It is notable that this explanation is consistent with evidence from business surveys of spare capacity which suggest that underlying productivity growth in the manufacturing and services sector has essentially stagnated since the start of the recession (Charts 5 and 6).9 What might account for this flat lining in potential productivity? Impact of financial crisis In an accounting sense, this stalling in productivity growth must be attributable to one of two factors. A slowing in the rate at which companies have added to the physical capital used by each member of their workforce. Or a slowing in the pace of efficiency gains associated with the way in which companies combine capital and labour to produce output, known in the jargon as total factor productivity. In reality, it is unlikely that a slowing in the pace of capital accumulation contributed significantly to the weakness of productivity. This is largely a matter of arithmetic. Annual business investment flows are small relative to the size of the capital stock. So even though business investment fell by around a quarter in the year following the collapse of Lehman Brothers, and remains 20% below its pre-crisis level, it is unlikely to have had a significant impact on the stock of capital available per worker.10  8  Evidence from business surveys (eg BCC, CBI) and the Bank’s Agents suggest that capacity utilisation was above normal in both manufacturing and services sectors.
This would help foster value-added characteristics of the Thai economy and increase opportunities for our people, businesses, and everything else that will bring about a better standard of living for all. The two mega-trends I have outlined, when combined with the flood crisis at the end of last year, mean that Thailand needs to quickly upgrade infrastructure to improve competitiveness. In particular, public investment in effective natural resources management system and improved governance of public administration will serve as an important driving force for sustainable economic growth. Evolution of economic activities in line with the changing environment While the immediate obstacles may have changed, the overall challenges that have remained require all parties to formulate a strategic framework and policy space, to enable the Thai economy to stride pass the transitional gateway smoothly. For the public sector, the implementation of policy that promotes investment and enhances competitiveness effectively relating to infrastructure, education, and governance such as reducing corruption and improving political resiliency would be an important impetus to boost Thailand’s position in the competitiveness race. This is because public investment attracts further investment from both private investors and foreign investors, the so-called crowdingin effect. For the private sector, the search for new markets, improvements of production efficiencies, creation of value-added goods and services, and effective risk management are things that the private sector can do to prepare for new challenges.