Throughout the history of mankind, numerous events and crises have prompted us to reflect and reevaluate on the way we live our lives, operate our businesses and develop our countries.
Recently, I watched The Big Short, a movie based on a supposedly true story of four men, who in 2005, believed that the bubble in the US housing market would burst within the next few years. They decided to take on the big banks for their greed and lack of foresight. The US credit and housing market did collapse and led to a global financial crisis sending shockwaves to countries around the world.
I am not sure what you will make of this story. But here is what President Obama had to say to US citizens in 2008.
"Part of the reason this crisis occurred is that everyone was living beyond their means -- from Wall Street to Washington to even some on Main Street. CEOs got greedy. Politicians spent money they didn't have. Lenders tricked people into buying homes they couldn't afford and some folks knew they couldn't afford them and bought them anyway. We've lived through an era of easy money, in which we were allowed and even encouraged to spend without limits, to borrow instead of save."
We'll have to set priorities as never before, and stick to them. This also means promoting a new ethic of responsibility.
In 1997, after decades of prosperity, Thailand suffered a full-blown financial crisis. The impacts were severe: the baht was devalued, banks were forced into closure, companies went bankrupt and people suffered.
His Majesty King Bhumibol addressed the nation later that year and said, "Being an economic tiger is not important. The important thing is for us to have a sufficiency economy. A sufficiency economy means to have enough to support ourselves … We have to take a careful step backward."
Despite his earlier and similar warning, it was not until 1997 that His Majesty's words were truly heard, and the sufficiency economy philosophy (SEP) caught public attention. This was a wake-up call and marked the beginning of Thailand's journey on a more balanced path to growth.
Since 1997, the SEP, which comprises three major components -- Moderation, Reasonableness and Prudence -- has been applied to macroeconomic management in Thailand with a focus on four main areas.
Firstly, strengthening resilience of domestic real sectors. Before the 1997 crisis, Thailand was living well beyond her means. Recklessly optimistic, companies were leveraged with foreign debt. In the post-crisis period, the Thai banking and corporate sectors were dramatically reformed to keep their leverage in check. Key sectors now have a healthy financial structure. NPLs have dropped from 43% in 1997 to over 2% in 2015, the debt-to-equity ratio in the corporate sector has fallen from 5.1 in 1997 to a mere 1.3 in 2015.
What I would like to stress here is that: (1) The SEP does not imply that one must constantly be frugal. You can buy luxury items occasionally, provided it is within your means to do so. To put it another way, moderation does not mean deprivation. It is not living beyond our means, and (2) The SEP can be applied to all other areas, including the financial and real estate sectors and to international trade.
The second focus is on developing the financial system for sustainable growth. In the development of its financial systems, Thailand has made progress in many dimensions: Efficiency, Governance, Diversification, Access and Connectivity. On connectivity, I would like to add that the SEP does not promote isolation. The benefits of being part of an integrated global system are immense and should be embraced. Financial integration is a choice. We chose to do so because the perceived benefits outweigh the perceived costs. Globalisation is a fact of life. We have to learn to live with it, not fight it.
The third focus is building up strong institutions. We liberalised our financial system without a proper policy framework. We failed to fulfil necessary "pre-conditions". We liberalised our financial system without sufficient tools and without a proper policy framework. This reminds me of one of the key SEP principles, identified by His Majesty the King. "Economic development must be done step by step. It should begin with the strengthening of our economic foundation."
Over the past years, considerable efforts have been devoted to the development of "institutions", laying a strong foundation for a resilient financial system. Chief among these are the adoption of "Flexible Inflation Targeting" in 2000, which has helped restore credibility and brought transparency to the monetary policy deliberation process. Legislative amendments in 2008 also helped enhance the central bank's "operational independence" with proper "checks and balances".
The fourth focus: pursuing growth with macro-stability, equity and sustainability. Economic development has raised Thailand from being one of the poorest countries in the region to become a middle-income country. The overall impact has been impressive. Over the past 50 years, the Thai economy grew about 14-fold, with substantial declines in poverty and a rise in the overall standard of living.
Unfortunately, this development has not come without costs. Thailand's forests declined dramatically. Meanwhile, in 2013, Credit Suisse ranked Thailand the sixth most inequitable country in the world, with the richest 10% controlling nearly 75% of the wealth. This is unsatisfactory. As history repeatedly shows us, societies with such stark differences find it harder to maintain internal stability and hence this is something we need to address.
In the world of the new normal, the SEP offers something useful for the workplace, with a "holistic approach", indeed some call it "a way of life". Coverage of the SEP transcends economic issues, to society, the environment, and to culture. The SEP encourages stakeholder consultation at all levels of society and stresses a forward-looking approach. In connection with this, sustainability is deemed a crucial factor.
The focus of the SEP is on "human capital" and "mindsets", including knowledge, virtue and perseverance, integrity, trustworthiness and honesty and mindfulness. These mindsets are the ingredients of any successful and sustainable business.
However, it would be an exaggeration to say that the SEP has been embraced without comment or reservations. Challenges remain as to how to effectively communicate some of the concepts underpinning the SEP, concepts such as the "Middle Path" which implies not "too little", not "too much" or not "too extreme".
The critic will ask where exactly "the middle" is we are talking about.
Let me explain. Imagine driving a car. We know that beyond a certain speed, we will not be able to control the car and therefore do not exceed the speed limit. At the same time, we know that if we drive too slow we may get hit by a car behind us and may cause multiple collisions. For this reason, many countries have both "a maximum and minimum speed limit" for traffic on highways. For most of us, this comes intuitively and we therefore choose "the middle", not too fast or not too slow.
In macroeconomic management, the SEP is not opposed to "growth" nor does it promote "isolation". In order to move a country forward in the long term, a policymaker needs to take into account stable growth, equity and sustainability. In business practices, the SEP is not opposed to "competition", nor does it support "divestment". In order to help a company grow, a CEO needs to think about sustainable development, and pay attention to related wider stakeholders.
Finally, borrowing from Niall FitzGerald, let me end today's talk with this: Applying the SEP to macroeconomic management and business practices is a hard-edged decision. Not because it is a nice thing to do, or people are forcing us to do so. But because it is good for our country and good for our business.