Sufficiency economics is good capitalism

14 December, 2005

His Majesty the King’s sufficiency economic theory, contrary to general belief, is not inconsistent with capitalism. The King would like Thailand to adopt a sufficiency economy as a way out and as a means to prevent another economic crisis. The King’s sufficiency economy calls for the Thai people to live within their means. In short, the Thai people must not consume their future incomes with such avidity that they are saddled with debt beyond their ability to pay back.

Spending beyond your means?

Thailand, as a country, must also practice sufficiency economy because it must
be able to stand on its own feet in the face of any external shocks. As the lesson
of the 1997 crisis has taught us, Thailand must never again rely on foreign
borrowings beyond its ability to pay debts back from its earnings.
“Those who believe in sufficiency economy should practice it. It will keep them
going, though they might live not very comfortably,” the King said in his birthday
speech on December 4.

If you produce more than demand, if you consume more than you earn, if you
destroy the environment beyond repair, then you’re practising bad capitalism. 
One economist has just sent a note to Bangkokian to suggest that the King’s
sufficiency economic theory is not inconsistent with capitalism at all. The reason
is that consumers in the capitalist world supply labour and use their income and
returns from saving to finance their spending. They can either choose
consumption or choose to save. They cannot spend more than lifetime earnings,
although they can borrow in the “shortrun.”
What they do not spend becomes savings, which are used to finance investment
or capital accumulation in the economy. But an economy cannot accumulate
capital if everybody consumes all their income.

“This is what I think very consistent with sufficiencyeconomy: Consumers cannot
live beyond their means,” the economist noted. “Suppose all Thais consume all
their income and have no savings. They can only fund investment by borrowing
from abroad. But they cannot borrow forever. At some point, they will have to
save and pay back the debt. Plus, lowreturn investments will make an economy
so feeble that it is unable to pay back its debts – as in Argentina.”

Over the past five years, the Thaksin government has been encouraging people
to borrow for consumption rather than for investment. Although consumption has
led to economic growth, this is not sustainable. Without investment, consumption
will sooner or later run its course. Then consumers will be saddled with onerous
debt. Already the Thai people are beginning to feel the pinch from the
overconsumption instigated by Thaksinomics.

The economist further added: “Economic growth rests on the return on capital,
not the volume of borrowing. Japan did not have to borrow because its citizens
save a lot. Japan’s savings were channelled to productive sectors of the economy
from the 1950s to the 1970s. The people who bought their goods were
foreigners, so the Japanese accumulated capital through export revenue.

“Capital that contributes to economic growth is quite broad. It covers physical
investment – factories, electricity plants, land, water, schools, libraries, transport
infrastructure, natural resources like forests and fisheries – and human capital. It
is not about money. But the voodoo economists advocate borrowing and opening
financial markets. They are not talking about productive capital accumulation.
They are just addicted to borrowing.”
Those who still blindly follow Thaksinomics, please take note.