San José State University
Department of Economics
Thayer Watkins
Silicon Valley
& Tornado Alley

The Economic History and Economy of Thailand

The Economy of Thailand

Historical Background

There are two elements to the history of Thailand: 1. The history of the cultural-linguistic group of the Thai people 2. The history of the geographic area now known as Thailand.

The history of the Thai people is but one part of the history of the speakers of the languages of the Tai family. The Thai's are the most illustrious of the Tai people but it is instructive to look as the more gneral family of Tai's. The homeland of the Tai people within historic time is the area that is now the Yunnan Province of South China and there are still several million Tai's in China.

When the Han Chinese began moving south into Tai territory many groups of Tai's fled south over the mountains into southeastern Asia. Some went into what is now northern Myanmar (Burma) and are known as the Shan, although the names these people have for themselves involve the word Tai. Other groups of Tai's went into what is now northeastern Thailand and Laos. Their dialect is known as Thai-Lao and Lao. There ae far more speakers of Lao in Thailand than there are in Laos. In 1996 there were 3.4 million in Laos and 16 million in Thailand. As these statistics indicate, Laos is essentially just a section of Thai-Lao territory that was taken over by the French.

There were other groups of Tai-speakers that settled in the mountainous areas of northern Thailand, Laos and Viet Nam. They are known by the general color of their traditional costumes as Black-Tai, White-Tai and Red Tai.

The remaining group of Tai migrant is the one that migrated into the upper reaches of the Chao Phraya (Great River) valley, what is now known as north central Thailand.

At the time of this migration, about 100 A.D., the area was controlled by Mon and Khmer kingdoms. The Mon and Khmer also originated in South China but migrated into the area several centuries before the Tai peoples. The Tai people accepted the overlordship of the Khmer Empire and served as their military allies. The name Siam comes from the Khmer reference to the Tai as the syam, the dark-brown people.

In 1238 a Tai clan threw off the overlordship of the Khmer and established a kingdom at Sukhotai in what is now north central Thailand. At that time they adopted the name Thai, meaning free. The difference in the pronunciation of Thai and Tai is that the t in Thai is an aspirated or hard t whereas the t in Tai is a soft or unaspirated t.

Sukhotai survived as the dominant Thai kingdom for about a century but lost out to Ayutthaya farther to the south. At this time King Ramaathibodi accepted Theravada Buddhism as the religion of his kingdom. Theravada Buddhism was propagated by monks from Sri Lanka, although Buddhism originated in North India. This cultural transmission indicates the development of sea faring, trading and culture exchange in the area.

For about four centuries Ayutthaya remained dominant but in 1767 a Burmese army captured the city and burned it. The Thai rallied around two leaders, Taksin and Chakkri, and drove out the Burmese. Taksin was later executed by his advisers but Chakkri took control of the kingdom and his dynasty still constitutes the royal family of Thailand.

The most famous of the Thai monarchs was Mongkut who came to the throne in 1851 after spending 27 years as a scholarly Buddhist monk. He had been the legitimate heir to the throne but his mother recognized that he would be killed by the backers of one of his half brothers so she saved his life by taking him out of the contest by putting him into a Buddhist monastery. He was a quite remarkable man in terms of intelligence and vision. He was determined to preserve the independence of his kingdom in the face of French and British acquisitions of the surrounding territories in Burma, Indochina and Malaya. He recognized the need for Siam to acquire Western learning, technology and institutions in order to fend off the French and British imperialists. He imported advisers from the West and encouraged the development of businesses. He engaged in diplomacy with other country. He sent Abraham Lincoln an offer of war elephants from Siam if he needed them in the American Civil War.

It about this time that the immigration of Chinese into Siam became important. One adviser he imported from England brought him everlasting fame in the West. Mongkut hired Anna Leonowens to education the Siamese court children and many years later when she returned to England she wrote a book about her experiences. That book became the basis for Margaret Landon's book, Anna and the King of Siam, published in 1944. In turn, Anna and the King of Siam became the basis for a Broadway musical and later a movie entitle The King and I.

The following is an anecdote told by Anna Leonowens in her book. It unfortunately did not get included in the musical. The episode occurred when a British ambassador requested an audience with King Mongkut. Mongkut granted his request and the ambassador was scheduled to arrive in a couple of days. Mongkut wanted his court to look sophisticated and comparable to a European court. He asked Anna to make ballroom dressing gowns for a few of the beautiful young ladies of the court so that they could be introduced to the ambassador. Anna replied that she could get the gowns made in the short time available before the arrival of the ambassador. She soon realized there was no way she could get underwear prepared for the ladies as well. Anna decided that the gowns would be sufficient since no one would know that the ladies had no underwear.

Murphy's Law always seems operative. When the British ambassador arrived and was presented to the court the Thai ladies were shocked that he had a full beard. To make matters worse, far worse, he put on his monocle to observe the ladies more closely. In Thai culture there is the concept of an evil eye, an eye which could do serious harm to anyone it looked upon. The young ladies of the Siamese court did the only sensible thing they could do to protect themselves from an evil eye; they pulled their gown skirts up over their heads and fled as best they could. Anna did not tell what the British ambassador's reaction was.

Despite mishaps Mongkut did keep Siam independent. The eastern reaches of northeastern Siam were taken by France and called Laos. Siam had had a degree of control over Cambodia which was also lost to France. Some provinces in the Malay Peninsula were lost to Britain. Mongkuts reign was relatively short, from 1851 to 1868. His son, Chulalongkorn, ruled from 1868 to 1910 and continued the process of modernization started by Mongkut. This included land reform and modernization of the bureaucracy.

The modern era in Thai history began in 1932 when a westernized military elite staged a coup d'etat and made the king accept the role of constitutional monarch. The coup leaders were not able to effectively rule until 1939 when a man known as Phibun came to power. His full name was Luang Plaek Phibunsongkhram. He was strongly nationalistic and he changed the name of the country from Siam to Thailand.

Under Phibun Thailand became allied with Japan. The alternative was probably military occupation by Japan. When war between Japan and the United States began, Thailand declared war upon the United States but the Thai ambassador in Washington, D.C. refused to convey the declaration of war to the U.S. authorities so the U.S. never declared war against Thailand.

The Economy of Thailand

Rice growing is the bedrock of the Thai economy. It is the enterprise that enable the Thai people and culture to flourish. There is much more now to the Thai economy besides rice but rice was the basis for the economy and, until recent decades, the dominant industry. Now rice growing and all other agricultural industries, including forestry and fisheries, constitutes less than one sixth of total economic production. Manufacturing and domestic trade (wholesale and retail) both amount to more than that, roughly one fifth of GDP each.

Although the following table gives the tonnage of the various Thai crops rather than the monetary value it does serve to show the variety and nature of Thai agriculture.

Tonnage of Thai Crops in 1986
of tons
Corn (Maize)4092
Mung beans325
Castor beans28
Jute and kenaf240
Kapok and bambax42

(To be continued)

Thailand and the Financial Crisis of 1997-98


Although most of the countries affected by the financial crisis had good macroeconomic indicators, some even perfect, Thailand, where the crisis started, had clear economic troubles in the time before the crisis hit. In the spring of 1997 a land developer in Thailand, Somprasong Land, defaulted on its $80 million Eurobond issue. Also in the spring of 1997 a Thai finance company Finance One collapsed. In 1996 the head of the central bank of Thailand, the Bank of Thailand, resigned as a result of a scandal concerning the Bangkok Bank of Commerce.

When a fiscal deficit developed the Government sought passage of a special tax on batteries and motorcycles to increase revenues but Parliament voted it down.

The political economic structure of Thailand was hampered by the extent that members of Parliament were heavily involved in business. And these politico-businessmen were not particularly astute businessmen; many relied more on the strength of their connections than their administrative ability or market acumen. One name for the system is "crony capitalism."

In the spring of the 1997 the Thai government took some steps to remedy the situation but declared it would never devalue the Thai baht. At that time the exchange rate was about 25 baht to the dollar and the Bank of Thai was committed to supporting that rate.

Although currency speculators are blamed for forcing devaluations the real cause lies in the elements of supply and demand. The speculators may instigate the devaluation at a particular time but they only prompt what had to occur sometime anyway. The way the speculators precipitate a devaluation is to borrow the currency and sell it. The cost to the speculators is the interest charges on their borrowings. But although the sales of the currency by speculators may seem large the real movement comes when they are able to convince the general public that a devaluation is inevitable and emminent. The speculators, in effect, attempt to trigger an avalanche of currency transfers by the individuals and businesses who do not want to see the value of their holdings drop virtually instantly. The central bank tries to fight this loss in confidence by increasing the domestic interest rates to discourage capital transfers, to attract new short term capital and to punish speculators by increase the cost of their borrowing.

Major Thai Enterprises

Charoen Pokphand Group (CP Group)

The Thai conglomerate was founded in 1921 by two brothers, Chia Ek Chor and Chia Siew Whooy. During most of its existence it concentrated on animal feeds, poultry, and seeds. It imported seeds and fertilizer from Guangdong Province in South China, the ancestoral homeland of the founders, and it exported poultry products,initially eggs and later chickens and ducks. Later the CP Group developed a sea food branch.

The trade with China lapsed during the Mao years but was re-opened after Deng Xiaoping's Modernization Program encouraged trade of China with the outside world. CP set up an animal feed venture in Shenzhen (near Hong Kong), the first outside direct investment in China.

The son of Chia Ek Chow, Dhanin Chearavanont (The Thai government insisted the Thai Chinese adopt Thai names) set about diversifying CP in a very big way. The Group entered telecommunications, chemicals and vehicles. It entered the mass merchandising field with joint ventures with Wal-Mart of the U.S., Yaohan of Japan and Makro of the Netherlands. It set a chain of convenience stores in Thailand modeled on the 7-Eleven chain in the U.S. This was achieved through a joint venture operation with Southland, the owner of the 7-Eleven chain. CP entered the commercial development field through CP Land which built about one hundred urban complexes featuring shopping malls, office space and hotels. CP also began producing packaged foods for export.

CP used its contact and influence to get franchises for these new fields and then negotiated a joint venture with multinational enterprises with the technical expertise required. For example, the CP Group got permission to set up a new telephone system, a much needed operation for Thailand. CP Group secured Nynex of the U.S. to handled the operation of the system.

When opportunities in new fields arose in China CP took them. After setting up a poultry operation in the Shanghai area the government offered to let the CP Group resurrect a failing motorcycle manufacturing operation in Shanghai. CP licensed the technology it wanted from Honda.

CP seemed to have the political skills necessary to gain the approval of government and the business acumen to bring in the technical skills it lacked. But the entry of CP into new fields and new markets looked dangerous but CP seems to have managed. Lesser companies did not have the skills of CP to do everything everywhere. Furthermore CP could operate successfully with the ambiguity of its relationships with government. Other enterprises trying to do similar things did not have the requisite skills and such overexpansion brought disaster. Even CP had trouble with its joint telephone company venture with Nynex.

HOME PAGE OF applet-magic
HOME PAGE OF Thayer Watkins