Transcript Inflation Targeting in Thailand

Understanding
Sufficiency Economy Concept
and Its Applications: a View from Thailand
Kobsak Pootrakool
1 June 2007
Outline
I.
Introduction
II.
What is Sufficiency Economy?
III. How Can We Apply Sufficiency Economy?
IV. How Much Success Thailand has thus far
in Applying the Concept?
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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
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Why is this the case? Why is there so much
misunderstanding concerning this concept?
1997-1999 speeches
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II. What is Sufficiency Economy?
His Majesty has been talking about sufficiency
economy since 1974.
It is a concept that come from his extensive experiences
after 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”.
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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)
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Main Components of Sufficiency
(1) Moderation
Sufficiency
(2) Reasonableness
(พอเพียง)
(3) Self-Immunity
Conditions
(1) Application of knowledge with due consideration and prudence
(2) Adherence to the principle of honesty and integrity
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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
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“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; luxurious items
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)
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How does SE relate to Neoclassical Economics?
Y
Max
S (1+r)-t E[U(C,..,t)]
Subject to Budget Constraints
A
Optimality
Preference
Budget Constraint
X
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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
Short-sighted
Envy
Human behavior
Risk Averse
Long-sighted
Prudence
Prudence
Person
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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.
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Difference between SE and Neoclassical Economics
Neoclassical Economics
Optimality
• Depend on Preference,
and Constraints to
Maximize Utility
Sufficiency Economy
Middle path
• Choose middle path
based on moderation,
reasonableness and
self-immunities as
a rule of thumb
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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
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III. How Can We Apply Sufficiency Economy?
Sufficiency Economy
1. Daily life
- Moderation
- Reasonableness
- Self-immunity
Think before you buy
Sufficiency Club (ชมรมคนพอเพียง)
2. Economic Development
- Agricultural Sector
- Private Sector
- Government Policy
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Problems of Past Economic Development
90,000
GDP/Capita
Poverty rate by
provinces, 2000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
Poverty rate
- Poverty
- Weakness in the grass root
- Other developmental problems
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Agricultural Sector
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Thai agriculture in the recent past - Monoculture
- Problems from
Monoculture
- Problems from
Supply/Demand
Adjustment
- Weather
- Debt Problem
- Migration and
weakness of the
villages
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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.
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Ilustrative Example of New Theory
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Example from Kam pla laay - Koan Kean
Diversified
agricultures
and other
benefits
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Two Approaches in Economic Development
Old Development Paradigm
Development under SE Concept
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Grass root development
Previous Government
Money, Capital & Opportunities
• One million Baht fund
Sufficiency Economy
Must be on the basis of
• Not live beyond one
• People bank
means and not over-
• Asset securitization
extend oneself
• OTOPs
• Self-discipline
• Tourisms / SMEs
• Not borrow unnecessarily
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Private Sector
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Examples
• Thinking about others
Saha Farm
• Self immunity
Hana
- Prudence and not too greedy
• Thinking about staffs
• Cautious expansion
Pricing moderately
Do not borrow
unnecessarily
7-11
Empathy to
your staffs
Golden place
Building your
foundation
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Back to Sufficiency Economy Concept
Reasonableness
Thinking about all risk involved
Moderation
within one means and not overextend
How to make sure that
private sector is more in
line with sufficiency economy
Greater Prudence
Better risk management
Long term and sustainable
Investment
Self-Immunity
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Government Policy
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Implications of SE on Government Policies
1. Macroeconomic Management
2. Government Policy Design
3. Alternative Development Strategy
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Implications of SE on Government Policies
Moderation
1. Macro
Management
Reasonableness
Mega-project, Growth,
Inflation, Budget Deficit
Self- immunity
Adequate Saving
Energy Security
National Risk Manag..
2. Gov. Policy Adjust design of governmental projects to make people to be more sufficient
Design
(Village funds, Debt forgiveness, Educational reform etc.)
3. Alternative
Development
Strategy
Adjust the balance of economic development framework
Rural along side with Industrial development, Strong communities
Quality growth, No need to go fast, Emphasis on public well-being
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How about the recent government policies on
30% reserve requirement and the amendment
to the Foreign Business Act?
Isolated incident
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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
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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
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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)
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Conclusion and Q&A
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