Understanding Sufficiency Economy Concept and Its Applications: a View from Thailand

1. Understanding Sufficiency Economy Conceptand Its Applications: a View from Thailand Kobsak Pootrakool 1 June 2007

2. Outline • Introduction • What is Sufficiency Economy? • How Can We Apply Sufficiency Economy? • How Much Success Thailand has thus far in Applying the Concept?

3. I. Introduction Sufficiency economy is one of the most misunderstood topics, both in Thailand and abroad: • For the poor • For farmers/agricultural sector • Doing nothing • Anti-globalization

4. Why is this the case? Why is there so much misunderstanding concerning this concept? 1997-1999 speeches

5. II. What is Sufficiency Economy? His Majesty has been talking about sufficiency economy since 1974. It is a concept that come from his extensive experiencesafter visiting one village after another village and see what works and what does not work. Then in 1997 after the crisis, he began to use the term“Sufficiency economy”.

7. Sufficiency Economy Philosophy "Sufficiency Economy" is a philosophy that stresses the middle path as an overriding principle for appropriate conduct by the populace at all levels. This applies to conduct starting from the level of the families, communities, as well as the level of nation in development and administration so as to modernize in line with the forces of globalization. "Sufficiency" means moderation, reasonableness, and the need of self-immunity mechanism for sufficient protection from impact arising from internal and external changes. To achieve this, an application of knowledge with due consideration and prudence is essential…. At the same time, it is essential to strengthen the moral fibre of the nation, so that everyone, particularly political and public officials, academic, businessmen at all levels, adheres first and foremost to the principle of honesty and integrity.(1999)

8. Main Components of Sufficiency (1) Moderation Sufficiency(พอเพียง) (2) Reasonableness (3) Self-Immunity Conditions(1) Application of knowledge with due consideration and prudence (2) Adherence to the principle of honesty and integrity

9. Other related concepts • Stand on your own feet • Do not be too extravagant • Do not over-extend yourself • Do not live beyond your mean • Do not be too greedy • Do not borrow for no good reasons

10. “Sufficiency is moderation. If one is moderate in one’s desires, one will have less craving. If one has less craving, one will take less advantage of others. If all nations hold this concept … without being extreme or insatiable in one’s desires, the world will be a happier place. Being moderate does not mean to be too strictly frugal; luxuriousitems are permissible, but one should not take advantage of others in the fulfillment of one’s desires. Moderation, in other words, living within one’s means, should dictate all actions. Act in moderation, speak in moderation; that is, be moderate in all activities.” (1998)

11. How does SE relate to Neoclassical Economics? Y MaxS (1+r)-tE[U(C,..,t)] Subject to Budget Constraints A Optimality Preference Budget Constraint X

12. Prudence Person Applications of Neoclassical Economics Neoclassical economics tries to understand human choices and explains the observed pattern using the optimizing framework Risk Loving Social Status Lack of Self Discipline Addiction Risk Averse Short-sighted Long-sighted Envy Prudence Human behavior

13. Similarity between SE and Neoclassical Economics Prudence Person (1) Moderation (2) Reasonableness (3) Self-Immunity From the view point of neoclassical economics, the behavior of those who adhere to sufficiency economy philosophy will be similar to the behavior of “prudence persons”. So, in a sense SE is normative about people preferences.

14. Difference between SE and Neoclassical Economics Neoclassical Economics Sufficiency Economy Optimality Middle path • Depend on Preference, and Constraints to Maximize Utility • Choose middle path based on moderation, reasonableness and self-immunities as a rule of thumb

15. How does SE relate to Development Economics? Development of the country must proceed in stages. First of all, there must be a foundation with the majority of the people having enough to live on by using methods and equipment which are economical but technically correct as well. When such a secure foundation is adequately ready and operational, then it can be gradually expanded and developed to raise prosperity and the economic standard to a higher level by stages. … if one focuses only on rapid economic expansion without making sure that such a plan is appropriate for our people and the condition of our country, it will inevitably result in various imbalances and eventually end up as failure or crisis as found in other countries. (1974) No need to be a tiger

16. III. How Can We Apply Sufficiency Economy? 1. Daily life 2. Economic Development - Moderation - Reasonableness - Self-immunity - Agricultural Sector - Private Sector - Government Policy Think before you buy Sufficiency Club (ชมรมคนพอเพียง) Sufficiency Economy

17. Problems of Past Economic Development GDP/Capita Poverty rate by provinces, 2000 Poverty rate - Poverty - Weakness in the grass root - Other developmental problems

18. Agricultural Sector

19. Thai agriculture in the recent past - Monoculture • Problems from Monoculture • Problems from Supply/Demand Adjustment • Weather • Debt Problem- Migration and weakness of the villages

20. New Theory for Agriculture 1. First step The aim is to let the farmers be able to support themselves (self-sufficiency) especially concerning rice. If the main problem is water then they should dig a pond in their land to make sure that they have enough water for farming and household usages which they might need support from the government or private sector in digging the pond.  2. Second step Farmers should work together and create a cooperative to reduce the cost of production and for saving purposes as well as social security and together they will also have more negotiating power in selling their products to the markets. 3. Third step For developed communities, further expansion of the production process and commerce such as cooperative stores or rice milling factories can rely further from the cooperation from commercial banks or oil companies in improving their livelihood.

21. Ilustrative Example of New Theory

22. Example from Kam pla laay - Koan Kean Diversifiedagriculturesand other benefits

23. Two Approaches in Economic Development Old Development Paradigm Development under SE Concept

24. Grass root development Previous Government Sufficiency Economy • Must be on the basis of • Not live beyond one means and not over- • extend oneself • Self-discipline • Not borrow unnecessarily • Money, Capital & Opportunities • One million Baht fund • People bank • Asset securitization • OTOPs • Tourisms / SMEs

25. Private Sector

26. Examples • Thinking about others Saha Farm • Self immunity Hana • - Prudence and not too greedy • Thinking about staffs 7-11 • Cautious expansion Golden place Pricing moderately Do not borrow unnecessarily Empathy to your staffs Building your foundation

27. Back to Sufficiency Economy Concept How to make sure that private sector is more in line with sufficiency economy ReasonablenessThinking about all risk involved Moderation within one means and not overextend Greater Prudence Better risk management Long term and sustainable Investment Self-Immunity

28. Government Policy

29. Implications of SE on Government Policies 1. Macroeconomic Management 2. Government Policy Design 3. Alternative Development Strategy

30. Implications of SE on Government Policies ModerationReasonablenessSelf- immunity Adequate SavingEnergy Security National Risk Manag.. 1. Macro Management Mega-project, Growth, Inflation, Budget Deficit Adjust design of governmental projects to make people to be more sufficient (Village funds, Debt forgiveness, Educational reform etc.) 2. Gov. PolicyDesign Adjust the balance of economic development frameworkRural along side with Industrial development, Strong communities Quality growth, No need to go fast, Emphasis on public well-being 3. AlternativeDevelopmentStrategy

31. How about the recent government policies on 30% reserve requirement and the amendment to the Foreign Business Act? Isolated incident

32. IV. How Much Success Thailand has thus far in Applying the SE Concept? • We are in the experimental mode and in the process of implementing the SE concept into the economy •  Some success in agricultural sector • Success in getting people to become aware of the concept • but still not the right understanding (from survey) • We also put more emphasis on teaching and instilling the concept since young age. Same as instilling saving culture. But it is a difficult fight with consumerism & advertisement • Success in getting discussions going: but a little bit too much • Some successes in some of the government policies design but more have to be done • Limited success in business sector

33. Sufficiency Economy as a New Approach to Development A work in progress – but with great promises A framework that can work within the market system that will bring more balance and equitable growth which will truly increase the well-being of the general public in the long run

34. For each individual A philosophy for people to find the meaning for themselves “Sufficiency Economy does not have to be complete, just half or even a quarter will be enough. … Last year, I thought that everyone understand this. … But recently, in fact last month someone who should understand this well because he has been working in the filed of development for sometimes say that sufficiency economy is very good and we have do it for one quarter of the country. … The meaning of sufficiency economy and one quarter figure is not one quarter of (the land area of) Thailand but one quarter of our action.”(1998)

35. Conclusion and Q&A