Stick with His Majesty's sufficiency theory, it might save us

But few people took notice of it. When the crisis struck Thailand in 1997, the policy-makers and business people started to be more aware of it. And when the military-backed government of General Surayud Chulanont took office between November 2006 and December 2007, it also tried to promote the sufficiency theory, which could be applied to most of the economic and management activities.

Unfortunately, most international media or foreign critics did not bother to study the theory closely enough. They quickly jumped to the conclusion that Thailand's sufficiency theory was part of its efforts to become inward looking or to go back to the agrarian society.

In the sufficiency theory, one must strive to walk the middle path by living within one's means. We should not take a risk beyond our ability to manage. We should not be overburdened with debt. In short, it is a sound risk-management advice.

When His Majesty visited one of the remote villages, he discovered that there was only one power generator. He remarked that the village was not living sufficiently enough. The village should have two generators to power the electricity. In case one generator broke down, then it would have a spare one. So to live sufficiently is to have just enough - not too much or too little.

If you earn US$1,000 a month, (Bt34,850), then you should live within that - spend between $800 or $900 rather than $1,200 or $1,500. That way, if something goes wrong, you can still survive.

Before the 1997 crisis, Thailand lived beyond its means. The financial institutions were over-leveraged. Finance companies made speculative lending into the property sector. The country ran a current account deficit of 8 per cent a year for several years. It had $120 billion in foreign currency debts against reserves of $39 billion.

After the crash, we entered into the IMF programme and gradually recovered. Now the guiding principle of the Thai authorities is that we should not run lousy macroeconomic policies again to repeat the mistake of the 1997 crisis.

Now we have $102 billion in foreign reserves. Foreign debts amount to $50 billion, of which $20 billion is short-term. In the event of capital outflow, Thailand would not face a crisis on the scale of 1997. We have been running trade and current account surpluses. If a current account deficit should happen, it must not be allowed to exceed 2 per cent of the GDP. The public sector debt is now lower than 50 per cent of GDP.

The US did not follow the sufficiency theory, so it is now paying the price of greed, excess and lax regulations and management. It is now facing a crisis because of the bubbles that burst. The bubbles were created by over-consumption by the government and consumers, as well as financial institutions' over-leveraging and outrageous risk-taking.

The US government, inspired by the Reaganomics of tax cuts to stimulate investment and spending, has been running deficits without generating enough revenue to assume the over-consumption mode.

China also flooded the world with cheap products, helping to bring down global inflation. US authorities mistook this drop in inflation as US productivity growth. They used easy credit to create a housing bubble and consumers started spending beyond their means.

Financial institutions were not regulated enough. They went on a lending spree and came up with complex mortgage-backed "securitisations" sold all over the world. When the economy hit a downturn, the bubbles went bust.

The crisis is now hurting Europe the most. Asia is also feeling the pinch. The fall of the US economy and the global financial crisis will lead us to have a serious rethink about global capitalism. Capitalism in itself is not bad, but excess in capitalism is bad. Sufficiency in capitalism is good enough.

During my recent trip to Japan, I also heard comments from Japanese executives about a need to move away from industrial growth for the sake of high growth to a more basic caring for the environment and to address global warming.

This is the direction of a reawakening global capitalism, hopefully with more passion and caring.