Sunday, May 6, 2012

Floods and the Economy

Nov 3, 2011
Raymond Woo

The recent massive floods in Thailand have been shocking from the perspective of economic-impact. The floods, caused by nearly three months of heavy monsoon rains upcountry have inundated nearly a third of the country, especially in the low-lying fertile floodplain in the center of the country that produces most of the rice in the world’s No. 1 rice-exporting country.

Naturally, agriculture has taken a serious hit from the natural disaster, but Thailand is also among the world’s top manufacturers in semiconductors, cars and other assembled goods and industrial components where manufacturing forms 6.1% of its GDP. Key industrial estates are concentrated around Bangkok, and also neighboring areas such as Thani, Samut Prakan, Ayutthaya, and Rayong. All of them have been flooded for several weeks now. According to Dr. Chodechai Suwanaporn in his article in The Nation (November 3, 2011), Japanese manufacturers form the majority of operators in these industrial estates and mostly specialize in electronics and automobile components. Thus, the industrial shutdown has also affected global supply chains that traverse the globe.

But what struck me about the disaster was not slowdown of all important sectors of the Thai economy such as tourism, agriculture and industry, nor the fact that its pre-flood forecasted GDP growth for 2011 will be reduced by 1%-1.5%, nor even the fact that inflation will shoot up to 5% by the end of 2011 due to shortages of goods and hoarding.

Rather, I was struck by how determined and unrelenting the Thai government was in protecting Bangkok (or at least the city center) from inundation at all costs, even at the expense of neighboring provinces and districts. The higher the dykes are raised around Bangkok, the longer outlying areas will be flooded. This is already causing some unrest among citizens outside of Bangkok as it is perceived double-standard, and there have been cases of dyke-breaking and even violence against the police.

The justification was that Bangkok is literally, the heart and soul of Thailand. It is the center of government, industry, finance and culture, and contributes 41% of Thailand’s GDP. Bangkok is where the King of resides, and where the greatest architectural treasures such as the Palace and the Temple of Dawn could be found.

However, as mentioned earlier, outlying provinces like Ayuthaya also produce a very large chunk of the GDP. Further, the majority of Thai people live outside of Bangkok.

In any case, how justifiable is it to sacrifice one segment of the population to save another segment of the population, especially if the sacrificed group is in the majority? Even when such sacrifice makes sense because something as large and valuable as the city of Bangkok is at stake, is it reasonable to adopt such measures when real human lives are at stake? Further, how sustainable can Bangkok’s economic growth be when its hinterland is allowed to be severely damaged from the floods, even though the floodwaters could have been allowed to flow more quickly to the sea through limited and short-term inundation of some parts of Bangkok?

Please note that I am not in any way casting aspersion on the Thai government’s public policies, but rather I am merely inquiring about the necessity of saving one’s economy at the expense of another economy, when ultimately the economy of the entire country is at stake. Ayuthaya affects the national GDP too, and there can be a contagion effect from outlying areas to Bangkok due to the hinterland-metropolis relationship.

Malaysia has received warnings about impending storms and even floods in many parts of the country. I hope we do not have to be stuck between the devil and the deep blue sea like what our northern neighbors had to experience. 

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