Skills development key to escaping middle-income trap

skills2Economists and researchers with firm faith in the Kingdom are urging Thailand to invest more heavily in skills development among its workforce and support innovation as the keys to reigniting higher levels of growth and escaping the middle-income trap as extremely low labor costs in neighboring countries are eating away at Thai competitiveness, a media report said last week.

“Nurturing highly skilled human resources, as well as tax benefits, will be key to attracting further investment,” said an article in the Nikkei Asian Review. “According to data from the Japan External Trade Organization, factory workers in Bangkok earn $344 a month, nearly twice as much as their counterparts in Vietnam and Myanmar.” The report noted that major investors such as Goodyear, Robert Bosch and many Japanese firms have increased investments in Thailand during the past year.

Despite that the country has grown at an average pace of 2.7 percent over the past five years and the Thai government has been counting on upgrading and building new infrastructure as a means of sparking a return to higher growth rates and lifting the country out of the middle-income trap, a phenomenon in which economies hit a growth ceiling after a period of development.  The condition, according to some economists, afflicts roughly half of the world’s economies.

But some researchers and economists say infrastructure investments alone will not be enough to lift Thailand out of the middle-income trap.

“In the absence of advanced technological know-how, Thailand can neither compete with high-tech, high-value goods and service producers nor with the low-cost manufactures,” researcher Bisal Chalise in The Diplomat online magazine.

Economist Manop Udomkerdmongkol of UOB echoed that view. “Long-term improvements in Thailand’s economic wellbeing also require drastic ‘social infrastructure’ measures – including but not limited to educational reforms, legal improvements, as well as improvements to government efficiency and good governance. These policies for an all-round upgrade will ensure Thailand has a safe, undisrupted trip on the road to prosperity over the years to come.”

The country, economists said, needs to invest more in human resource development, following the leads of firms such as Robert Bosch, which is investing in a research and development facility for fuel injectors in Thailand, PTT, which launched the Vidyasirimedhi Institute of Science and Technology, which conducts research in areas such as biodegradable resins and renewable energy.

“Building an R&D ecosystem is the best way forward. Investing in R&D would help compete farther up the value chain. The model was successfully tried in South Korea, where a government-led innovation ecosystem spurred the type of growth that can sustain itself for a long period,” said Chalise.

“Creation of a national R&D ecosystem requires investment in improving the quality of tertiary education, creating specialized research centers and facilities, and linking research with businesses and industries,” he added.