The era of development incorporated more people more firmly into the national market economy. The era of ‘national security’ brought more people more firmly under the direction of the nation-state. Armed with new funds and technologies, the nation-state extended its power deeper into society, and farther into the villages and hills. Struggles to control and direct the nation-state now affected the lives and commanded the interest of larger numbers of the nation's citizens.

In the late 1950s, the USA brought together the military, businessmen, and royalists – the three forces that had tussled since 1932 – in a powerful alliance. Together they resurrected and embellished the vision of a dictatorial strong state, demanding unity in order to achieve development and to fight off an external enemy – in this era, ‘communism’. But the alliance's strength was undermined by the generals’ abuse of power and their obvious subordination to American policy. Opposition to the intensity of capitalist exploitation grew. Protests emerged against American domination. Communists launched a guerrilla war, which attracted the support of old intellectuals, young activists, and exploited peasants. Students became the channel through which radical, liberal, nationalist, Buddhist, and other discourses were focused against militarism, dictatorship, and unrestrained capitalism.

The name Thailand was invented in 1939. The country it described, formerly called Siam, had been defined by borders drawn in the 1890s and 1900s. Its capital, Bangkok, had been founded in 1782 in succession to an older city, Ayutthaya, destroyed 15 years earlier. Ayutthaya had been one of the great port cities of Asia, with trading links stretching from Persia to China, and a political and economic hinterland focused on the basin of the Chao Phraya river system.

The society of this hinterland had evolved over prior centuries in a pattern that was similar throughout Southeast Asia. The landscape was dominated by tropical and subtropical forest. People clustered in city-states. Society was organized around personal ties of service and protection. An era of warfare from the 13th to 16th centuries saw the emergence of a powerful militaristic kingship buttressed by Brahmanical ritual, trading profits, and systems for marshalling forced labour. But since the 17th century, this social and political order had begun to shift with the expansion of a commercial economy, a loosening of labour ties, the emergence of an aristocracy, and the new vitality of Theravada Buddhism.

At the end of the 19th century, Siam was remade as a nation-state. The ‘nation’ constructed by this process was novel. The areas collected within the borders had very different histories, languages, religious cultures, and traditions. The Thai language seems to have been spoken in the lower Chao Phraya system and down the upper peninsula, but in practice local dialects varied greatly, and the languages of Bangkok and Chiang Mai were mutually unintelligible. Over the prior century, the expansion of Bangkok's political influence, the influx of war captives, and Chinese immigration had added to the social variety. The fragmentation of the administration gave scope for local difference.

The ideas of nation, unified nation-state, nationality, national identity, and centralized nation-governing bureaucracy were imposed from above. They were adapted from European models, and adopted in part to parry the threat of colonial takeover. But they were taken up also to replace old systems of rule and social control that had become less effective as a result of social change and that could not satisfy the new demands of the market economy.

Since the foundation of Thailand's nation-state in the late 19th century, two traditions have evolved over its primary purpose.

The first of these began from the original formulation in the reign of King Chulalongkorn. The need for a strong absolutist state was justified to overcome external threats (colonialism) and internal disorder so that Siam could achieve ‘progress’ and become a significant country in the world. The right of the existing royal elite to rule this strong state was explained by history (the continuity of monarchy since Sukhothai), and by the elite's selflessness, professionalism, and monopoly of siwilai. The role of the nation was to be unified, passive, and obedient.

The formula was revived and updated by military dictators in the mid-20th century. Phibun and Wichit removed the monarchy from its central place, but kept the main elements of the formula intact. The need for a strong dictatorial state was justified to overcome external threats (communism) and internal threats (the Chinese) so that Siam could achieve progress/development and survive in a world of competing nations and ideologies. The right of the military elite to rule was explained by history (the Thai as a martial race), and by its selflessness, professionalism, and monopoly of force. Sarit, with help from the USA, reunited the royal and military strands of the tradition.

Although the capital was physically destroyed, Ayutthaya represented traditions of trade and rule that were not easily erased. Over the next 15 years a new capital emerged further down the Chao Phraya River located at Thonburi-Bangkok, a site with better chaiyaphum for trade and defence. Members of the old elite dramatized Bangkok as a revival of Ayutthaya. But in fact much was very different. This era of war extended the Siamese armies’ influence farther to north, south, and east than ever before. Forced movements of people transformed the ethnic mix in the Chao Phraya plain. The great noble households that survived the crisis became the dominant force in the polity.

The major change was in the economy. The trading connections with China, begun in the early 18th century, were resumed and reinforced. The market economy expanded rapidly in the Chao Phraya plain and down the peninsula, driven largely by import of Chinese enterprise and labour. The growth of the market economy began to remake the social structure and change the mentality of the elite. The return of Europeans bringing ideas of ‘progress’ and threats of colonial rule prepared the ground for an era of change.

“Uneven development” in this book refers to the fact that many middle-income, developing countries, such as Thailand, succeed at structural change but not, or much less, at upgrading. Why is upgrading rare? I contend that the tasks required for economic diversification, although difficult, are less challenging than those of upgrading. This is so in part because of potential tradeoffs among the three aspects of the latter. Increasing value added with local inputs and doing so at export levels of price, quality, and delivery require that private and public actors overcome a particularly tough set of collective action challenges. Doing so in turn requires significant institutional capacities. But politics makes such capacities rare in the developing world. The creation of institutional capacities is itself a difficult collective action problem that leaders will attempt to resolve only when facing a particularly tough set of domestic and external pressures.

I develop this framework as follows: Section I briefly reviews two approaches – developmental state analyses and new institutional economics (NIE) – whose treatments of collective action are central to my arguments. Section II presents the core of the demand-side component of my argument by identifying (1) types of difficulty along which to differentiate among policy tasks and (2) the institutional capacities appropriate for addressing those tasks. Section III applies the framework to differentiate between the tasks of structural change and upgrading and to anticipate the challenges of more specific policy tasks. Section IV addresses the question of institutional design.

DEVELOPMENT PUZZLES

Students of economic development have commonly focused on the question of why some countries grow and others stagnate, and with good reason. Empirically, the spectacular income gap separating the world's rich and poor nations has become “the central economic fact of our time.” This gap, moreover, now extends beyond the industrialized vs. developing worlds to stark differences among developers. The rich–poor gap has defied easy theoretical explanations. Cultural explanations, for example, foundered on the unexpected success of East Asian countries whose Confucian ethic had previously been identified as an obstacle to growth. Initial endowments of assets such as human resources or manufacturing experience failed to explain the disappointing performance of countries such as the Philippines. Regime type – democracy or authoritarianism – failed to correlate with variation in development outcomes. Postwar development economists' belief that large, state-led projects could liberate entrepreneurs from traditional practices and other rigidities ran up against Latin America's state-led stagnation and Africa's institutional bloat. Finally, the fact that global income levels exhibit not convergence but “Divergence, Big Time,” has undermined the claims of neoclassical economists. As one long-time practitioner notes,

The creation of the modern Thai state in the mid-to-late nineteenth century prompted predictions that Thailand's economic growth would rival that of Japan's newly established Meiji state. Instead, Thailand emerged from World War II and moved into the late 1950s as a preindustrial economy with a healthy but relatively undifferentiated agricultural sector. Beginning in the early 1960s, however, the economy took off. Agriculture began to diversify, and new industrial activities attracted investment. By the 1990s, dynamic growth and diversification had made Thailand an “East Asian Miracle.” Yet apprehension about the shallowness of the country's industrialization grew as diversified export dynamism was matched by rising import dependence and competition from other low-wage producers. The 1997 Asian economic crisis made it clear that these concerns were justified. Upgrading became a central focus of the country's recovery efforts. But almost a decade after the crisis, the World Bank warned that Thai growth could not be sustained unless the country's technological base was improved.

The present chapter traces the institutions and politics of this evolution in order to provide both background for the subsequent sectoral analyses and an initial assessment of the book's framework. The chapter is organized into six time periods, each of which is distinguished by shifts in reform pressures and political competition. The analysis of each period begins with a demand-side focus on key policy tasks and institutional responses.

Thailand poses two challenges to students of economic growth. One is to determine the degree and nature of the country's development: “Is Thailand a case of successful development or rather a case of maldevelopment?” My answer, presented in Section I, is that neither of these options is accurate. Thailand has experienced impressive but still uneven development, whose weaknesses threaten the sustainability of the economy's growth. The second and central challenge of this book is to understand the reasons for this mixed performance. Section II establishes the background for my answer by assessing several prominent, noninstitutional approaches: investment capital, human resources, entrepreneurship, policy, and political regime type. This empirically based assessment draws on Thai and other East Asian experiences and highlights the insufficiency of these explanations, while also noting their value. In the process, it demonstrates the importance of attention to the demand for and supply of institutional capacities.

THAILAND: THE “FIFTH TIGER”?

Achievements

Thailand has, by many criteria, been an economic superstar. Its position as one of the World Bank's High Performing Asian Economies reflects the country's consistent growth and structural change. GDP growth has averaged roughly 7.6% during the 1960s and 1970s, dropping to 5.55% during the debt crisis years of the early 1980s, and then rebounding to 9% during the boom years of 1985–1995 (Table 2.1).