Sufficiency Economics

Hi all, it has been a while since I’ve written about something meaty and research-related, so for those of you who like reading about something beyond all the fun I’m having spending US government dollars at the beaches of Thailand, I think you will enjoy this. However, if you want to see some of the beautiful beaches of Thailand that I've been "researching" at, please check out my previous posting on Koh Tao. Eventually, I will post something about my trip to see the River Kwai and the famous bridge (Khwae in Thai) in Kanchanaburi province. Yes, this is the same bridge featured in the book/movie “Bridge Over the River Kwai.” As usual, this is going to be quite long, but hopefully interesting to you. I should note that this “mini-paper” is not meant to be an attack on traditional economic thinking, even though it may appear as such. Mostly, it’s an analytical piece on reasons why current economic development theory, for which the extant literature is heavily Western-influenced – though it is changing to include academics & researchers from other countries – enjoys a reputation for being less than tried and true. Also, I want to provide a little introduction to other theories of development, namely Buddhist Economics and Sufficiency Economics.

One of the classes that I’m currently taking at Chula is Buddhist Economics, which is different from the Sufficiency Economy model developed by HM king Bhumibol Adulyadej. Actually, the Sufficiency Economy model is still a fairly new approach to economic policy-making and has only recently started to draw attention. Not too long ago, the Economist featured an opinion piece that incorrectly referred to it as “Self-Sufficient Economics.” Boy did that cause a ruckus here in Thailand. The op-ed sections of the English language dailies here in Bangkok were blasting the author for being ignorant and for putting forth what they saw as criticism of the king. Woe betide those who say or write anything remotely resembling criticism of the king and royal family of Thailand and not just because of the lèse majesté laws (lèse majesté – French expression, from the Latin Laesa maiestas or Laesae maiestatis (crimen: crime of) injury to the Majesty; in English, also lese majesty or leze majesty. It is the crime of violating majesty, an offense against the dignity of a reigning sovereign or against a state).

In February, the Chulanont government had taken the step of appointing an official spokesperson whose job is to oversee the education of the business community (both domestic and foreign), politicians, academics and the Thai people in general about the Sufficiency Economy model. Most recently, it was the former finance minister under former PM Thaksin Shinawatra. After less than a week in his appointed position, he resigned due to the political clamor raised on account of his affiliation with the previous government, which continues to be seen as overly corrupt and abusive of power. It’s a pity too, because he is considered one of the foremost authorities on this very subject. Actually, the highest echelon of the Thai bureaucracy is currently experiencing rapid reshuffling of its senior officials. The constant transfers and reassignments make the front page of the newspapers just about every other day. The rationale is that the newly appointed bosses, who supposedly have reputations for honesty and incorruptibility during their service in their respective institutions (though I think it has more to do with their personal & political ties to the current administration), will help to reform their administrative ranks and combat the corruption that has infiltrated the endless levels of the Thai civil service.

My personal experience with the results of this shuffle came not too long ago on a night out with some of my friends. I was out with Jeremy way too late – it was one of those nights where we were playing the endless game of bar-hopping with our friend Blue. Finally, we ended up at a bar that another of our common friend owns. I was hopelessly intoxicated by this point and therefore decided it was time to go home. I looked at my phone and was surprised to see that it was 4:30 in the morning!! Not only because I don’t normally stay out that late, but also because Bangkok’s official last call is supposed to be 2 am. But there we were, drinking the night away. I knew instantly that the bar owners had most likely paid some handsome bribe in order to stay open later – a practice that had proliferated quite a bit since the coup back in September, I’ve been told. Ah, the Bangkok police at their best. Just a couple weeks after this fateful night and following the appointment of a new police chief, I found myself wandering Bangkok’s nightlife with another friend and was astonished to find everything was closed at precisely 2 am. I asked my friend who owned the club why this was the case but he didn’t seem all too keen on answering, so I pressed on: “Does it have anything to do with the shuffle in the leadership of the police?” He answered with a reluctant “yeah.” I already knew but asked just to be sure. Under the previous police chief, the officers that club owners paid-off knew what they could and couldn’t get away with. However, with the new boss, they had to be careful about what they did. They couldn’t just go about bullying businesses and their owners and demanding bribes to look the other way anymore. They needed some time to test the waters and see what the new administration was going to be like. A couple weeks after this “change,” Jeremy was out until almost 5:30 am for Blue’s going away celebrations (he’s going back to Vancouver). Some things just don’t change.

Anyway, I digress… here are some official words explaining what the Sufficiency Economy model stresses:

"Sufficiency Economy" is a philosophy that stresses the middle path as the overriding principle for appropriate conduct by the populace at all levels. This applies to conduct at the level of the individual, families, and communities, as well as to the choice of a balanced development strategy for the nation so as to modernise in line with the forces of globalisation while shielding against inevitable shocks and excesses that arise. "Sufficiency" means moderation and due consideration in all modes of conduct, as well as the need for sufficient protection from internal and external shocks. To achieve this, the application of knowledge with prudence is essential. In particular, great care is needed in the utilisation of untested theories and methodologies for planning and implementation. At the same time, it is essential to strengthen the moral fibre of the nation, so that everyone, particularly public officials, theorists and businessmen, adheres first and foremost to the principles of honesty and integrity. In addition, a balanced approach combining patience, perseverance, diligence, wisdom and prudence is indispensable to cope appropriately with critical challenges arising from extensive and rapid socioeconomic, environmental, and cultural changes occurring as a result of globalisation.

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The description above is pretty vague, right? Of course, I’ve only provided a small snippet of the literature that has been written (mostly in Thai, la sigh) seeking to clarify and educate the masses on this topic. Still, I think we can take the words above and make something of them.

First off, I have to clarify the meaning of the word “sufficiency” because it has been a point of confusion for many people as they learn about it. It does not, as I pointed out earlier, mean “self-sufficient.” By no means is the king or Thai government advocating that domestic producers supply everything that the domestic market requires. Sufficiency, instead, means to be sufficient or adequate, as opposed to excessive. This is where the concept of self-immunity in moderation comes into play – the shielding against internal and external shocks. At its core, Sufficiency Economics advocates for taking steps to minimize risk while maximizing benefits – this is not unlike what is in reality already practiced by the capitalistic model of development. However, the distinction lies in what constitutes “enough” or sufficient. In the capitalistic model, there is no real mark – the graph can continue to shift outwards forever and in fact, this is desirable in some cases – the faster the better. In the sufficiency model, the graph must also shift to keep pace with the forces of globalization. However, growth and expansion should only grow to meet actual demand – the optimal amount of growth is that which is sufficient to meet concurrent demand. Ok, so maybe it’s time for an example.

In the early 1990s, the Thai financial market was red hot. Regulations on the banking sector were loosened up a little bit, but the big movers and shakers were the finance companies. Money was easy to come by – by this, I mean, low-interest capital loans. So developers and investors, big and small, foreign and domestic came to the table to claim their share. Much of it was sunk in real estate. A good chunk of this money was leveraged by companies seeking to diversify their holdings – also in real estate – or they used the money to invest heavily in growth without really considering if reasonable demand for this growth existed. Almost overnight, the price of property sky-rocketed. Condominiums and commercial offices were going up all over Bangkok, which became a city of cranes, despite the fact that there was no sophisticated way for the developers to forecast real demand. Nobody seemed to remember the bubble burst in Japan just a few years earlier and one of the root causes – cheap and easy money invested in over-priced property and securities – investments which promised quick and easy returns as opposed to more long-term and concrete investments in such things as infrastructure or the development of the export industry. Borrowers took out loans, sunk them in a development project and take out another loan using their stake in the project as collateral. Actually, collateral wasn’t really as important in securing a loan as personal connections to lending institutions during the boom years. Several banks eventually started to “cook their books” to hide the extent of bad loans in their accounts.

Eventually, the media caught wind of this and the cover was blown. Various officials of the government, the central bank, politicians, businessmen, board members of various financial institutions and even international arms dealers were all implicated in a number of cover-ups and suspect bail-outs. Several banks went out of business and over a third of all finance companies were shut down. The companies that diversified into real estate suffered heavy losses and some went bankrupt. This was all leading up to the 1997 Asian Financial Crisis. The end result of this excessive enthusiasm for growth, development and easy money was that the IMF had to come in and impose controls in return for funds to bail the country out of the crisis. The condo projects that were springing up all over BKK stopped dead in their tracks. Today, there are various construction sites throughout the city that still have half-finished buildings that seem to have been forgotten. A more accurate analysis of the supply of condominiums in BKK showed that there was enough to supply the market for the next ten years! This experience was certainly not an example of self-immunity and moderation. The Thai financial market was hyped up by the entrance of a large influx of foreign capital and thus allowed itself to be fooled into thinking that this money would keep coming. Thai business ignored issues of solvency and condo construction excessively ran ahead of demand. The bust of the late 90s ruined many and was taken as a lesson as to why Thailand needed to stick to their Buddhist roots in approaching life in moderation as opposed to excess. Phew!

We can also see that the Sufficiency Economy model places a lot of influence on social responsibility and the concepts of moderation and morality – areas that most economists would rather leave to the philosophers. I mean, how does one quantify moderation and morality? It would be difficult to create a co-efficient to meaningfully measure their effects on GDP growth, no? To date, a lot has been done in terms of studying morality (or immorality, rather) in the form of corruption and its effects on development (the consensus is mostly detrimental, duh); but how do you measure the effects of morally upstanding behavior of individual citizens on the economic health of a country? You can measure aggregate capital spending and analyze its effects on GDP growth, wages and so forth, but how do you measure the effects of local corporate social responsibility projects on target communities (my project!)? Are these people and projects not worth factoring in? Even if economists had data on everything they could possibly want, there still remains the issue of what to do with it. How do you take these numbers, this, information and make something of it? More to the point, how do you share it with others in a way that makes sense and deliver it in a way that makes them care enough to do something about what the data shows? Ah, the plight of scientists and researchers of any flavor. I’ll talk about this very issue a little more later. Stay tuned.

On the other hand, we have Buddhist Economics, which isn’t all that popular amongst mainstream economists, not least because Buddhist Economics really comes down hard on the principals that the greater body of modern economic theory holds dear. From what I’ve been exposed to so far, I can see why it is less than popular with the general population of economists. First of all, it is inextricably tied to Buddhism, hence the name Buddhist Economics. This is tricky because even though economics isn’t a “hard” science like biology or chemistry, it is a social science (history, sociology, psychology) and therefore has its own methodologies and procedures in approaching its raison d’être – the economy. Usually, these have less of a basis in a religion/belief system and more so in empirical data observation and analysis. Also, as social scientists, economics and those who practice it have traditionally shied away from factoring morality and ethics into their calculations on account of trying to be objective. It’s easy to see why, too. What is considered moral in one society may not sync with the values of another society. As scientists, economists have sought ways to explain economic phenomena in ways that transcend social, cultural, political and religious boundaries – all in pursuit of objectivity so that knowledge may be shared and something of a general consensus may be reached. As such, there is an inherent supposition that this is the “right” way to go about studying economics. But is it? I mean, traditional economics teaches you that happiness or satisfaction is tied to the fulfillment of some need or desire (consumption), but it has no formula (that I know of) that can measure your happiness, contentedness, satisfaction or utility based on your good works and morally upstanding behavior. Again, we’re back to the issue of trying to quantify something that wants to elude being quantified. But would we really get anything from quantifying said things? Even if we had the most brilliant mathematicians (usually not economists, heh heh) at our beck and call to pump out formulas until the cows came home, what would be the use? The economists who will use these formulas to explain why something should be done aren’t usually the policy-makers and the policy-makers don’t always follow their own policies let alone the people whom said policies are thrust upon. Anyway, how about we listen to the words of a Thai economist on this very issue?

The abuse of economic knowledge has beset our interactions with the economy all the way from earning, to saving and expenditure -- every step of the economic process being vulnerable to those who respect no ethical guidelines. In spite of this, western economics seems to turn a blind eye to ethical issues surrounding the economic process. Ethical issues are often intentionally overlooked under the pretext of being 'objective' -- but alas, this leaves the door open to all sorts of economic exploitation -- and even though opponents might never be threatened with knives or guns, the positioning that goes on behind the scenes of the world economy is no less cruel than out-and-out aggression. Economic exploitation in the present day has proliferated to the point that entire populations of countries are forced into compromises that leaves them strait-jacketed with regard to the appropriation of their own finances. This is the reality of economic 'colonization' in many countries of the world even at this very moment -- and Thailand is just one of many countries that seems to have become an economic plaything to more dominant superpowers.

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I find myself wanting to burst out in disagreement quite often in class and have to purposefully restrain myself so that I might formulate intelligent questions and rebuttals as we learn about Buddhist Economics/Sufficiency Economy because a lot of the teachings clash with what I have been taught. I keep asking – but, but, what about issues of global competitiveness? What about comparative advantage?? What, what, WHAT!?! Then I remember that I’ve been quite a while now disillusioned with the ability of modern economic thought to really improve the lives of the people who need it most. Sure, if you talk to micro-economists working in business, they will tell you that economic principals are indispensable to business. Also, if you talk to the managers of a developed country’s macro-economy, they will tell you that although we can never really be certain as to what paths a nation’s economy may take, we can make informed decisions with regards to policy based on sound data – and try to predict or forecast what will happen by analyzing said data and comparing it to past experience, trends and patterns. However, when it comes to the area of development economics, economists have yet to find that panacea to end world suffering (ok, maybe I’m being a little dramatic). And even if they did, it would mean little if they couldn’t convince the right people to implement their findings – I touched upon this a bit earlier. Thus, we arrive at my earlier dilemma. Why bother studying development economics if it has been rather unsuccessful at improving the standard of living world-wide? To give you something of a different perspective to chew on, here’s an excerpt from the writings of Schumacher:

Buddhist countries have often stated that they wish to remain faithful to their heritage… All the same, such countries invariably assume that they can model their economic development plans in accordance with modern economics, and they call upon modern economists from so-called advanced countries to advise them, to formulate the policies to be pursued, and to construct the grand design for development, the Five-Year Plan or whatever it may be called. No one seems to think that a Buddhist way of life would call for Buddhist economics, just as the modern materialist way of life has brought forth modern economics.
Economists themselves, like most specialists, normally suffer from a kind of metaphysical blindness, assuming that theirs is a science of absolute and invariable truths, without any presuppositions. Some go as far as to claim that economic laws are as free from "metaphysics" or "values" as the law of gravitation. We need not, however, get involved in arguments of methodology. Instead, let us take some fundamentals and see what they look like when viewed by a modern economist and a Buddhist economist.

[The modern economist] is used to measuring the "standard of living" by the amount of annual consumption, assuming all the time that a man who consumes more is "better off" than a man who consumes less. A Buddhist economist would consider this approach excessively irrational: since consumption is merely a means to human well-being, the aim should be to obtain the maximum of well-being with the minimum of consumption.

Modern economics, on the other hand, considers consumption to be the sole end and purpose of all economic activity, taking the factors of production—and, labour, and capital—as the means. The former, in short, tries to maximise human satisfactions by the optimal pattern of consumption, while the latter tries to maximise consumption by the optimal pattern of productive effort.

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When businesses expand their operations abroad, they look for an unfulfilled need or seek to develop one. But a successful company knows that the needs and wants of the customer are everything and that the company would not exist if it weren’t for consumer demand. That said, needs and wants will vary depending on which market these consumers belong to (in this case, foreign) and as such, businesses must tailor their products and services to meet the demands of their target market. Take, for a simple example, fast food chains like McDonald’s and KFC. During their moves to expand into international markets in the 80s and 90s, they quickly learned that to export their concepts and menu without change led to less than stellar results. They then adapted their menus to suit local tastes – such as offering rice as a side item in its Asian outlets. At the same time, they kept certain things that seemed to go well with the locals. McDonald’s for example, developed a reputation for always having clean restrooms in their Hong Kong stores. This led HK consumers to start demanding the same from other food establishments.
Now, the business practices of both of these companies are not without criticism and took time to improve, but my point is that they are constantly making changes to the their operations to make sure that what they have to offer remains appealing to their customer base. Why then, can’t economic policy advisors from say, the IMF and World Bank, do the same thing? After all, economic principals are employed by corporations the world over to maximize profit – why can’t economists and policy-makers learn something from business in the name of maximizing the effectiveness of policy? In both instances, there are “consumers” or “stakeholders.” If a business enterprise doesn’t adapt to its customers, it would cease to exist but if a government failed to adapt to its people, it’s called corruption or blamed on the bureaucracy. I was reading an interesting article in the Bangkok Post the other day that serves to highlight this very point when it comes to economic policy advising:

According to Douglass North, the 1993 Nobel Prize winner, "institutions" are made up of formal constraints (rules, laws, constitutions), informal constraints (norms of behaviour, conventions, and self-imposed codes of conduct), and their enforcement characteristics.
In his Nobel Prize lecture, Mr North stated wisely that while formal rules may be changed overnight, the informal norms usually change only gradually. And economies that adopt the formal rules of another economy will have very different performance characteristics than the first economy because of different informal norms and enforcement. The implication is that transferring the formal political and economic rules of successful western market economies to developing countries is unlikely to produce good results.

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So if McDonald’s doesn’t sell beef hamburgers in India or pork bacon in Malaysia, why should the IMF advise or Royal Thai government adopt capitalistic models that favor growth when something like Sufficiency Economics, which favors moderation and self-immunity, is much more in line with Thai Buddhist sensibilities? To give you an example of adopting foreign institutions (not strictly in the sense of an organization), let’s talk about Bangkok traffic. Bangkok traffic is terrible. Hands down. If you readers in Seattle are complaining about Seattle traffic, you should come and try your hand at driving here! Let’s discount the weird characteristic of having to drive on the left-side of the road. Aside from that, the institution of traffic administration is similar to what we know in the US. There are traffic lights to control the flow of traffic and signal which direction needs to yield to which. There are lines to separate lanes and signs to tell you what you can and can’t do. Yet, anybody who has had the experience of sitting in Bangkok traffic will tell you that in Thailand, green means go, yellow means go, and red means go at your own risk and that the lines are pretty much decorative as drivers will zig-zag through lanes and so with apparent ignorance as to what their turn signals are for. On the Chao Phraya River, boats come, go and zip by each other and stop to unload wherever they need to – but there never seems to be any problems. And before Bangkok had its multi-laned modern streets, it had its khongs (canals) – the Venice of the East, it was called – which of course, didn’t have painted lines to indicate direction. I imagine that this culture of going forward in whatever fashion you can was retained when the city’s khlongs were filled in to create roads. Keeping this in mind, we can see how the snippet from the article above is relevant to other, more formal “institutions” that could be adopted, like a central bank, a professional bureaucracy, a formal labor code, or a judicial system – all of which Thailand already has, but with varying levels of experience and success. Throughout Thailand’s history, we can witness the adoption of many foreign institutions, customs and beliefs – only to be adapted and made uniquely Thai. Why then, should be surprised about other the way that modern foreign institutions, customs and procedures have changed to incorporate Thainess?

I’ve settled on the conclusion that there is much to learn still for me in the field of economics seeing as how I have yet to earn the distinction of putting the letters “PhD” after my name. As such, maybe I should focus on looking at what I might be able to learn from the area of economics while considering related fields that have traditionally been pushed to the side. I know that in recent years, there are more and more voices in the international community of economists to bring in fields such as chemistry, biology and psychology into the study of economics. After all, economics is a social science because it has to do with people and their behavior. Sometimes, I get caught up with all the formulas and what they measure and tell us and forget that at the fundamental level, what happens in the macro-economy comes about from human interaction. And anyway, I don’t want to be an economist – at least not the number-crunching, data-analyzing, model-formulating, Nobel prize-seeking type. Do you recall how I had postulated in an earlier e-mail/blog posting from a couple of months back (regarding kreng jai and man sai) that perhaps the reason that economic principals fail to apply to the non-western world was because they have traditionally rested on western values and belief systems? Well, my current foray into Buddhist Economics & Sufficiency Economics takes a serious look at this exact point. How can I use the various tools of economics to add to effectiveness of social development programs? I’ve come to accept that social justice and responsibility doesn’t rest on economists alone. I was coming down to hard on myself for choosing a course of study that I had foolishly thought would single-handedly provide all the answers. The responsibility also rests on those who study political science, business, history, journalism, mass communications, non-profit administration, government, ecological studies and an inexhaustible list of others. If the world is going to become a better place, we will have to approach it with the realization that to do so, we will have to get as much help as we can because in the end, we are a community of global citizens with complex societies, values, cultures, needs and desires that we must consider. Needless to say, I’m quite excited to learn more.

Wow, was that too preachy? Check in soon.