Thailand is a fast emerging country that aspires to become a high-income economy by 2037. Strong growth since the 1970s enabled the country to join the group of upper-middle-income economies in the early 2010s and has seen Thailand perform well in many areas. At the same time, the benefits of prosperity have not been shared evenly nationwide and the economic development has taken a toll on the environment. Moving forward, Thailand needs to achieve faster but also more inclusive economic growth. To get there, Thailand needs to address three main transitions: enabling new growth by unlocking the full potential of all Thailand’s regions; developing more effective methods of organisation and collaboration between actors and levels of government; managing water security and disaster risk. Based on the analysis in the subsequent chapters, the overview sets policy-recommendations to address these three cross-cutting challenges.
Multi-dimensional Review of Thailand (Volume 2)
Chapter 1. Overview: The three transitions to move Thailand to the next stage of development
Abstract
Thailand is striving to realise an ambitious long-term development vision. Strong growth since the 1970s enabled the country to join the group of upper-middle-income economies in the early 2010s and has seen Thailand perform well in many areas. Poverty has plummeted and well-being has improved considerably, notably with respect to health and education. At the same time, economic development has taken a toll on the environment and the benefits of prosperity have not been shared evenly nationwide. Moreover, a very large share of the labour force remains in informal work. Moving forward, Thailand needs to achieve faster but also more inclusive economic growth. Getting there will require making the most of every region and developing more effective methods of organisation and collaboration between actors and levels of government.
The Multi-dimensional Country Review (MDCR) is being undertaken to support Thailand in achieving its development objectives. It consists of three phases and reports. This second volume provides in-depth analysis and policy recommendations to address three cross-cutting constraints identified in the initial assessment (OECD, 2018[1]). The third and final phase of the MDCR will focus on moving from analysis to action.
This overview describes the three cross-cutting constraints addressed in this report, which were identified in the Initial Assessment of this MDCR through a focus on the “five Ps” of the 2030 Agenda: People, Prosperity, Partnerships, Planet and Peace. The overview then summarises the analyses and recommendations provided for each of these constraints in the succeeding chapters. The question of how to enable new growth by unlocking the full potential of all Thailand’s regions provides the overarching framework for in-depth analysis and policy recommendations in regional development, water security and multi-level governance.
Thailand’s cross-cutting challenges
Thailand aspires to become a high-income economy by 2037 enjoying “security, prosperity and sustainability” based on its sufficiency-economy philosophy (2017 National Strategy Preparation Act). The National Strategy sets out five broad objectives in this regard: (i) economic prosperity – to create a strong and competitive economy driven by innovation, technology and creativity; (ii) social well-being – to create an inclusive society that progresses without leaving anyone behind by realising the full potential of all members of society; (iii) human resource development and empowerment – to transform Thai citizens into “competent human beings in the 21st century” and “Thais 4.0 in the first world”; (iv) environmental protection – to become a liveable, low-carbon society with an economic system capable of adjusting to climate change; and (v) public sector governance – to improve public sector administration and reduce corruption.
To achieve these objectives, Thailand can build on its strong record, but must overcome the recent slowdown in economic transformation and living standards. To achieve high-income status by 2037, Thailand must increase its growth in real GDP from its current level of 3.9% to 5.5%. Held back by limited investment and structural reform over past years, Thailand has lost some ground vis-à-vis regional competitors and has experienced a slowdown in the transformation of its economic structure (OECD, 2018[1]). Growth has also become less inclusive, with the share of those in precarious employment stagnating at around half of the working population following the mid-2000s, after falling from 70% in the late 1980s (Figure 1.1). Today, only 11% of Thai citizens say that they can live comfortably with their current income (Gallup, 2017[2]).
Figure 1.1. Per capita incomes have soared, but the share of formal employment has progressed at a lower rate
Source: (World Bank, 2017[3]) and (Conference Board, 2017[4]).
Environmental challenges, in particular relating to water, must also be better managed. Thailand’s natural environment is a vital asset and underpins key economic sectors and millions of livelihoods. As in many emerging economies, rapid economic growth has been achieved through the intense use of natural resources, exerting a heavy environmental toll. Thailand is also exposed to cycles of flooding and drought that cause loss of life and economic disruption. While natural climatic variables are important drivers of these phenomena, lack of integrated water management hinders an effective response to these challenges. Poorly planned urban expansion, the intensification of agriculture, and the deterioration or loss of watershed forests have led to the decline of flood-retention areas and flood plains, while water consumption behaviours, agricultural and industrial land development, urbanisation and population growth have all contributed to droughts (OECD, 2018[1]).
New impetus must be found to drive gains in productivity and quality of life. Growth in productivity is among the key determinants of economic growth. It is driven by many factors, including skills and capital investments, innovation, and the quality of the institutional and physical environment. The reallocation of labour from less to more productive activities is also important. Productivity growth from all of these drivers seems to have slowed down significantly. At the same time, drivers of quality of life, such as education, health, employment, access to social services, social connections and empowerment seem to have plateaued and remain unequally distributed across Thailand and its regions (OECD, 2018[1]).
Figure 1.2. Global patterns suggest that the large disparities between Thailand’s regions pose a significant challenge on the path towards a high-income economy
Note: The Gini index measures the degree of inter-regional inequalities. An index equal to 0 implies no inequality – all resources are equally redistributed across the country. An index equal to 1 implies extreme inequality – all resources are concentrated in only one region. The analysis is based on OECD regional typology, and in particular on regional inequalities among Territorial Level 2 (TL2) regions. TL2 broadly corresponds to the first tier of subnational government. For comparative purposes, TL2 regions in Thailand correspond to the country’s 77 provinces.
Source: Authors’ calculations based on national accounts, as provided by NESDB, and (World Bank, 2017[3]).
Global patterns suggest that the large disparities between Thailand’s regions pose a significant obstacle to further transformation. Only one other country (Russia) for which comparable data are available has reached a higher level of GDP per capita with a level of regional inequality as high as that of Thailand. The differences in per capita income between the poorest and richest regions of Thailand can be compared to the difference between Zambia and Poland (Figure 1.2). At such high levels, poorer regions increasingly risk being left behind as a result of unfulfilled potential, while labour and capital markets in already advanced areas are likely to become saturated with an oversupply of workers and investments.
At the same time, regional and provincial growth patterns suggest that much potential remains untapped outside the current centres. Although their levels are lower, the poorer regions of Thailand have shown consistently higher growth than Bangkok in both production and productivity since the beginning of the 2000s. The same holds for Thailand’s secondary cities which have grown faster than Bangkok and will play a key role in boosting regional development and the country’s long-term growth more broadly. In other words, the “catching-up” process has begun in some areas and has the potential to become a significant driver of further transformation if well supported.
Figure 1.3. Three capabilities for Thailand 2037
Source: Authors’ own work.
To maximise the potential for convergence, Thailand must develop the necessary capabilities in terms of organisation and economic geography. The slower pace of economic transformation, quality job creation and reduction of regional inequalities in the new millennium has put pressure on the political system and the ability of the state to respond to the growing need for better public services and environmental management. Boosting convergence means building the capacity of all regions, provinces and municipalities to ensure they can make the most of their potential. The current highly centralised system of planning and policy is not sufficiently nimble to achieve this objective and needs reform. At the same time, the ability to self-organise at meso-levels, such as regions, must be further developed. The same is true for the urban structure of Thailand: the level of urban development outside Bangkok remains low, but the potential is there and must be supported.
This report lays out pathways for three transitions to build Thailand’s capabilities and achieve its goal of more effective multi-level governance (Figure 1.3). The first transition is from a growth path with high structural inequalities and informality to one that focuses on unlocking the full potential of all regions and builds on convergence as a driver of structural transformation (Chapter 2). A more effective organisation of multi-level governance, particularly with regard to financial resources, is a crucial capability Thailand needs to develop to support a new growth agenda. Under the current system, the complex organisation and uneven distribution of power and resources across central government bodies and local administrations contributes to co-ordination problems and poor institutional capacity (Chapter 3). More effective multilevel governance is also crucial for the third transition, which pertains to water and the environment. Moving from a resource-intensive growth path with costly natural disasters to one characterised by sustainable development will require a new approach. In the case of water, this means moving from ad-hoc responses to effective management of water security (Chapter 4).
A new growth path: Unlocking the potential of Thailand’s region
Past policies for regional development and structural transformation have created today’s productivity landscape
Past approaches to regional strategies gave rise to path dependence in productivity growth and affected regional productivity potential. Since the 1970s, the government has implemented several regional policies and created alternative industrial development areas. However, the productivity gains from transformation of the economic structure were distributed unevenly across Thai regions. As of 2015, regions that benefited most from place-based policies, including the East, Bangkok Metropolitan Area and Centre, were those enjoying the highest productivity levels. The other four regions scored relatively poorly when compared to the best performers and the overall national level. A map of regions and provinces is provided in Annex 1.A at the end of this chapter.
Changes in sectoral composition and labour flows explain regional productivity growth. Thai regions have been going through major structural transformation, although along different paths. The shift-share analysis of sectoral composition and labour flows can identify the role that economic activities play in attracting investments and workers, making it a useful tool to understand patterns of regional development.
In the Northeast, within-sector productivity growth in the agriculture and manufacturing drove regional productivity growth; social and environmental challenges persist, nonetheless. New industrial estates in the region attracted factories and investments for the production of electronic components and, most of all, parts of vehicles made of natural or synthetic rubber. The Northeast has moreover become the second largest region in terms of rubber production because of innovative processing methods. However, in spite of outstanding progress, environmental unsustainability, informality, cross-border competition and demographic flows can undermine catching-up potential in this region.
In the North, special economic zones boosted growth in Chiang Mai and Lamphun, but did not benefit neighbouring provinces. The North shows similar development patterns to the Northeast’s. Until the 1970s, agriculture dominated and the manufacturing activities were scattered in small-scale companies. Since the 1980s, the establishment and consolidation of special economic zones in the Lamphun Province has turned the area into a major regional trade hub. The fast urbanisation of Chiang Mai further attracted investments and created job opportunities. However, growth did not benefited surrounding provinces: the North still remains one of the poorest regions in Thailand.
In the West, within-sector productivity growth is offset by misallocation of the labour force, which might be explained by a lack of coherent regional policy in the region. Although manufacturing and agriculture have experienced a significant increase in labour productivity, workers in the West prefer to reallocate away from these increasingly productive sectors. Regional policies have traditionally overlooked the West because of its proximity to more important sources of growth – for example, the Centre and the Bangkok Metropolitan Area.
In the South, a shrinking primary sector gave way to rising tourism and related services; however, this trend poses some social and environmental challenges. Almost half of employees in the sector are still informal and, thus, lack systematic insurance against unemployment. Moreover, tourism may threaten the eco-sustainability and biodiversity of the area if not regulated and controlled. Finally, the rise of the tourism sector triggered a reallocation of workers towards low-innovative and non-tradable sectors such as construction and retail trade. The potential expansion of these sectors could eventually offset the beneficial effect of tourism sector.
In the Centre and East, past industrial policies drove the reallocation of the labour force towards increasingly more productive sectors in the regions. Today, provincial productivity builds on those industrial policies and the high-quality infrastructures that followed. The latter include regional highways that link the regions to Bangkok; deep-sea ports and local airports connecting the area to global markets and value chains; and broad electricity, water and telecommunications coverage.
Moving towards more broad-based and innovative regional development policies
Moving forward, Thailand is adopting a more comprehensive regional development agenda. In December 2017, the government entrusted the National Economic and Social Development Board (NESDB) with the review and rationalisation of existing spatial policies as part of more comprehensive regional development plans. The NESDB will coordinate the creation of regional development plans, going beyond the traditional focus on special economic zones (SEZs), which necessarily left large parts of the country out. Regional development plans will focus on bringing to the fore the particular strengths of each of the seven regions.
The new agenda for regional development must balance economic, social and environmental objectives. Past interventions aimed at boosting development in Thailand’s regions have focused solely on growth in small areas. Future strategies should aim at combining a broader set of objectives, including social cohesion and environmental sustainability. The right mix between social and economic as well as environmental objectives may vary across the country.
Getting regional development planning right will require placing local innovation and discovery in the driver’s seat. Mastering this process of discovery at each level (national, regional, local) is key to successful economic development and continued productivity and employment growth. The overarching lesson from the ‘smart specialisation’ agenda and past attempts at regional development in the European Union and elsewhere is that this process of discovery must be driven and mastered by local and regional actors. The role of government intervention is important but it is subsidiary. Policy intervention is required not to select the areas or activities for investing public resources but to facilitate and support the discovery process (OECD, 2013[5]).
The process and instruments for innovative regional development should be performance-based, flexible and reflect the specific needs and capabilities of each region. Placing local discovery and ownership in the driver’s seat of innovative regional development requires an open process that is adaptable to the needs of each region. More advanced regions might require less in terms of direct support and can be supported simply with mutually agreed performance targets and related instruments. Areas with lower capabilities might require more in terms of direct assistance and a stronger level of oversight to ensure accountability (OECD, 2018[6]). Strong evaluation and performance measurement frameworks must be built into all approaches from the beginning and should be widely accessible to guarantee transparency, as a key building block of local ownership.
Similarly, the geographic scope of regional development policies should be flexible and focus on functionality. The current administrative organisation in Thailand offers the opportunity to include flexibility in the definition of regions for the new strategies. Data analysis can help to identify the most functional clusters of provinces for regional strategies. Functional areas may involve different provincial clusters and change over time. Neighbouring administrations that do not find co-ordination over specific issues particularly necessary today, may find it advantageous in the face of future global trends and shocks.
Data analysis should support local discovery processes, building on best performers to profile regions and provinces, assess potential and detect bottlenecks. Identifying each region’s best-performing province in terms of productivity, for example, helps classify other provinces as “converging” or “diverging” with respect to specific objectives. This convergence-divergence analysis shows that most of the best-performing provinces inherited industrial estates created during the 1980s. In certain cases, agriculture, education and tourism have been pushing some provinces to the productivity frontier. Once regional best performers and their potential for productivity growth are identified, their characteristics can help devise policies for lagging provinces.
Intra-regional convergence analysis shows that the majority of provinces are catching up, but the gap with those that are lagging is widening (Figure 1.4). Among all regions, the Northeast and East stand out in terms of convergence. Most of the top 20% fastest converging provinces in Thailand are situated in the Northeast. In the East, all provinces are converging towards the productivity frontier. However, convergence does not occur at the same rate everywhere.
Figure 1.4. The majority of provinces are catching up, but some are still lagging behind in the North and Northeast
Note: Productivity is the ratio between real provincial GDP and number of workers in a province. The regional frontier is the average output per worker among the top 10% most productive provinces in a region. Convergence (or divergence) status is based on the compound average growth rate (CAGR) of provincial productivity between 2001 and 2015.
Source: Authors’ calculations based on national accounts, as provided by the NESDB.
Supporting secondary cities as engines of growth outside of Bangkok
Secondary cities can generate new opportunities for regional development in Thailand, but need the appropriate infrastructure. As the capital grew, cost of life in Bangkok increased, roads became congested, and services overcrowded. Secondary (or intermediary) cities may therefore play an increasingly important role in regional economy and should become a leverage for regional development – especially in provinces that are converging to or diverging from the regional best performers. In fact, secondary cities in Thailand have been attracting more and more people than Bangkok since the beginning of the 2000s (Figure 1.5).
Figure 1.5. Secondary cities in Thailand are attracting more people
Note: “Urban population outside of Bangkok” measures the share of urban population in the capital. “Urban population in secondary cities” measures the share of urban population outside of Bangkok. In 2000 (reference year for the comparison), 6,395,429 people lived in Bangkok, 32% of the urban population. In 2017, the figure increased to 9,898,653 (29% of the urban population).
Source: Authors’ work based on (World Bank, 2017[3]).
Policies to develop secondary cities require shaping a new definition of urban areas with the help of satellite data. Supporting cities with policy requires a good understanding of what constitutes a secondary city and where they are located. At present, there is no clear definition of urban areas in Thailand. However, geospatial data can help to identify secondary cities by looking beyond traditional administrative boundaries. Satellite imagery of 41 identified secondary cities showed widespread urban agglomerations in the East, while density is highest in the West.
Targeted surveys should support satellite data by assessing the needs of secondary cities, the structure of the local economy and its dynamics, and the state of local infrastructure. These secondary cities can trigger growth outside Bangkok and across Thai regions. Unlocking their potential should be at the core of new integrated regional policies.
Secondary cities need to have the capacity to respond to challenges specific to their location. Integrated regional policies need the right institutional framework to successfully improve the management of network services. Furthermore, citizens’ participation can help handling such challenges as large seasonal inflows of tourism. Thailand is a major global tourist destination. Seasonal inflows of tourists are an opportunity, but can dangerously stretch the capacity of secondary cities. Therefore, involving people who live and work in the city in governing the phenomenon and shaping the appeal of their city is paramount to prevent or manage possible negative externalities.
Skills development as a tool of regional and urban policy
Secondary and tertiary education are important drivers of productivity growth at the level of provinces and must be core elements of regional and urban policy. Better secondary education characterises provinces that converge towards the productivity frontier, while better higher education distinguishes frontier provinces. However, regional disparities remain large. While 53% of workers have completed at least upper secondary education in Bangkok, only 27% have done so in the Northeast. Regional policies should focus particularly on technical and vocational education and training (TVET) concerning secondary education, and on provincial universities for higher education.
Work- and skill-oriented training provides higher returns for both students and the economy, but needs to be expanded. Employment surveys across all regions show that students that decide not to pursue higher education obtain better salaries if they complete upper secondary vocational training rather than upper secondary general education. Moreover, technical and vocational education and training (TVET) graduates are more likely to find better-paid and qualified jobs. However, despite these clear advantages, there is a lack of sufficient focus on TVET both in terms of students’ aspirations and government investment. Only one out of three upper secondary school students are enrolled in vocational programmes nationwide – far below the government’s target. The share of TVET graduates in the workforce is smallest in the North and Northeast, despite a significant salary premium for such graduates in these regions.
To serve regional development, TVET must be embedded in the local economy and focus on relevant and timely skills formation. School curricula should be linked to local labour needs. As regional needs differ across the country, matching curricula with market needs requires a close partnership between employers, social partners and TVET institutions. Schools should complement work-based training with traditional coursework, as this provides a dynamic and practical framework for trainees that facilitates hiring, and is also cost-beneficial for the state. Finally, schools, the private sector and local authorities should work together to implement models that forecast the future need of teachers based on local socio-economic trends and student behaviour and preferences.
Thailand is home to leading universities, but provincial institutions are struggling despite their potential as powerful engines for local innovation and productivity growth. Research universities in Thailand are gaining ground in the global scene and have already introduced innovation into certain industries. However, the country could do more to leverage provincial Rajabhat universities and tighten the partnership between the local private sector and government. International experience suggests that local tertiary institutions can stimulate local entrepreneurship and innovation. Moreover, higher education institutions provide content and audiences for local cultural programmes that ultimately contribute to the appeal of a province. Local universities can play their role for development only if local leadership enjoys enough autonomy to fine-tune coursework and teaching modalities to local economic structure and issues. To strengthen private-public-academia partnerships, all actors must design and manage a common long-term agenda. Representatives from the private sector and local authorities should be part of university boards, and university leaders must also be included in the design of the local development agenda.
Effective and innovative regional development necessitates fiscal and institutional reforms
The new regional policy framework requires dynamic actors with the freedom to experiment at each level of government. Local and provincial layers of government need to be given the flexibility and means to experiment, as opposed to implementing top-down policies designed at the central level. Experimentation allows policy makers to learn from the “small-step” interventions they pursue to address local issues. Experimental processes require mechanisms that capture lessons and ensure that these are used to inform future activities (Andrews, Pritchett and Woolcock, 2013[7]).
Fiscal tools and transfers need to support dynamic actors with better allocation formulas and a focus on results. Thailand’s provinces have traditionally relied on inter-governmental transfers, the size of which was based mostly on population thresholds. As part of the new regional development plans, the current government has linked the distribution of grants to a set of socio-economic characteristics in the provinces. In addition, results-based transfers could be a useful tool. Part of the allocation of the existing general transfers could be conditional on the achievement of socio-economic targets that would close the gaps between best-performing, converging and diverging provinces. The data used to measure results should be publicly accessible to encourage public scrutiny and debate.
Making multi-level governance work for Thailand’s transitions
Decentralisation was mandated in Thailand’s Constitution in 1999. Since then, Thailand has initiated several decentralisation reforms with ambitious quantitative targets. The current target is to devolve 359 functions and to distribute 35% of central government net revenues to the Local Administrative Organisations (LAOs). As of 2017, a total of 256 functions and 28% of net revenues had been transferred.
Thailand’s 7 852 subnational governments form a fragmented entity. There are currently two subnational government tiers. The upper subnational level consists of 76 Provincial Administrative Organisations (PAOs). The local level contains 2 441 municipalities and 5 333 Sub-district/Tambon Administrative Organisations (SAOs/TAOs). The subnational governments have directly elected Councils and administrators. The city of Bangkok and the city of Pattaya have a special status with more powers and autonomy than the other LAOs. The complexity of Thailand’s subnational government poses a challenge for efforts to co-ordinate public service provision both across and within government levels (Figure 1.6).
Thailand’s multi-level governance is further complicated by the co-existence of the deconcentrated central government administration and LAOs, which operate side by side. The 76 state Provinces (Changwat) form the core of the deconcentrated administration. The governors and other head officials of the state Provinces are appointed by the Ministry of Interior. The Provinces are further divided into districts (Amphoe) and sub-districts (Tambon).
The financing of Thailand’s subnational government is highly centralised. Only 10% of the revenue of the LAOs is collected locally. Central transfers comprise 48% of subnational government revenues while shared tax revenues make up 42%.
Figure 1.6. Subnational administrative structure in Thailand
Source: Authors’ own work based on (NESDB/Thammasat University, 2009[8]); (World Bank, 2012[9]).
Local state officials monitor and supervise the LAOs in many ways, thereby limiting the autonomic decision making of LAOs. For example, central government officials have the right to approve the annual budget plans of LAOs, dissolve local councils and even dismiss local councillors. While such strict central government control reduces problems that can arise from asymmetric information between central and LAOs, the system is very bureaucratic. Crucially, the arrangement also diminishes opportunities to gain efficiency benefits from local innovations and localised solutions.
Strong central government control over LAOs has not led to uniform service levels or harmonised revenue bases. On the contrary, there are still marked fiscal disparities between Thailand’s LAOs. In particular, the differences between locally collected per capita tax revenues and per capita spending are high. Central government transfers and shared tax revenues are much more equally distributed. The current financing system is therefore unable to reduce differences in tax bases and spending needs between LAOs. Due to low revenue powers, LAOs are often not able to compensate for the lack of central grants with their own revenues. This leads to underfunding of service provision at the subnational level.
Underfunding and low subnational revenue capacities contribute to variances in spending and service provision between LAOs. An examination of spending differences between Thailand’s LAOs reveals considerable differences in per capita spending between LAOs in all spending categories. This situation is a source of inequality in access to services and in service quality (Figure 1.7).
The average population size for Thailand’s LAOs is 8 000 inhabitants, which is among the lowest in Asia. Small population size combined with significant differences in tax bases and weak fiscal equalisation can considerably hamper public service provision. Although there have been plans to reform the subnational government structure, to date no major merger reforms have been implemented in Thailand.
Most assignments transferred to LAOs are shared between PAOs and municipalities. This suggests an overlap in responsibilities. A significant overlap in assignments would be problematic especially from the co-ordination aspect. Overlapping assignments can also incentivise LAOs to avoid costs, for example, by transferring responsibilities to other levels of government. Uncoordinated assignments can lead to inefficiency in service delivery resulting from tendencies to “pass the buck”.
Figure 1.7. Marked differences between subnational government per capita spending suggest inequality in service provision
Note: Gini coefficients have been calculated using samples of LAOs.
Source: (Laovakul, 2017[10])].
Revising the dual model of governance would enable more benefits to be reaped from local autonomy
In addition to transferring more tasks and money to LAOs, Thailand could consider empowering LAOs by enhancing their autonomy. Stronger autonomy could result in more efficient public service delivery. A safe way to start strengthening local autonomy would be to focus first on public services that are particularly local in nature, such as local infrastructure, elementary education and kindergartens. Improved local autonomy would facilitate local innovations in service provision and help to consider differences in local needs and preferences.
Strengthening local autonomy should involve reforming the relationship between deconcentrated central government and autonomous subnational government sectors. The reform should be implemented gradually, making sure that the LAOs have adequate capacity and resources to take greater responsibility for spending and financing the assignments. Instead of the current “top down” management of LAOs, the central government could focus on creating political and financial incentives for LAOs to deliver services in a way that supports national policy goals.
Thailand could also consider strengthening the central government’s ability to co-ordinate LAOs in ways that do not involve direct interference in LAOs’ operations. A comprehensive statistical database of Thailand’s LAOs would improve the information base used in national decision making. It would also enable a gradual policy shift from the current direct management of LAOs to a more indirect steering of LAOs. Data should be collected on the main financial indicators and service costs, while indicators on service needs and other major factors affecting the costs should also be created. These data should be made freely available for all stakeholders and citizens. There are several examples from other countries that could be utilised and applied to Thailand’s situation in this respect.
Better clarified roles, tasks and powers of each level of government would contribute to the efficiency and transparency of public service delivery
Reorganising the current spending assignments between government levels should be a priority when considering reform of Thailand’s LAOs. Aligning subnational capacities and resources with their spending assignments would reduce duplication and overlap between PAOs, municipalities and Tambon communities. In addition, clearer responsibilities and powers would enable more efficient central monitoring of subnational tasks.
Subsidiarity, economies of scale and benefit spillovers should be among the main criteria when selecting the most suitable level of government for each public service. A general prescription is that local public goods, such as local infrastructure and elementary schooling, should be assigned at the lowest level of government. This is because local decision makers are often best informed about local preferences and factors that affect the cost of service production. Public services with important redistributive features (e.g. specialised health care, secondary and higher education) are often best suited for higher levels of government, mainly because redistribution at the local level would be inefficient. In the same vein, public services with considerable positive externalities or benefit spillovers, such as major roads or main water pipelines, are also usually better provided by higher levels of government.
While there is an abundance of examples of reforms from other countries, such a reform should consider carefully Thailand’s political, historical and ethnic characteristics. In practice, the decision on the “best” division of fiscal responsibilities between central, intermediate and local governments varies from country to country. However, experience from practices adopted in various countries suggests that successful multi-level governance reforms on spending assignments are possible.
Thailand should seek ways to better utilise economies of scale in subnational public service provision
An important rationale for reforming the LAOs is fragmentation and the significant differences in fiscal capacities. Merger reforms or enhanced co-operation can contribute to the capacity building of LAOs and therefore support the measures to clarify assignments.
The central government should take the lead in the planning process. There should be a clear nationwide plan on the optimal subnational government structure (i.e. the number of municipalities and the average size of each type of subnational government). The planning should be based on the best available data on fiscal capacities and factors that affect costs.
If a merger reform turns out not to be feasible, the alternative way forward would be to increase co-operation between LAOs. While there are some risks related to transparency and accountability in the intermunicipal or interregional co-operative arrangements, co-operation does provide a comparatively easy and flexible way to utilise economies of scale. Among the positive aspects are that co-operation does not rule out later merger decisions and that LAOs can also withdraw from co-operation if they find that it is no longer beneficial for them. Inter-municipal co-operation is also often an important first step for later mergers.
A reform of the financing system would help reduce fiscal disparities between LAOs
The reforms on spending assignments and subnational government size should be followed by a reform of the financing system. As noted, a stronger revenue base would contribute to self-rule and the accountability of Thailand’s LAOs. Strengthening the revenue bases of LAOs involves several measures.
A property tax reform would considerably improve the subnational revenue base. The reform should therefore involve updating property values and improving tax collection. However, taking into account the significant tasks assigned to LAOs, even an improved property tax would not be sufficient to fund the bulk of subnational spending. Assuming that the goal to strengthen the subnational revenue base is accepted, Thailand should consider allocating at least one important tax base to LAOs. One option would be to permit a local surtax on the central government personal income tax. The central government could take care of tax administration, while the LAOs would be allowed to decide tax rates in their jurisdictions within a band set by the central government. A strengthened local tax base should be accompanied with adequate fiscal rules, especially to regulate local borrowing and budget balancing.
Thailand should also consider reducing the weight of tax sharing in subnational revenues. This would give more room to strengthen LAOs’ revenue bases. In addition, part of the revenues currently allocated through revenue sharing could be used to finance the general transfer system.
The current excessive use of specific and conditional grants in subnational government financing is problematic for many reasons. For instance, LAOs currently compete with each other for central government financing, which does not encourage local communities to co-operate to solve local and regional problems. Specific grants also incentivise LAOs to submit a large number of project proposals in order to secure local financing. This is an inefficient way to allocate central government funding to LAOs because it increases administrative work. Excessive use of specific and conditional grants may also draw the attention of LAOs away from local needs and preferences.
Based on these considerations, it is recommended that Thailand consider increasing the weight of the general grant in the grant system. The general grant formula should also be altered to better take into account the differences in tax-raising capacities and service needs between LAOs. This would help support the poorest LAOs or those likely to face the highest costs, or both.
Strengthening subnational capacity for strategic planning and territorial development could contribute to regional growth
The differing human resource capacities between Thailand’s fragmented subnational government sector constitute yet another challenge for the multi-level governance system. To tackle the problem, Thailand could consider establishing formal and informal co-operation and co-ordination mechanisms between LAOs. These forums would help share experiences of best practices and prepare joint subnational proposals. Subnational government associations could have a key role in this process.
The joint forums could also involve negotiations with the central level. A systematic dialogue between LAOs and central government could lead to better understanding of the needs and problems at different levels of government and consultation in the design, implementation and monitoring of reforms.
Towards effective management of water security
Thailand has an intense and complex relationship with water. Water is key to driving the agricultural sector – the principal user of water – and supporting growth in the manufacturing sector. Both of these sectors create water quality challenges either through diffuse run-off or point source discharges. Extreme seasonal and regional variations in terms of precipitation pose significant challenges in terms of water quantity, with floods and droughts a persistent threat. Wastewater infrastructure is underdeveloped and there is widespread discharge of municipal and industrial wastewater into rivers causing pollution and negative health impacts.
Thailand’s water challenges can be captured under the overarching theme of “water security”. Water security can be described in terms of maintaining acceptable levels of risk in four main areas: (i) the risk of water shortage, (ii) the risk of inadequate water quality, (iii) the risk of excess water and (iv) the risk of undermining the resilience of freshwater systems. In the Thai context, water security includes issues relating to floods and droughts, water use and allocation, water quality and the impacts of pollution (OECD, 2013[11]). Water security issues are a prominent feature of day-to-day life in Thailand. The 1 000 Baht banknote features images of high-profile flood defence infrastructure projects, including the Khlong Lat Pho floodgate project, functioning as a constant reminder of the importance of these challenges.
Improving water security is key for Thailand’s future prosperity in the face of continuing intensive growth and the uncertainties of climate change. The availability of sufficient water of sufficient quality at the right time underpins Thailand’s ambition to achieve high-income status by 2036. Demand for water in the country’s main economic sectors, including industry and agriculture, is increasing and putting pressure on national water resources. Exacerbating the management challenge is Thailand’s vulnerability to natural disasters, which affects both its regional development and its international reputation. Adopting a risk-based approach is recommended to prioritise action and ensure optimum use of human and financial resources.
Many of Thailand’s water security challenges are rooted in difficulties with multi-level governance and policy coherence. These challenges are also common in other countries and a number of policy instruments exist to help address the situation. Water management is sensitive to and dependent upon good multi-level governance. Diagnosing multi-level governance gaps is a crucial first step to overcoming obstacles and promoting more effective water policy and management. For example, any country facing sectoral fragmentation of water roles and responsibilities across public actors (policy gap) may also suffer from conflicting goals (objective gap). In addition, siloed approaches to governance may hinder policy makers from actively sharing information (information gap). This, in turn, undermines capacity-building at the subnational level (capacity gap) (OECD, 2012[12]; OECD, 2015[13])
Action is needed on two fronts to strengthen the capacity of state authorities in water resources management – at the technical and the financial level. It is important to implement the use of economic instruments as a policy instrument where relevant and needed. Economic instruments can trigger greater engagement among water users, foster the rational use of water resources and ensure sustainable financing for service providers. In addition, the willingness to pay among various sectors and the affordability of water bills should also be analysed thoroughly and taken into consideration.
Improving water security in Thailand is a journey that starts with a common vision
Strong leadership and clarity on roles, responsibilities and decision-making is key to facilitating improvements in Thailand’s water sector. A large number of actors are involved in water management at both the national and regional level, and this was found to impact decision making on issues including infrastructure planning and development, as well as water quality compliance and monitoring. While national strategy documents, including the 12th National Economic and Social Development Plan (NESDP), aim to allocate roles and responsibilities for different agencies to drive progress in water management, in practice the link to financial planning is weak, limiting implementation.
The OECD’s Principles on Water Governance provide a framework to understand whether water governance systems are performing optimally and to help adjust them where necessary. There are 12 principles to help governments design and implement effective, efficient and inclusive water policies. The first water governance principle is: “clearly allocate and distinguish roles and responsibilities for water policy making, policy implementation, operational management and regulation, and foster co-ordination across these responsible authorities”. This a critical first step for Thailand and there is a need to examine the roles and responsibilities of existing entities and map them against strategic objectives. Gaps and overlaps then need to be identified and addressed (OECD, 2018[14]) (OECD, 2015[15]).
The 12th NESDP contains a number of recommendations that have the potential to address these governance and fragmentation issues. These include: (i) the passing of a Water Resources Bill, which clearly outlines the objective of the water sector and maps out roles and responsibilities of the different entities; (ii) the formation of a cross-ministerial National Committee on Water Resources Management to promote co-ordination and policy coherence and (iii) recommendations to strengthen the role of river basin management.
Cross-ministerial dialogue is key to driving policy coherence. For example, discussions with stakeholders in Rayong province indicated a tension between the agricultural sector and the growing industrial sector with regard to future water demands. As Special Economic Zones including the Eastern Economic Corridor develop, policy discussion and coherence will be crucial. Improving water management therefore requires a coherent approach between water policies and other sectoral and environmental policies. In particular, the nexus between water, energy, food, climate and biodiversity presents significant challenges for water management, and has been attracting increasing policy attention in recent years. Increasing the coherence of policies (policy objectives and policy instruments) across these areas is essential if governments wish to meet the range of policy goals while not undermining water management objectives (OECD, 2016[16]).
Thailand is in the process of setting up its National Water Resources Committee (NWRC), a high-level committee chaired by the Prime Minister’s office. The NWRC is supported by a range of high-level officials including Deputy Prime Ministers and the heads of 12 governmental agencies. While a structure for the committee is proposed, there still remain roles to be filled. In particular, the role for River Basin Committees is unclear and the sanitation sector appears under-represented.
There may be an opportunity for a National Policy Dialogue on water to develop policy packages for consideration by this high-level decision-making committee. A National Policy Dialogue on water could be an opportunity for inter-sectoral co-ordination involving relevant agencies, academia, industry and civil society, and would allow broad consultation on evidence-based water policy issues ahead of presentation to government. The OECD has experience of facilitating these platforms in both OECD and non-OECD countries.
Tackling multi-level governance will facilitate the move to improved water security
Water security is about learning to live with an acceptable level of water risk. This requires a better understanding of the risks, ensuring that the level of risk used for planning and policy purposes takes into account social preferences, and managing risks and trade-offs between risks and across water and other policy objectives at the least cost to society. This requires a common vision and co-operation at all levels of an administration, including a common understanding of the water risks for each sector and region, and a clear vision of the use of economic instruments and financing.
Thailand typically finds itself in crisis management mode, responding to events after they occur. For example, budget allocation for flood recovery is easier to secure than budget allocation for flood defence and preparation. Embracing a risk-based approach to water management will help alter this mind-set and facilitate the allocation of funds to projects that add most value to society. Thailand needs to move from a crisis response to a risk-management approach.
The pressures on water security have increased with Thailand’s continued growth. In addition to heavy monsoons, the causes of floods include the decline of flood retention and flood plain areas due to urbanisation, industrial development and intensification of the agricultural sector. Severe droughts in 2015 and 2016, in particular in the upper-middle part of the country, caused irrigation problems in many areas and had a major impact on the agricultural sector. This sector is the main water user and accounts for over 54% of all water distributed in 2017. Losses and water use inefficiencies are known to be high, at times compounding the challenge of water stress. This situation is made worse by climate change, which will increase the frequency and intensity of extreme weather events in Thailand.
Regional development and water security are closely linked, as water security challenges affect the different regions of Thailand in a variety of ways. The Northeast region suffers from regular droughts but also flash floods, while the South is regularly hit by typhoons and floods. As a result, agricultural productivity in these regions (and the North) have suffered in recent years. Heavy industry and manufacturing is located in areas such as Rayong in the East, resulting in localised water quality challenges. However, the region can also be affected by flooding, as witnessed in 2011, when economic damage and losses from floods in the manufacturing sector were estimated at USD 32 billion (OECD, 2013[17]). As a result of the flooding, a number of international firms relocated to lower risk areas, impacting regional economies and Thailand’s international reputation. In general, the annual average recorded damages account for a not insubstantial share of GDP (Figure 1.8).
Adopting a risk-based approach to managing water security will signify a shift from reactive to more proactive policies. Instead of responding to water crises, which can often entail excessive costs to society, governments can establish a process to carefully assess and manage the risks in advance and review these on a regular basis. Once set, the acceptable levels of water risks should be achieved at the least possible cost. Economic instruments, such as charging appropriately for water use and pollution, can help to achieve this (OECD, 2013[11])
Figure 1.8. Annual average damage from flood events as a share of GDP
Note: Annual average damage was calculated based on damage reported between 1971 and 2015 and converted to constant 2015 USD based on the US Bureau of Labor Statistics’ Historical Consumer Price Index for All Urban Consumers (CPI-U). GDP figures are taken from the World Bank for the year 2014 in current USD.
Source: (OECD, 2016[18]) based on EM-DAT.
The OECD publication Water Security for Better Lives provides guidance on how to apply a risk-based approach to water security through a three-step process: “know the risks”, “target the risks” and “manage the risks” (OECD, 2013[17])
In OECD countries, the majority of efforts to date have focused on “knowing” the risk by building the scientific evidence base and disseminating information. Much more can be done to better “target” and “manage” water risks, particularly in response to a changing climate. In terms of policy responses, information-based instruments such as flood risk maps, decision support tools for risk management and adaptation guidance for local governments are by far the most widely used. Thailand has had success in this area in terms of flood risk maps and weather forecast data. However, it is acknowledged that more could be done to share these data with relevant agencies at all levels of government and to incorporate them into land-use planning and decision making.
A number of tools exist to help target and manage risk. Several countries are revising laws and regulations such as sustainable water abstraction limits, building codes and land-use planning, and are adjusting economic instruments such as water tariffs, water-related environmental taxes, and flood insurance schemes to reduce baseline stress on water systems, raise financing and address increasing flood risks. Japan has introduced regulations and guidance on land use in disaster-prone areas as well as unified flood control measures, while Australia has introduced water trading to allow scarce water resources to be transferred to ensure maximum productive use and to respond dynamically to the changing availability of and demand for water (OECD, 2013[11]; OECD, 2013[17]).
Policy responses are necessarily country specific and are based on risk-assessment and broad acceptance of national priorities. Thailand reports mixed performance in this area, while regulatory based tools such as permits for drilling of wells exist, responsibility is often held between a number of agencies, each with their own records, as was seen in Nong Khai province. There is typically no centralisation of data or information, and monitoring and enforcement is inconsistent. In Rayong province, risks of water shortages have been targeted and managed through investment in strategic storage reservoirs with some success.
Economic instruments will have a role to play in supporting the move to improving water security. Instruments such as water charges are underutilised and compound the challenges of water management. Where charges exist, they are typically low. As a result, incentives for users to conserve water are lacking. The ability to finance, invest in and deliver effective water and sanitation services is also reduced. There is an opportunity to review the structure and use of economic instruments, and reform this area in line with overall strategic objectives for the water sector.
Scenarios for Thailand’s future
Thailand will face rapid changes in the global and local environment on the path towards a high-income economy in 2037. The changes and unforeseen events in technology, social norms and behaviours, and the natural environment, as well as in the national and international political and economic environment will be enormous. Looking back, the advent of social media and its impact on both culture and communication, as well as the intensification of global value chains and significant changes in the global economic balance towards emerging economies, were hard to predict in 2000. New trends and changes, unknown today, will occur over the next 19 years and shape Thailand’s development opportunities.
Box 1.1. Why use scenarios?
Strategic foresight and scenario-based approaches are used as a fast and flexible method to analyse alternative plausible futures to traditional forecasts. They are often utilised to complement forecasting exercises, by integrating unquantifiable trends (political, social and behavioural) and “shocks” to the system (e.g. financial crises or environmental disasters), or as a means of reducing the complexity of multiple interactions to explore the implications of a specific trend or combination of trends.
While scenarios often use data-based research and quantifiable trends, they are not built by means of projections. However, as with projections, scenarios are explained by means of a storyline. Scenarios are stories developed by considering the ways in which different trends can be combined to create a different context, and used to think through the policy implications in terms of policy options, new policy incentives or trade-offs that could affect implementation.
Scenarios are a useful tool when formulating recommendations. They are user-driven and thus account for stakeholder perspectives and assumptions, ensuring that a wider array of policy contexts are considered in the formulation of recommendations.
Identifying these trends, anticipating their impacts and integrating this understanding into policy planning through the use of scenarios can help make Thailand more resilient (Box 1.1). To ensure that the recommendations in this report are pertinent in the face of these trends, a number of scenarios were developed to test recommendations against global developments, and foresee their consequences in terms of policy contexts, incentives and trade-offs to implement reforms.
Thai stakeholders have developed scenarios for Thailand that explore trends for the 2037 horizon. Following the 2017 workshop, which explored Thailand’s desired future and vision (OECD, 2018[1]), stakeholders from academia, government and civil society came together in Bangkok in June 2018 to explore trends and develop scenarios (Box 1.2).
Box 1.2. Scenarios for the future of Thailand 2037
Four alternative scenarios with a 2037 horizon were developed as part of the Thailand MDCR. They highlight the implications of external and domestic shocks on the context in which Thailand will pursue its development strategy.
The workshop “Scenarios for the future of Thailand” took place in June 2018 in Bangkok. Fifty participants including government officials and representatives of the private sector, civil society and academia explored internal and external drivers of future change in and for Thailand. The workshop identified CO2 emissions and social cohesion as two key drivers and the basis for scenario development.
Participants discussed the implications of the various scenarios for policy, with specific reference to the three main focus areas in the report, namely water management, regional development and multi-level governance. The four scenarios for the future of Thailand 2037 are as follows:
“The Uprising” – cohesive society, high CO2 emissions
Artificial intelligence and robots spread quickly and take over many jobs hitherto performed by humans. The higher rate of technological change creates increasing amounts of waste from discarded items, more energy consumption and higher emissions. High pollution leads to health problems, loss of biodiversity and natural disasters. Combined with mounting unemployment this results in social pressure and disenfranchisement. The turning point comes when people group together to fight the machines. This Uprising is victorious and results in a more cohesive society with less conflict. The common cause and experience generate new heights of social cohesion and shape common core values, allowing for the creation of stable political institutions. The government can thus begin to implement policies and investments to protect the environment, including taxes and charges, as well as greater decentralisation and community-based development. Green technology and green education help to reduce emission and conserve water resources.
“Hell after tomorrow” – individualistic society, high CO2 emissions
With the flow of foreign investments into heavy industry in Thailand, CO2 emissions skyrocket. Simultaneously, social media and new gadgets allow for people to retreat completely into their personal space minimising the need for physical interaction. As emissions rise, so do water levels, raising the possibility that people might have to live on water. New technology emerges for floating houses and ocean filter technology for drinking water. Seaweed and insects may constitute the main sources of nutrition. Public health and social spending increases as society ages faster, family ties weaken and mental health issues conceivably arise. The fiscal pressure is enormous. New technology is required to cope with the hydrological disaster such as a pipeline network and filter technology to produce clean water.
“Home alone” – individualistic society, high CO2 emissions
People sit in front of their computers and manage things from there. They have no need to go outside for any activities. The continuation of digital services such as online shopping combined with new technology enables people to manage everything from home. Behaviour and lifestyles change accordingly. People stay at home and lose interest in social contact and wider society. Pollution keeps rising because people consume too much, use more power and create more CO2. There is no more responsibility or accountability. People become self-centred. Ageing, mental health and healthcare provision more broadly become huge challenges.
“Fly me” – individualistic society, low CO2 emissions
Natural resources are being depleted, however people are not aware of their actions. A pollution crisis leads to health problems and frequent natural disasters. Confronted with these impacts, Thai society shifts. People become more aware of their actions and better policies help overcome the environmental challenges. Enabled by new technology, people work almost entirely from home, and commuting is no longer necessary. Access to education is much improved and technology based (e.g. remote learning system and self-schooling), but no longer involves much social contact. Autonomous self-learning also leads to the disappearance of degrees in higher education as every student creates their own selection of coursework from a vast offer. Technology also helps with health care and the elderly are able to take care of themselves thanks to a better health care network. People live longer.
“Enlighted green community” – cohesive society, low CO2 emissions
People become increasingly self-centred and exclusively focused on profits and production. Social and environmental responsibility matter little. Increasing industrial and manufactural activities result in more pollution. The areas near factories suffer from heavy pollution leading to conflicts in those areas. The suffering communities use social media to communicate with each other and find the power to push back against the polluters. This becomes a turning point for Thai society. People begin to care about the environment more widely and focus on new green technology. They also change their behaviour and mindset and society becomes more cohesive. The networking of local communities is key to solving many pressing environmental issues, especially around water. Thailand achieves the Sustainable Development Goals by 2030.
Policy recommendations
References
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Annex 1.A. Thailand’s regions and provinces
Note: Only provinces that are mentioned throughout the next chapters are reported.
Source: Authors’ own work.