The New World Economic Order : Challenges and Impacts on Thailand

 

     The new world economic order will likely emerge, in which the developing countries or emerging economies will begin to move ahead of and reduce their dependence on the developed countries, instead coming to rely on one another. It is also likely that by grouping together they will have more bargaining power and increase their role in the regulation of the global economy.

The new world economic order is a future happening that may affect Thailand, both with opportunities and risks. I will analyze the challenges and the impacts on Thailand of the new world order, as follows:

     Thailand will face fierce competition from the emerging economies, particularly from neighbouring countries, and countries in Africa and South America, where cheap labour and rich natural resources are found. Both for the existing countries of economic power and also those countries having the potential for superpower status, economic opportunities and resources will be sought in the developing countries. For example China invests in and assists such developing countries as Laos, Cambodia, Myanmar, countries in Africa and other countries.

     Some examples of Thailand?s neighbouring countries that have the potential to grow and become Thailand?s competitors, include Indonesia, which has a large market of 240 million people comprising its population and also enjoys improvement to its political stability. Therefore, Indonesia is becoming a place of interest for investment and has the potential to grow. It is expected that Indonesia will become the eighth largest economy in the world in 2050. Another country is Myanmar, which is seeing the development of democracy in a better direction. This country has an abundance of energy resources and enjoys a strategic geographical location amongst the ASEAN countries, and with China and India, which are high growth economies.

     Thailand?s international economic structure was bound to such economic superpowers as the US, EU and Japan. Although a proportion of trade and investment with these countries is likely to decline, the value of trade with these countries still combines to account for 32 percent of Thailand?s international trade. Thailand also relies on direct investment from the US, EU and Japan to the tune of more than 50 percent of all foreign direct investment in 2010.

     While Thailand has fewer economic relations with the emerging economies, particularly with countries of high growth and future economic superpower potential, trade and investment between Thailand and China is increasing; the value of trade with China at a rate of 12 percent, with the value of direct investment from China at 8 percent. Trade and investment with India, Russia, Brazil and South Africa, however, is of negligible value. Thailand?s knowledge and information on the emerging economies is also small, with government support for pioneering these markets still limited.

     Due to Thailand?s high dependence on existing markets that are facing conditions of economic recession, the Thai economy may be slowing down. Meanwhile, Thailand has limited relationships with emerging economies of high growth potential, so this defeats any opportunities or benefits from trade and investment with countries that have the potential to be new superpowers.

     The world economy is likely to be multi-polar with higher competition between the old and the new power poles. This can be seen in China?s expanded influence on developing countries in ASEAN, the Middle East, Latin America and Africa, while India plays an important role in the Non-Aligned Movement. The United States has thus begun to move and turn its attention to the emerging economies, even if not paying attention for a long time.

     This situation may be useful for the developing countries to turn the attention of the major world powers toward assisting them in preferential trade, subvention or with technological assistance. At the same time, the competition for power poles will be a challenge for Thailand in the balance of power. The questions are how to develop an international economic strategy and how to maintain the balance of power for Thailand to get the most out of this situation.

     The emergence of new power poles and the integration of the emerging economies to create bargaining power, may bring us to face problems arising from the complexity and variety of regulations and standards established by various groups. Management of the economy is more complex for the export promotion of goods to markets with different standards and regulations, the development of the manufacturing sector on the account of standards of different countries as partners, and the management of international reserves, which consist of multiple currencies and more complexity.

     The world economy will face more risks because economically the developing countries are growing rapidly and becoming important players in the global economy. The emerging countries may have less developed domestic regulatory systems, institutions, supervision, or economic management. These factors may make them vulnerable to economic crises, which may spread to other countries and result in global economic crisis, as in the past.

     The economic recession of the present superpowers could induce governments to use more trade barriers. The United States, for example, may take trade barrier measures to reduce its trade deficit with China and other emerging economies. The governments of EU member states may provide assistance for domestic businesses that have been affected by the economic crisis conditions.

     In addition, increased competition among the developing countries themselves while their manufacturing sectors are not strong may see intensive force by developing countries? governments for trade barriers, or a rise in competition for the provision of state economic assistance (state aid) within their own countries.

     These measures may affect the competitiveness of Thailand?s manufacturing and export sectors, both for existing and emerging markets.

     Although the future global economy will tend toward the higher growth rates of the emerging economies, particular the economies of developing countries in Asia, emerging growth factors can now be grouped in one of two ways.

The first grouping is seen where the emerging economies grow through the growth of productivity (TFP growth), in such countries as China, India and Russia.

     The second grouping is seen in the growth in the emerging economies, with the movement of production factors into countries in such areas as Latin America and Southeast Asia.

     For China, understanding that Chinese production is very cheap, low quality and imitative, now the Chinese economy is changing its low added value and cheap labour to produce a technological breakthrough. The Chinese government prioritizes its country?s development of science and technology, noticed in the completion of higher education in China increasing 288 percent between the years 1997-2004, with 43 percent of graduates in science and engineering and also with plans to increase research and development expenses from 1.4 percent of GDP in 2000 to 2.5 percent in the year 2020.

     For India, the number of universities increased from 209 in 1990 to more than 300 establishments in 2005, particular universities of science and technology, in which India is of top ranking among universities in Asia. India's research and development expenses also increased from 0.8 percent of GDP in 2000 to 1 percent in 2004 and it is known that India has numerous personnel with expertise in information technology.
 

     Under these circumstances, Thailand is surely facing the challenges of competition with its neighbouring countries having cheaper wages and plentiful resources as well as the emerging economies with their high productivity and innovation. The question is how Thailand can sustain its economic growth.

     The new world economic order is likely to be much more beneficial to the developing countries, due to the developing countries having more chance to create the world order. However, these new situations will result in benefits or penalties against Thailand, depending on our awareness and preparedness to seize the opportunities, or not.