It has to equip firms with capability to move toward higher  BIS central bankers’ speeches  3  product sophistication and flexibility to cater to changing global consumer demand. It has to nurture innovation, given that meaningful growth spurt tends to come from either new products or new ways of producing and delivering them. The strategic focus is thus to create the right environment and give the right incentive for firms to invest and innovate. Physical infrastructure is where we lack behind and suits to be the starting point. Hightech, capital-intensive industries tend to benefit greatly from knowledge spillovers and concentration of economic activities. Therefore, more specialized hubs and clusters – in the spirit of, for instance, Singapore’s Biopolis and Japan’s Tsukaba Science City – are needed. For industries with lower capital intensity, establishing industrial hubs and zonings of related industries would be beneficial, so that these industries can reap localized benefits such as the availability of specific inputs and better labor market pooling. Supporting these less capital- intensive industries will also serve toward the agenda of inclusive growth, for these industries contribute significantly to employment in rural areas. Last but not least, wellintegrated and cost-efficient logistics systems are called for, in order to ensure connectivity and efficiency of domestic production chains. Along with physical infrastructure upgrading, “soft” infrastructure has to be upgraded. In addition to educational reforms that I talked about earlier, improvements on the legal front are also needed.
But now that the height of the global crisis is behind us, and the need for short-term macroeconomic management less pressing, a serious attention should also be given to the agenda of long-term competitiveness and sustainable growth. This calls strongly for structural reforms of the supply side of the economy, where the constraints are particularly binding and a large-scale upgrading long overdue. 2  BIS central bankers’ speeches  Pursuing demand management policies alone can only take us so far – somewhat akin to stepping on the gas pedal without upgrading or modifying the car we drive. Pursuing demand–side policies can also come with a steep price tag, especially when the policy borders on the realm of populism. Such policy would add to micro-level risks by making households undisciplined and addicted to “easy” money, while also add to macro-level risks by stretching fiscal resources without enhancing competitiveness in any meaningful way. The Bank of Thailand views the need to address structural issues to be very timely and pressing. “Lifting barriers to sustainable growth” was indeed the central theme of investigation of the Bank of Thailand Symposium this year, which was held at the Bangkok Convention Center last week, and I hope some of you had a chance to participate in the event. My comment today, however, is my personal view and is not intended to be related to the Symposium.