We now find ourselves in a world dominated by capitalism because socialism has been in decline since the end of the Cold War. Under current circumstances, the most important thing is for people and societies to understand how capitalism and globalisation creates wealth.

Understanding the concept of capitalism in the context of globalisation is crucial. In the "Washington Consensus", the United States has attempted to persuade other nations to believe that globalisation must come together with liberalisation, including privatisation and deregulation of economic activities, as these will help solve poverty while enhancing the democratic process and social welfare.

Nonetheless, these two things: globalisation and liberalisation are still being lumped together in public discourse as if they are one and the same. Many countries chose to integrate into the world economy but did not liberalise their economies or political systems. There are also countries that pursue liberalisation policies but do not merge into the world economy. Additionally, there is no evidence that long-term benefits from globalisation will be transferred from the macro to micro level. Nor is there any guarantee that globalisation and liberalisation will boost the democratic process as claimed by the Washington Consensus.

In "Global Capitalism" by Jeffry A Frieden, globalisation is only an alternative process chosen by governments to determine the course of international trade, investment and finance, as well as other deregulation processes. These policies, as well as the relationships among countries, define globalisation as interaction within and between nation states; globalisation of companies and of peoples will consequently determine the pace and nature of globalisation.

The process leads to political, social and economic trends in various dimensions:

1) World economy vs world society - the choice between the kind of capitalism that thrives on conflict and competition; and the peaceful variety that emphasises cooperation and collaboration.

2) Globalism vs nationalism - the choice between world governance and countries' sovereignty; between the global culture and national culture as well as between "globality" and locality.

3) Free trade vs fair trade - especially in developed and underdeveloped countries.

4) Openness vs national security - as a consequence of the US-led "war on terrorism", many countries have reconsidered agreements on trade liberalisation.

It is impossible to escape, and no country can just close itself off to avoid the impact of globalisation. At the same time, a country might not fully open itself unless it is ready and totally immunised. When the time arrives to open up, a country should implement efficient strategies through the clear understanding of global dynamics as well as the country's own opportunities, potential, constraints and intents. This enables a country to allocate labour, capital and technology efficiently, and results in wealth creation and sustainable development.

In order to compete with Western countries, China realises that just developing its low-tech industries will not be enough. As the US moves toward the third wave (of high-technology), China needs to employ dual-track strategies to both shorten the development process and create economic immunity in response to fast-changing internal and external factors.

China has implemented dual-track strategies in two dimensions: regional development and industrial development:

1) While China's eastern seaboard is developing under unfettered capitalism, the western region, which is not connected to the sea, is developing under the "New Socialist Countryside" policy - aimed at eradicating poverty and boosting the level of development to reach that of the east. This policy is employed in a countryside left undeveloped during the economic development of the 1990s. This area has a population of 740 million people. However, the average income is only one-third of that in urban areas. The policies include tax reduction, agricultural subsidies and infrastructure creation.

2) China puts emphasis on both value-added and knowledge based industries and existing low- and medium-technology industries. China aims to produce better telecommunication infrastructure in the next 10 years by focusing on the following processes: importing foreign technologies, researching, imitating, adapting and developing foreign goods. After succeeding in the adaptation and development processes, China will develop its own technologies to reach the level of those in Western countries. China has set the goal of being a country of intellectual property innovation.

It is known that large Japanese corporations have long been "globalised" (the "Out-Out" mode), while Japanese SMEs are currently localised (in the "In-In" mode). Previously the Japanese government wanted to avoid the "hollow out" effect in the domestic structure. Nevertheless, globalisation has made the government reconsider and allow SMEs to seek opportunities internationally. In the near future, Japan's "In-In" mode will shift to strengthen the comparatively weak agricultural and service sectors. Competitive small and medium businesses will be supported by the government on the global stage.

Japan has been creating economic immunity by balancing its domestic industry and SME strength to compete at the world level, instead of leaving the majority of wealth and risks to its MNCs.

Japan has a number of medium-sized companies with the potential to compete and be leaders in the global context. The key to success for these companies is their ability to recognise their strengths and weaknesses and focus on their core competencies. These efficient medium-sized companies will play an important role in driving the Japanese economy towards being a future economic power.

Lessons from China and Japan in employing economic development policies according to global dynamics tell us that it is important for every country to consider a new dynamic equilibrium that balances globalisation with the wealth of the nation.

In driving an economy, both competitiveness and economic sustainability are desirable - as a car needs both brakes and accelerator. Therefore we must estimate our potential as well as create immunity in our economy. This is in line with His Majesty the King's concept of sufficiency economy, which can be regarded as the foundation of a sustainable development policy and strategy.

Dr Suvit Maesincee is former vice minister for commerce and is currently professor of marketing at Sasin Graduate School of Business Administration, Chulalongkorn University.

This is the first of a two-part series on sufficiency economy in the context of globalisation.

 Suvit Maesincee