Government-enforced wage increases could wipe out export industries, reduce national income and stoke the flames of inflation.
Wage increase will crash Thai economy by TERRY WEIR
A crisis seems to come every decade or so. There is a pattern of recovery and growth leading to a false sense of confidence about the future. That false sense of confidence leads to policies and decisions which, after the next crisis grabs hold, looks foolish in hindsight...The next crisis will rarely come in the same guise...
...So what is this coming crisis? It is a combination of lost competitiveness and inflation.
The fundamental flaw in the present collective thinking of "most" people in Thailand is that they can become richer by government-enforced wage increases. But for an economy as a whole, that is impossible. It has never been done, although it has been tried many times in different countries...
...To increase the wealth of a country we need to increase labour productivity — making the same goods and services by using less labour. Developed countries’ wages are higher than in Thailand as those countries have much higher labour productivity.
As an example, my family owns a 900-rai of sugar cane farm in Australia. The farm manager runs the property together with another 1,000 rai of his family farm. To grow and harvest the crop less than one unit of labour is used to run my family farm. I have visited a number of sugar cane farms in Thailand. Typically, you would see a farmer cultivating, say, 100 rai with 10 farm workers, including seasonal workers. On an annual basis, this is more than five units of labour per 100 rai — the equivalent of 45 Thai farm workers to one Australian farm worker. That is the difference in productivity.
The farm labour cost in Australia is A$20 (about 300 baht) per hour compared to about 25 baht per hour in Thailand. So after accounting for the productivity difference, labour is cheaper on the sugar cane farm in Australia than in Thailand.
A common misconception is that employees on a minimum basic wage take home only that minimum wage and therefore have inadequate income.
However, in the electronics industry in Thailand, and I expect in most other companies, employees take home significantly more per day due to various allowances and overtime.
An increase in the minimum basic wage of 40-90 per cent will increase the takehome pay by a similar factor. Many export manufacturing businesses exist in Thailand due to the competitive labour cost. They were attracted to invest here through consistent government investment policies and a competitive labour cost for the labour skills required in their manufacturing processes. Those companies have invested billions of dollars in buildings and equipment, which take many years to recover their investments.
Once the ballpark is changed with a 40-90 per cent minimum wage increase and no productivity increase, those investors will have effectively been cheated and will never return. One does not return to the place where one got cheated.
There seem to be many people who have a short memory in Thailand. They think that times are good and we have a large trade surplus, so no need to worry about exports any more. Good luck with that.
Thailand is a large importer of oil. Without strong export and tourism industries, the trade surplus will disappear and Thailand will be in trouble once again.
Another problem that will make Thailand less competitive is that inflation will lead to higher interest rates and consequently a stronger baht.
Higher inflation will cause the Bank of Thailand to increase interest rates. Higher interest rates will attract more short-term speculative capital to Thailand and therefore a stronger Thai baht. Any exporting company with anything but low levels of debt may go insolvent.
It will be the perfect storm — 40-90 per cent higher labour costs, higher borrowing rates and stronger exchange rate. In global markets, where exporters are price takers, how can they survive.
So a 40-90 per cent wage increase destroys Thailand’s export competitiveness.
So what about inflation? ... [read the rest of this article here]
Terry Weir is chief financial officer of Hana Microelectronics Plc.
(Source: Bangkok Post, Wage increase will crash Thai economy, 27/07/2011, TERRY WEIR, link)
the perfect storm - an uncommon situation when all the conditions for a very large and destructive event exist (a "perfect storm"); a confluence of events that drastically aggravates a situation (See Wikipedia and the movie)
crisis - an urgent, difficult or dangerous situation วิกฤต วิกฤตการณ์ ช่วงวิกฤต
decade - a period of ten years ทศวรรษ, ระยะเวลา 10 ปี
pattern - a series of actions or events that together show how things normally happen or are done
recovery - when the economy starts to get better after an economic downturn or recession (more jobs, higher incomes) การฟื้นฟูสภาพ
confidence - trusting and believing in something; feel sure about something ความมั่นใจ; ความเชื่อมั่น
false sense of confidence - feel sure about something (that you shouldn't feel sure about; because it is not certain at all)
hindsight - the ability to see what some event or action looks like from the future (can't see this at the time we are doing something)
foolish - stupid
looks foolish in hindsight - looking back to some past action, it looks stupid
rarely - not happening often นานๆ ครั้ง, ไม่บ่อย
same guise - same form
rarely come in the same guise - rarely come in the same form (always different)
combination - the mixture you get when two or more things are combined การรวมกัน
competitiveness - how well a business can do compared to other firms (does it have lower price or higher quality?) การแข่งขัน how well a company is able to maintain or gain customers in a market
inflation - the level of prices rising in the economy as a whole (See Economist Glossary) ภาวะเงินเฟ้อ
fundamental - very important, essential, basic พื้นฐาน รากฐานที่สำคัญ
fundamental flaw - a very important and basic error
collective - involving all the members of a group โดยรวม ทั้งคณะ (การตัดสินชี้ขาดจากศาล); ที่เป็นจำนวนมาก ที่เป็นกลุ่มใหญ่
collective thinking - when everyone in a group thinks the same thing, also called "groupthink" (See Wikipedia)
wage - an amount of money that you earn for working, usually according to how many hours or days you work each week or month ค่าจ้าง
government-enforced wage increases - when the government orders wages to be increases (rather than market forces and supply and demand pushing them, when productivity increases, for example)
wealth - how much money and assets a person or country owns ทรัพย์สิน, ทรัพย์สมบัติ, สมบัติ
productivity - producing more with the same amount of inputs (labour, energy, etc) ผลิตภาพ, ผลผลิตแรงงาน, กำลังผลิต, กำลังที่สามารถผลิตได้ของเครื่องมือการผลิต
developed countries - rich, fully industrialized countries such as Europe, Australia, the US and Japan
cultivating - growing crops on land (like sugar, rice, etc)
seasonal workers - workers that only work during part of the year (in agriculture they work during the planting and harvesting seasons)
annual - happening once a year ประจำปี (or in one year)
on an annual basis - happening once a year
sugar cane - the plant that sugar comes from (See Wikipedia)
harvest - gather in ripe crops; the activity of collecting a crop, in this case a rice crop เก็บเกี่ยว; การเก็บเกี่ยวผลผลิต
property - land together with all the structures on it
equivalent - the same as เท่าเทียมกันกับ
after accounting for Y - using Y in your analysis
common - happening often
misconception - an incorrect idea or understanding of something
common misconception - an incorrect idea that people often have (misunderstanding, mistaken)
inadequate - not enough, or not good enough for a particular purpose อย่างไม่เพียงพอ
income - money that people receive from work or some other source, used for household consumption and savings
significantly - in an important way อย่างสำคัญ
allowances - money given to people to help them pay for the things they need
overtime - extra hours worked beyond normal hours (with extra pay)
take home pay - the total pay that an employee receives (including allowances and overtime)
increase by a similar factor - increase by a similar percentage
competitive - involving competition (when many people are all trying very hard to get the same limited scarce things or resources) มีการแข่งขัน
consistent - doing something the same way evedry time (not changing all the time) อย่างสม่ำเสมอ อย่างเสมอต้นเสมอปลาย
investment - taking your money and putting it into projects to make a profit or earn interest (buying stock shares, bonds, real estate)
skills - a type of work or task requiring special training and knowledge ทักษะ ความสามารถเฉพาะทาง
take many years to recover their investments - take many years to get back the money they invested (much more than they expected)
once the ballpark is changed - meaning: when the situation is changed for investors
effectively - working well and producing the results that they wanted
memory - something that you remember from the past; the ability to remember information, experiences and people ความจำ
trade - the buying and selling of goods การค้าขาย
surplus - an amount above the required or necessary amount
trade surplus - roughly: when money buying exports (coming into the country) is greater than money buying imports (going out of the country)
Good luck with that - commonly when you think that someone's idea is impossible to do (unreasonable, impossible to achieve goal)
attract - to cause someone to be interested in something ดึงดูดความสนใจ
capital - money invested in a business (See glossary)
short-term speculative capital - money that flows into and out of countries, hoping to make money from short-term increases in stock prices (if it is too large, can destabilize the entire economy)
debt - an amount of money that you owe หนี้
insolvent - business does not have enough money to make debt payments and continue in business
stronger exchange rate - the baht rises in value compared to other currencies (currency appreciation) making Thai exports more expensive than exports from other countries
global markets - markets for goods bought and sold between countries, international markets
price maker - a large company with market power can raise prices without losing its customers to competitors. Market participants that have market power are therefore sometimes referred to as "price makers"
price taker - small companies without market power to affect prices are called "price takers" (in large competitive markets there is one fixed price, so any one small company must accept or "take" this price)
global - throughout the world ทั่วโลก ทั้งโลก
survive - to manage to deal with something difficult or unpleasant and continue to exist and live อยู่รอด สืบต่อไปได้ รอดไปได้ มีชีวิตรอด
officer - a high level person in an organisation with special responsibilities (a government officer, a police officer, an army officer)
Chief Financial Officer (CFO) - "a corporate officer primarily responsible for managing the financial risks of the corporation. This officer is also responsible for financial planning and record-keeping, as well as financial reporting to higher management. In some sectors the CFO is also responsible for analysis of data. The title is equivalent to finance director, a common title in the United Kingdom. The CFO typically reports to the chief executive officer and to the board of directors, and may additionally sit on the board" (See Wikipedia)