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Govt Focus On Boosting Domestic Consumption


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Govt focus on boosting domestic consumption

By The Nation

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Kittiratt says economic blueprint centres on higher rice prices, wage hike, aims to reduce role of exports

Deputy Premier and Commerce Minister Kittiratt Na-Ranong has unveiled the government's blueprint to re-balance the Thai economy, with an initial target to boost domestic consumption by Bt250 billion in the first year.

In an interview with Nation Multimedia Group, Kittiratt said Thailand should reduce its dependence on the export sector, which currently accounts for 60-70 per cent of Gross Domestic Product.

Instead, the country should boost domestic consumption to drive economic growth.

Kittiratt said the Yingluck government's key economic policies would help re-balance the economy over the next several years.

One of these policies is to guarantee paddy rice at Bt15,000 per tonne, compared to the prevailing market price of less than Bt10,000, via the government's rice-pledging scheme.

Another key policy is to increase the daily minimum wage nationwide by 40 per cent, with Bangkok and six other provinces taking the lead from January 2012 onwards by raising the wage from about Bt220 to Bt300 per day.

Kittiratt said the government's temporary suspension of Oil Fund levies on petrol, gasohol and diesel, making energy prices cheaper by Bt2-7 per litre, was also part of this economic re-balancing agenda.

All these measures are inter-linked, as the government aims to reduce the cost of energy for consumers and businesses while boosting farmers' and workers' incomes, he said.

Kittiratt, who was previously president of Shinawatra University founded by ex-premier Thaksin Shinawatra, said the economic-re-balancing, if successful, would add an estimated Bt250 billion to the Bt10-trillion Thai economy.

This would represent 2.5 per cent of annual GDP, largely resulting from more purchasing power for the grass-roots population, whose incomes will be increased by higher rice prices and minimum wages. Unlike the rich and middle-income earners, low-income people tend to spend most additional income to improve their quality of life so the domestic economy would directly benefit from the government's re-balancing policy, he said.

However, the rice-pledging scheme - to boost the domestic price of paddy rice to Bt15,000 per tonne - is controversial. It has drawn strong opposition from rice exporters, who predict Thailand will lose a significant share of the world rice market due to the price hike.

Critics are also concerned that there could be massive corruption in the scheme, which requires the government to borrow as much as Bt400 billion in the first year.

The Bt300 daily minimum wage is also facing strong opposition from the private sector, who said a 40-per-cent jump in labour costs was not practical because productivity would not increase correspondingly.

Kittiratt said the government would cut the corporate income tax rate from 30 per cent to 23 per cent next year to help the private sector, while the Finance Ministry will offer tax incentives on machinery investment to boost productivity.

The Deputy PM said that Thailand's inflation - at around 4 per cent - was still relatively low compared to other trading partners and competitors. As a result, he was not worried that wage and rice price policies would spur cost of living rises to an extent they destabilise the economy.

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-- The Nation 2011-09-18

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This story by the Nation seems more balanced that many others I have seen recently -- it lets the man have his say and then points out the potential challenges.

And the policies he advocates are not just window dressing to attract support from the poor. Even China, the world's manufacturing center, has seen that an export-reliant economy is not sustainable over the long term and carries extreme risks due to dependence on consuming nations like the US and in Europe, which are now floundering.

Helping drive growth with consumer spending is indeed an attractive answer. But in the case of China, people continue to hoard money because they do not trust the government at all so they stay ready to pay for their own medical bills, retirement and child's education.

In Thailand, much more mai pen rai, the poorer members of society will certainly spend additional income, creating demand for things like TVs and refrigerators, while also raising their perceived quality of life.

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So, the export sector accounts for 60-70% of GDP.

With the increase of rice prices by 50%, and increase of the prices of other manufactured and exported products due to minimum wage increases by 40-70%, all planned within the next 12 months, how does Kittiratt plan to deal with the unemployment when companies start downsizing because of the exports drying up?

The increase in wages will be mostly taken up by the increase in prices of everyday products. The poor won't have extra money to boost domestic consumption. Domestic consumption will probably even drop because of increase unemployment. Certainly, an increase in domestic consumption 'over several years' won't cover the reduction in export consumption and it's effects on the economy in the short term.

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Your assumptions assert prima facie that a rise in wages will will cause a dramatic fall in exports and employment.

A 40 percent rise in wages sounds huge, but one has to remember the starting baseline is very, very low. As a percentage of cost of a finished good like a TV, what is the total cost of labor anyway? Is it possible that producers can become more efficient to raise wages and still deliver affordable goods.

Again in China: Costs are rising sharply due to inflation, rising wages and a diminishing population demographic advantage. In short, the population is aging while the govt is rightly concerned that vast imbalances in quality of life will lead to social unrest. They have to raise wages.

This would be a factor among all low-cost producers, I think, so perhaps an increase in pay is not as devastating to Thailand's competitiveness as is stated by the Nation and others as an article of faith.

If exports can be maintained at a decent level and domestic consumption increased, it could be a big step.

I can't believe the only model that's acceptable to the anti-Thaksinites is slave wages for the poor to they can sell their products at very low prices.

Maybe all the guys driving around in their Mercedes aren't very good businessmen -- they need a super advantage to keep the millions rolling in, because that's what they've had all these years.

Edited by chaoyang
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Your assumptions assert prima facie that a rise in wages will will cause a dramatic fall in exports and employment.

A 40 percent rise in wages sounds huge, but one has to remember the starting baseline is very, very low. As a percentage of cost of a finished good like a TV, what is the total cost of labor anyway? Is it possible that producers can become more efficient to raise wages and still deliver affordable goods.

Again in China: Costs are rising sharply due to inflation, rising wages and a diminishing population demographic advantage. In short, the population is aging while the govt is rightly concerned that vast imbalances in quality of life will lead to social unrest. They have to raise wages.

This would be a factor among all low-cost producers, I think, so perhaps an increase in pay is not as devastating to Thailand's competitiveness as is stated by the Nation and others as an article of faith.

If exports can be maintained at a decent level and domestic consumption increased, it could be a big step.

I can't believe the only model that's acceptable to the anti-Thaksinites is slave wages for the poor to they can sell their products at very low prices.

Maybe all the guys driving around in their Mercedes aren't very good businessmen -- they need a super advantage to keep the millions rolling in, because that's what they've had all these years.

The business lobby's argument against the minimum wage won't hold water and they are probably smart enough to know that.

Your point on final costs of goods is the right point to take, as this is what determines profitability.

Labor costs increasing 40% sounds horrible for business and it would be if it were true. Find a company in which its labor is 100% at the minimum wage today... in addition, that labor needs to be a significant % of the cost of the product.

Example, in France, the labor is 7% of the cost of an automobile. A 40% increase in the minimum wage in France would add approximately 0.00% to the price of a car. Next problem...

The situation will be the same for the majority of the industry, and certainly in the tech / manufacturing sectors, as automation will already be reasonably high ... or should be.

This is why I feel the across-the-board tax cut for businesses is a huge corporate hand-out. It would be well worth the gov't's time to find a more targeted method of relief. On the other hand, the 20% tax break could be the government's way of getting the entire business community to buy-in to the wage increase. This is a typical strategy in other countries.

On the other hand, a broad increase in the minimum wage will benefit those poor workers in the Thai society who will be lucky enough to receive it. As you say, slave wages cannot be the only business model that works. (OK, if you are the owner and not the slave, it works great... )

:(

So I say they should just get on with the new minimum wage and keep an eye on the industries that might actually suffer under it ... that should be relatively rare, and as particular cases, easier to adapt to.

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...

Example, in France, the labor is 7% of the cost of an automobile. A 40% increase in the minimum wage in France would add approximately 0.00% to the price of a car. Next problem...

...

May I nominate you for the Nobel Price, category Economics ?

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...

Example, in France, the labor is 7% of the cost of an automobile. A 40% increase in the minimum wage in France would add approximately 0.00% to the price of a car. Next problem...

...

May I nominate you for the Nobel Price, category Economics ?

Rubl, should I take that to mean that you do not believe the above? No problem for me...

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...

Example, in France, the labor is 7% of the cost of an automobile. A 40% increase in the minimum wage in France would add approximately 0.00% to the price of a car. Next problem...

...

May I nominate you for the Nobel Price, category Economics ?

Rubl, should I take that to mean that you do not believe the above? No problem for me...

correct, dear nominee.

Although economics is not my strength, I believe a 40% rise of minimum wage in France would be even more disastrous than a 45 - 95% raise in Thailand.

In Western countries the minimum wage defines or relates to unemployment benefit, social security, pension schemes, etc., etc. Furthermore a 40% raise in minimum wage would put that group of wage earners in higher wage sales which normally would require time-in-function or skills or both. People now in those higher scales would demand an increase at well. The total income structure, taxation, government expenses, etc., etc. would be disrupted.

In Thailand an 45 - 95% increase of minimum daily wage puts some in the salary bracket new academics would expect. The government had 6000 - 9000 B/month and will move to the pledge of 15,000 B/month. 28 days @ 300B/d is 8400B/m. So people in the private sector will start to demand they get a raise as well. And so and, and so forth.

I'm not against a raise per se, but to avoid disturbing an existing economical model the change should be gradual. How gradual, or how rapidly depends on the current economical situation and competitiveness.

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...

Example, in France, the labor is 7% of the cost of an automobile. A 40% increase in the minimum wage in France would add approximately 0.00% to the price of a car. Next problem...

...

May I nominate you for the Nobel Price, category Economics ?

Rubl, should I take that to mean that you do not believe the above? No problem for me...

correct, dear nominee.

Although economics is not my strength, I believe a 40% rise of minimum wage in France would be even more disastrous than a 45 - 95% raise in Thailand.

In Western countries the minimum wage defines or relates to unemployment benefit, social security, pension schemes, etc., etc. Furthermore a 40% raise in minimum wage would put that group of wage earners in higher wage sales which normally would require time-in-function or skills or both. People now in those higher scales would demand an increase at well. The total income structure, taxation, government expenses, etc., etc. would be disrupted.

In Thailand an 45 - 95% increase of minimum daily wage puts some in the salary bracket new academics would expect. The government had 6000 - 9000 B/month and will move to the pledge of 15,000 B/month. 28 days @ 300B/d is 8400B/m. So people in the private sector will start to demand they get a raise as well. And so and, and so forth.

I'm not against a raise per se, but to avoid disturbing an existing economical model the change should be gradual. How gradual, or how rapidly depends on the current economical situation and competitiveness.

I see why you don't agree... you have misunderstood the statement which you plucked out of the post and quoted. No problem.

As for implementation of the minimum wage, ... the gov't has its choices.

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correct, dear nominee.

Although economics is not my strength, I believe a 40% rise of minimum wage in France would be even more disastrous than a 45 - 95% raise in Thailand.

In Western countries the minimum wage defines or relates to unemployment benefit, social security, pension schemes, etc., etc. Furthermore a 40% raise in minimum wage would put that group of wage earners in higher wage sales which normally would require time-in-function or skills or both. People now in those higher scales would demand an increase at well. The total income structure, taxation, government expenses, etc., etc. would be disrupted.

In Thailand an 45 - 95% increase of minimum daily wage puts some in the salary bracket new academics would expect. The government had 6000 - 9000 B/month and will move to the pledge of 15,000 B/month. 28 days @ 300B/d is 8400B/m. So people in the private sector will start to demand they get a raise as well. And so and, and so forth.

I'm not against a raise per se, but to avoid disturbing an existing economical model the change should be gradual. How gradual, or how rapidly depends on the current economical situation and competitiveness.

I see why you don't agree... you have misunderstood the statement which you plucked out of the post and quoted. No problem.

As for implementation of the minimum wage, ... the gov't has its choices.

The example you gave was related to

"Labor costs increasing 40% sounds horrible for business and it would be if it were true. Find a company in which its labor is 100% at the minimum wage today... in addition, that labor needs to be a significant % of the cost of the product."

My comment still stands. To only consider what the costs of products would do when minimum wage earners involved in producing that product would get a significant pay raise and given a very specific example (correct or not) is faulty logic. In an economy nothing stands on it own, all is somehow related.

So, yes the government has it's choices, only some will not wreck havoc on the economy. The gradual approach with maybe a few larger hops seems the correct way to go.

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I am no economist but just thinking out loud here... If he says he doesn't care about exports (manufacturing) per say, yet an awful lot of the people getting the raise are in those industries (directly or indirectly), does that mean he expects a surge in 711s to absorb the forthcoming loss of jobs?

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Although economics is not my strength, I believe a 40% rise of minimum wage in France would be even more disastrous than a 45 - 95% raise in Thailand.

In Western countries the minimum wage defines or relates to unemployment benefit, social security, pension schemes, etc., etc.

Not true in the US. The minimum hourly wage is just that. Many, if not most, minimum wage earners have none of the other benefits you listed except mandatory social security (which is 15 percent, split equally by the employee and employer).

In Thailand an 45 - 95% increase of minimum daily wage puts some in the salary bracket new academics would expect. The government had 6000 - 9000 B/month and will move to the pledge of 15,000 B/month. 28 days @ 300B/d is 8400B/m. So people in the private sector will start to demand they get a raise as well. And so and, and so forth.

Why are people working six days a week anyway? I can't tell you how many places I went were there were far more employees than needed, many of them hanging around with nothing to do. I would think some organization and management to create better productivity would more than pay for the increases. But under the old system there is no incentive to do so.

Anyway, so academics are underpaid too -- that justifies scrapping plans for a minimum wage increase now? Maybe some of these English teachers who don't speak English would like to try their hand at a little hard labor ...

Edited by chaoyang
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Although economics is not my strength, I believe a 40% rise of minimum wage in France would be even more disastrous than a 45 - 95% raise in Thailand.

In Western countries the minimum wage defines or relates to unemployment benefit, social security, pension schemes, etc., etc.

Not true in the US. The minimum hourly wage is just that. Many, if not most, minimum wage earners have none of the other benefits you listed except mandatory social security (which is 15 percent, split equally by the employee and employer).

In Thailand an 45 - 95% increase of minimum daily wage puts some in the salary bracket new academics would expect. The government had 6000 - 9000 B/month and will move to the pledge of 15,000 B/month. 28 days @ 300B/d is 8400B/m. So people in the private sector will start to demand they get a raise as well. And so and, and so forth.

Why are people working six days a week anyway? I can't tell you how many places I went were there were far more employees than needed, many of them hanging around with nothing to do. I would think some organization and management to create better productivity would more than pay for the increases. But under the old system there is no incentive to do so.

Anyway, so academics are underpaid too -- that justifies scrapping plans for a minimum wage increase now? Maybe some of these English teachers who don't speak English would like to try their hand at a little hard labor ...

First quote: I would assume that even in the USA a 40% increase of minimum wages would upset the economical system. MacDonald laying off staff or increasing the price of a burger. Imagine.

Second quote: you're correct, in many Thai shops you see lots of staff, none doing much. Increase productivity level, increase wage, lay off half the staff. Way to go, but if suddenly way to unrest and protests I'm afraid.

To repeat: I'm not against a minimum wage increase per se, but would like a gradual one which the economy can handle. Education and increase of productivity level should be worked on at the same time. Maybe start with a 20% increase NOW and OVERALL (country wide), Thailand is lagging behind and 20% probably won't hurt her economical position and competitiveness too much.

Edited by rubl
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In Thailand an 45 - 95% increase of minimum daily wage puts some in the salary bracket new academics would expect. The government had 6000 - 9000 B/month and will move to the pledge of 15,000 B/month. 28 days @ 300B/d is 8400B/m. So people in the private sector will start to demand they get a raise as well. And so and, and so forth.

Why are people working six days a week anyway? I can't tell you how many places I went were there were far more employees than needed, many of them hanging around with nothing to do. I would think some organization and management to create better productivity would more than pay for the increases. But under the old system there is no incentive to do so.

Anyway, so academics are underpaid too -- that justifies scrapping plans for a minimum wage increase now? Maybe some of these English teachers who don't speak English would like to try their hand at a little hard labor ...

But that's the problem isn't it? An large increase in minimum wage WILL lead to job losses or a cut back in hours. That's not going help domestic consumption, is it?

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Although economics is not my strength, I believe a 40% rise of minimum wage in France would be even more disastrous than a 45 - 95% raise in Thailand.

In Western countries the minimum wage defines or relates to unemployment benefit, social security, pension schemes, etc., etc.

Not true in the US. The minimum hourly wage is just that. Many, if not most, minimum wage earners have none of the other benefits you listed except mandatory social security (which is 15 percent, split equally by the employee and employer).

In Thailand an 45 - 95% increase of minimum daily wage puts some in the salary bracket new academics would expect. The government had 6000 - 9000 B/month and will move to the pledge of 15,000 B/month. 28 days @ 300B/d is 8400B/m. So people in the private sector will start to demand they get a raise as well. And so and, and so forth.

Why are people working six days a week anyway? I can't tell you how many places I went were there were far more employees than needed, many of them hanging around with nothing to do. I would think some organization and management to create better productivity would more than pay for the increases. But under the old system there is no incentive to do so.

Anyway, so academics are underpaid too -- that justifies scrapping plans for a minimum wage increase now? Maybe some of these English teachers who don't speak English would like to try their hand at a little hard labor ...

First quote: I would assume that even in the USA a 40% increase of minimum wages would upset the economical system. MacDonald laying off staff or increasing the price of a burger. Imagine.

Second quote: you're correct, in many Thai shops you see lots of staff, none doing much. Increase productivity level, increase wage, lay off half the staff. Way to go, but if suddenly way to unrest and protests I'm afraid.

To repeat: I'm not against a minimum wage increase per se, but would like a gradual one which the economy can handle. Education and increase of productivity level should be worked on at the same time. Maybe start with a 20% increase NOW and OVERALL (country wide), Thailand is lagging behind and 20% probably won't hurt her economical position and competitiveness too much.

That last part is a perfectly reasonable proposal.

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First quote: I would assume that even in the USA a 40% increase of minimum wages would upset the economical system. MacDonald laying off staff or increasing the price of a burger. Imagine.

Second quote: you're correct, in many Thai shops you see lots of staff, none doing much. Increase productivity level, increase wage, lay off half the staff. Way to go, but if suddenly way to unrest and protests I'm afraid.

To repeat: I'm not against a minimum wage increase per se, but would like a gradual one which the economy can handle. Education and increase of productivity level should be worked on at the same time. Maybe start with a 20% increase NOW and OVERALL (country wide), Thailand is lagging behind and 20% probably won't hurt her economical position and competitiveness too much.

In the case of McDonald's in the US, the minimum wage is already "high" enough to provide a minimal survival wage, so yes a 40 percent increase would be out of the question. The challenge in Thailand is to get the minimum wage up to a survival level to begin with.

In terms of consumption spending, I wonder if one person with extra money is better than two people with none. So if the wage was raised and businesses became more efficient (by necessity) with less staff there might be more spending power. The challenge of course is what happens to the person who loses their job due to a leaner business operation. One would hope that better businesses continue to expand and create more jobs -- but that's a tough one.

The system is full of problems: Poor education, mai pen rai attitude, workers who often seem unable to use common sense to problem solve, widespread deception. These are root problems that reflect the feudal system of a neglected underclass and will take many years, if not generations, to try to rectify.

You are right that a raise of any kind right now is an important first step. What I like about the new government is that they have a serious, large proposal on the table right now and at this point are taking measures to implement it. Whether they can in the face of opposition from powerful business interests remains to be seen.

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