foreign buyers. Once the government became aware that shortfalls in the stock of well-trained engineers and technicians was a bottleneck to industrial expansion, it took several steps to remedy the problem (World Bank, 1990). A major government scholarship programme for overseas training was announced. Both the government and the
^^ Interest subsidies on export loans ranged from 2.5% to 3%. The volume of subsidized export loans rose from 10.2 billion baht in 1975 to 128.6 billion baht in 1988.

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private sector launched a programme to entice Thai technical manpower working abroad to return home. The Board of Investment relaxed immigration requirements which enabled firms to bring in engineers and other skilled technicians. The government also encouraged the private sector to invest in the production of engineers and BOI is now considering extending promotional privileges to a Thai equivalent of the Korean Advanced Institute of Science and Technology. How have all of these interventions affected manufactured export growth and Thailand's industrial structure? There are as yet no definitive answers to these questions, but several pieces of evidence suggest that they probably played a significant role. For one, econometric evidence reveals that movements in the real exchange rate cannot account for export success (Muscat, 1994). Since the trade regime became more protective during this period, success cannot be attributed to trade liberalization. This leaves room for industrial policy explanations of success. If industrial policy was effective, Thailand's industrial structure should differ significantly from expected international norms. One crude measure of this is the ratio of actual value added as a per cent of GDP of a sector to predicted value added of that sector: if the ratio of actual value added to predicted value added equals one, industrial structure mirrors international norms. If it is greater or less than one, a sector deviates from international norms. By inference, deviations from international norms refiect, among other things, differences in factor endowments and the influence of industrial policy. Given Thailand's rich natural resource base and overwhelming comparative advantage in agriculture, one would expect the share of value added in agricultural processing industries to be signficantly greater than one and to deviate most from international norms. Yet, the actual share of value added in food, beverage, and tobacco in Thailand in 1986 was only 34% of its expected share (World Bank, 1993). Thailand's overall manufacturing share of value added in GDP also exhibits far greater deviation from international norms than that for any other HPAE, including Korea.^^ In three of nine subsectorstextiles (3.33), wood and wood products (1.85), and metal products and machinery (1.82) actual value added was between two and three times that predicted by international norms. Taken together, these figures suggest that Thai industrial policy almost certainly exerted significant influence on industrial structure.


Conservative macroeconomic policies, consistent selective interventions in agricultural markets, successful industry and firm specific interventions during first-stage and second-stage import-substitution industrialization, and the systematic reorientation of the industrial policy machinery to promote non-traditional manufacturing exports during the 1980s, all suggest that industrial policy in Thailand has been more coherent than neo-liberals admit. When combined with an abihty to avoid serious economic pohcy mistakes and the adoption of a statist transition to exportled industrialization following the failure to hberalize the trade regime, the Thai
^^ The actual share of manufacturing in valued added in 1986 was 1.68 times international norms. This compares to 1.26 for Korea and Hong Kong and 1.38 for Singapore, World Bank (1993).

756 M. T. Rock government appears more, rather than less, like its counterparts in North East Asia. This is not to say that its decision-making processes are as clear as those in North East Asia, particularly South Korea. But it is important not to confuse opaque, cumbersome, consensus-building policy making with a rent-seeking feudalization of administration. It is time to recognize just how pragmatic, flexible and non-ideological the Thai state is. Doing so requires substantial revision of thinking about the Thai state, particularly during the period when Prem was Prime Minister (1980-88). It's increasingly clear that he and the Secretary General of NESDB used the opportunity of economic crisis to restructure relations within the Thai state and between the Thai state and leadership of the business community. They followed this with a corporatist and statist approach to export-led industrial development. But too little is known about this period, and several important questions remain unanswered. Why, for example, was Prime Minister Prem so wiUing to create the JPPCC and vest so much authority in NESDB? What role, if any, did it play in turning the sectoral ministries into instruments of export-led industrial development? Once thinking is broadened to allow for the possibihty of more effective selective government intervention, a new and wide range of issues can be addressed. If exchange rates and trade hberahzation did not play large roles in explaining Thai export success, we have to look to such factors as: the government's export campaign; the DEP; BOI promotional privileges, particularly those permitting majority/wholly owned foreign ownership for export-oriented foreign investors; the role of the government in the rapid growth of textile and garment exports to non-MFA markets once Thai exporters exceeded their MFA quotas (Hill and Suphachalasai, 1992); government policy on technology transfer and upgrading; the government-business industry specific councils and the ministry-industry councils; the firm and industry specific interventions employed; and so on. Much remains to be done. It is time to get on with the task lest we repeat the mistake of attributing the industrial success in the first NIEs to non-interventionist policies.

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