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Thailand’s grand welfare experiment

16 January 2020

Thailand’s new flagship welfare policy has been lauded, but unless it is combined with changes that address structural issues in the Thai economy, it may be destined for failure, Wannaphong Durongkaveroj writes.

It has been two years since the Thai government has implemented its huge and sweeping welfare program aimed at eradicating poverty, but it hasn’t gone as expected. Despite a monthly allowance being paid to more than 14 million people across country, the number of poor people in Thailand has increased by more than 1.3 million, within only a year.

Amid trade war tension, export-dependent countries are facing a rising tide of uncertainty, and Thailand is no exception. Its National Economic and Social Development Council has recently cut the 2019 GDP forecast from between 2.7 per cent and 3.2 per cent to a more conservative 2.6 per cent. Exports, which form the spine of the Thai economy, are expected to fall by 2 per cent this year. The last time Thailand registered export contraction was in 2009, when the country was hit by the Global Financial Crisis.

When countries cannot rely on economic growth to raise living standards, complimentary policies from the government are needed to do the job. The Thai government believes it has the answer to this problem with its program, but the outcome so far has proven it may not be enough.

The program, which is basically an unconditional cash transfer to the poor, has been considered by some to be both timely, and an important tool in the age of economic downturn. Despite the presence of some dissenting voices among scholars – with concerns, for example, about the number of the card holders and the logistics of distributing money – the government has continued the program. Next year, the card will cover health insurance, and special top ups will be provided in some months.

The welfare card is commonly called the ‘card for the poor’. It has a huge budget of more than two billion dollars, more than the annual budget given to the Ministry of Social Development and Human Security, and those of the Ministries of Labour and Industry. Given this, the lacklustre results of the card policy could not be more disappointing.

Over the last 30 years, Thailand’s relative poverty rate, measured by the national poverty line, declined from 65 per cent in 1988 to 9.85 per cent in 2018. Extreme poverty rates, measured by the World Bank as those living below $1.90 per day, are at virtually zero.

As a result, Thailand has been praised as a ‘development success story’, and it is achieving almost all of the millennium development goals. Reducing poverty through rapid economic growth, Thailand’s journey has been painted as a showcase for other governments.

But all is not well. Since 1988, Thailand has seen an increase in poverty rate four times: in 1997-1998, 2008, 2016, and 2018. The first two of these are understandable, as the country was hit hard by regional and global economic crises respectively. But the last two are questionable and ask hard and crucial questions of current policymakers.

Why has the poverty rate increased by two times in the last five years? Note that this has happened without economic crisis, political turbulence, or serious civil conflict. This is unusual for developing countries climbing the ladder of development. No country in the rest of the developing world shares the same story. Clearly, something is missing in this policy.

Employment is key to poverty reduction, and current economic policy does not look promising on job creation. The government is now focusing on highly capital-intensive industries, like aviation and robotics. It is not clear how these projects, run mostly by foreign investors, will contribute to local employment.

In the last decade, labour force participation has fallen from 72.8 per cent in 2009 to 68.3 per cent in 2018. This is not due to the rising unemployment rate, as it is, officially speaking, ridiculously low at one per cent, but due to an ageing population.

Thailand is one of the most recent developing countries to begin facing what has long been a first world problem. At the same time, the country’s fertility rate is only at 1.5 births per woman, far below the replacement rate. The upcoming challenge, often considered by Chinese policymakers, of Thailand ‘getting old before it gets rich’ could pose nothing less than a disaster for the Thai economy.

Another issue is inequality. Even though income inequality in Thailand has been relatively stable over the last five years, there remain huge difference in wealth and incomes in the country, with average incomes varying widely across regions.

In 2017, the average income per household in Bangkok, the capital, was roughly $19,000 per year. The average incomes for those living in the north, northeast, and the south, the poorest regions, are less than half that.

According to the latest Thailand Migration Report 2019, the differences between regions help explain why the north and north-eastern regions of Thailand are the main regions of origin for internal migrants, with Bangkok still the key destination. This is important – extensive rural-urban migration can cause problems for regional economies.

Unfortunately, Thailand’s welfare program deals with none of these lingering structural issues. If policymakers are serious about building the Thai economy, these cash handouts will simply not be enough. A holistic focus on job creation, the ageing population, and inequality will be a much more complete policy framework for reducing poverty than this program can be alone.

Ultimately, the flagship welfare program was expected to keep the lid on simmering social and political tensions, but it will struggle while economic performance is so poor. Unless the government can evaluate and redesign the core of the program to meet Thailand’s needs, it seems doomed to fail to reduce poverty. If it does, then unfortunately, Thailand’s welfare program may end up being an embarrassing failure, rather than a source of national pride.

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Updated:  1 June 2020/Responsible Officer:  Crawford Engagement/Page Contact:  CAP Web Team