On October 12, following news that the King of Thailand, Bhumibol Adulyadej, was in an unstable condition after receiving hemodialysis treatment, the macroeconomic consultancy Capital Economics released a briefing note warning of imminent calamity for Southeast Asia’s second largest economy.

“The failing health of the king adds another layer of uncertainty to an already highly unpredictable situation,” economists Krystal Tan and Gareth Leather wrote. They went on: The situation “poses a key risk to the country’s economy. His death would plunge the country back into political crisis, which in turn could push the economy into recession.”

Right on cue, the next day, King Bhumibol, the world’s longest-serving monarch, passed away. But the economic catastrophe didn’t arrive, at least not immediately. If anything, the markets reacted positively. The following day, the Stock Exchange of Thailand (SET) Index traded up over 4% while the Thai baht gained over 1% against the dollar. Some analysts even saw a silver lining for financial markets. Deutsche Bank, for example, said: “The passing of the king of Thailand yesterday should help put an end to the sharp volatilities in the stock market that began in September.”

The government, also known as the junta because it came to power in a military coup in May 2014, was quick to put out the ‘business as usual’ sign. Prime Minister Prayuth Chan-ocha, while announcing a year of official mourning, projected an image of normality, reassuring the world that everything would proceed as planned, including the royal succession and next year’s general elections. And he had a message for investors and businesses: “On the economic side, whether it’s the stock market, trade, investment or business sector, please don’t stop.”

Revolving Governments

But business has been here before. Since 2006, when the country’s most recent political crisis began, there have been two military coups, two new constitutions, four elections, seven prime ministers, a spate of violent demonstrations, civil unrest leading to the imposition of martial law and administrative chaos. That chronic political instability has filtered into government and businesses, resulting in policy inertia and weak economic growth. It’s no wonder business is cautious.

Peter Cappelli, a Wharton management professor, says there’s good reason why business is in a watch-and-wait mode. “Political uncertainty is hugely damaging to business as it adds to the risk associated with financial investments. That’s especially the case when businesses have options: One may like Thailand’s messy democracy to Vietnam’s authoritarian government, but the stability of the latter has caused international businesses to move operations there,” Cappelli says. “Indonesia offers an interesting parallel as a country rich in natural resources and cheap labor held back for decades by uncertainty and corruption that now, with more stable, effective government, is booming. Historically, Singapore’s sustained economic miracle came after it left Malaysia and created an extremely honest and efficient, albeit not democratic, government.”

“One may like Thailand’s messy democracy to Vietnam’s authoritarian government, but the stability of the latter has caused international businesses to move operations there.” –Peter Cappelli

In an interview with Knowledge at Wharton last year, Sethaput Suthiwart-Narueput, managing partner of Advisor Co., a corporate advisory firm in Bangkok, said the instability was widespread, affecting every sector of society, including government. “The cabinet also changes a lot, even though you have the same government in place. So it’s political instability and administrative instability as well. I can’t remember any longer the number of education ministers we have had over the past years. The average tenure is less than a year.”

Suthiwart-Narueput, who also heads the think-tank Thailand Future Foundation, says his country has lost its economic mojo, and with an aging population, declining labor force, low productivity and stiff competition from ASEAN countries, Thailand is a country in economic decline.

Once the fastest-developing economy of mainland Southeast Asia, Thailand now finds itself near the bottom of the table. In the 1980s when it was rising from an agricultural economy to a regional industrial powerhouse, its average GDP growth was 7%. According to the Asian Development Bank, economic growth in the first half of this year was 3.4% year-on-year. In 2014, GDP plunged to 0.7%.

More generally, the last decade has been particularly bad. Thailand’s manufacturing and electronics industries have been hardest hit, losing business to a rising Vietnam. The only bright spot has been tourism, which now makes up about 10% of the economy.

Richard Martin, managing director of IMA Asia, a management consulting firm that advises senior executives in charge of Asia Pacific operations, has also been monitoring the decline. “For the decade to 2005 Thailand averaged 3.2% annual GDP growth. That was a tough decade, which included the 1997 Asian economic crisis and the 2001 tech wreck,” he notes. “For the decade to 2015, Thailand’s average growth rate remained 3.3% – essentially unchanged. It should have been at least two percentage points higher if it had kept pace with ASEAN peers like Indonesia, Malaysia, Vietnam, and the Philippines.”

Political Instability, State Control

Thailand’s lackluster performance, Martin contends, “is largely due to political instability and poor policy choices. The political instability led to fixed investment levels failing to lift above 25% of GDP. This wasn’t so much foreign firms failing to invest, as plenty of foreign investors established factories for making cars, chemicals, and electrical and electronic goods; it was more a matter of restrained investment by Thai businesses.”

He continues: “The poor policy came about in two ways. In part it was gridlock as parliament blocked the policies” of former Prime Minister Thaksin Shinawatra and his sister, Yingluck Shinawatra, who also became the Prime Minister. “Then, there were bad policies, notably the first-time car buyers program — a great adrenalin shot followed by a two-year hangover for the consumer market. Also, of course, the rice price support scheme. While purportedly great for farmers in its first year, it seemed mainly to funnel money to the upcountry rice trade mafia, which was always and ultimately the foundation of Shinawatra family power.”

Political instability, in short, can dampen business activity, paralyze government policy and lead to bad policymaking. What, then, is the source of this instability?

Philip Nichols, a Wharton professor of legal studies and business ethics, says that while there are many causes, the main one is the dominant role of the state. “I think that one very significant cause is that most of the economy is in the direct or indirect control of the state. This means that there is a lot at stake in winning or losing elections, and parties are willing to go do almost anything to obtain control.”

“There are many people in Thailand with a lot to lose, and a great number of people in Thailand who are cut out of the real economic activity.” –Philip Nichols

He adds, “Unfortunately, this is linked to endemic corruption, which again amplifies the stakes. So, there are many people in Thailand with a lot to lose, and a great number of people in Thailand who are cut out of the real economic activity.”

Regina Abrami, a political science lecturer at the University of Pennsylvania and a senior fellow of management at Wharton, suggests there are also underlying socio-economic issues, like widening income inequality that can lead to social grievances and divisions. “Thailand’s social structure is rich material for politicians eager to make appeals to either constituency, be it the ‘poor people’s populism that fostered Thaksin’s rise, or the dire warnings of political and economic instability that find resonance in some urban segments and business sectors. Against this backdrop, the Thai military appear, time and again, in the mindsets of many as Thailand’s best chance at stable economic growth.”

And this is precisely where Thailand finds itself today: embracing a military junta as its government. In August the majority of its 68 million people voted for a new constitution that guarantees the military a central role in Thai politics, giving the military 250 permanent seats in the senate and a final say in who gets elected as prime minister. Described as “guided” democracy, its supporters believe it would ensure stability and order in the state of Thailand.

Will It work?

Nichols is skeptical: “Thailand has had 20 constitutions since 1932. It is difficult for constitutions to become embedded in a nation’s psyche when they change so frequently. It is difficult for those granted constitutional authority to gain experience in their roles, and especially difficult for those tasked with enforcing constitutional limits to gain credibility. This means that it is difficult to establish the rule of law, and thus to enjoy the social and economic benefits of the rule of law.”

As Nichols explains, the new constitution is too unwieldy and therefore unlikely to deliver the stability it was designed to bring.

“The new constitution has 279 articles — just for perspective, the United States’ constitution has seven articles. It is a very detailed constitution requiring the Thai government to provide many services to the Thai people, to [offer] specific plans for development in specific years, and more,” Nichols adds. “It is unlikely that Thailand has the resources to actually perform all of these requirements. If an opposition is allowed to exist in Thailand, it will always be able to point to the new constitution and say that the government it opposes is not living up to its constitutional duty.”

Nichols also notes a clear signal that this constitution is flawed is that “the ruling council outlawed debate. As has been pointed out by many other people, the new constitution essentially places real power in the military. The military is not accountable to the people of Thailand; the only control that the people have over the military is through a democratically chosen government. If the military actually controls the government, then no one controls the military. This is not stable. People in Thailand have become accustomed to a raucous but very participatory form of democracy. It is hard to believe that they will stay quiet under de facto military rule for long.”

The new constitution entrenches the military’s political power, which some view as stabilizing. “It comes, however, at the price of democratic consolidation as the ability of the Thai people to change this structure through formal political processes — as opposed to street protests — is now weakened,” Nichols says.

“People in Thailand have become accustomed to a raucous but very participatory form of democracy. It is hard to believe that they will stay quiet under de facto military rule for long.” –Philip Nichols

Which brings us back to King Bhumibol and why his death has left a vacuum that could bring back the political unrest and instability of recent times. As Abrami explains, “King Bhumibol stood for decades as Thailand’s ultimate political arbiter. At times, he chastised the military for going too far, and otherwise, as most recently, had given it his blessings. To the extent that we believe that his credibility arose from his personal character as opposed to this title, then, yes, the accession of the Crown Prince [Maha Vajiralongkorn] to the throne is no guarantee of political stability in Thailand.”

Crown Prince Maha Vajiralongkorn, 64, is the only son of King Bhumibol and is expected to succeed the throne after his father’s death. Personal controversy surrounds his succession and, unlike his father, he is not popular with the public.

“The litmus test,” Abrami says, “will be less about how popular the Crown Prince is with the Thai people than how he is regarded, and engaged with, by the military.”

Nichols, while pointing out that it is illegal to criticize the monarchy in Thailand under its infamous lese-majeste laws – “if you use any quotes critical of the monarchy your piece will be banned by the Thai government” – agrees that the changing of the guard is unlikely to bring stability to the kingdom.

“The focus on the Thai succession is in some ways a diversion,” he says. “[Regent] Prem Tinsulanonda’s dispute with Maha Vajiralongkorn is real and is based on differing political views, but neither view resolves serious problems destabilizing Thailand. So long as the economy remains largely in the hands of the elite, and corruption is endemic, and there is no way other than protest to hold governments accountable, [Thai citizens] will protest and governments will be shut down. Eventually, Thailand will have a stable, accountable government and an economic system that rewards merit more than connection, but probably not yet.”

That is a bleak prospect, though it echoes what a number of business analysts are saying. IMA Asia’s Martin, who has more than two decades of experience in analysis, research, publishing and consulting in the Asia-Pacific region, however, is more optimistic, with a few caveats. “Thailand has an excellent export manufacturing base for vehicles, electronics, electrical goods and an array of similar products,” he says. “There is a recovery story for Thailand. It comes in two versions. The strong version is that PM Prayut kick-starts a recovery with a surge in public investment into infrastructure, which started in late 2015. The alternative is a return to stable civilian government. But that has been so rare in Thailand.”