International Journal of Business and Economic Development Vol. 3 Number 1 March 2015

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1 Internatonal Journal of Busness and Economc Development Vol. 3 Number 1 March 2015 The relatonshp between the understandng of phlosophy of suffcency economy and the lvng standard: the case study of suffcency economy communty n lower northern regon of Thaland Wanakt Wanaslp Rangst Unversty, Thaland Nantarat Tangvtoontham Srnakharnwrot Unversty, Thaland Key Words Phlosophy of Suffcency Economy, Logt Model Abstract The purpose of ths research paper s to fnd the relatonshp between the knowledge of Suffcency Economy Prncples and the qualty of lfe of the households. It s postulated that, the hgher the level of the knowledge of the prncples that the household has acqured, the better the qualty of lfe of the household as measured by famly s ncome. A number of survey questonnares have been sent out to famles n rural areas n Northern part of Thaland. The sample famles are from two types of vllage: one s under a plot project called suffcency economy vllage, the other s not. The sampled data have been used to estmate the parameters of the logt model. The results ndcate that, the level of educaton, and the knowledge of the prncples have sgnfcant nfluence on famly s ncome. The locaton of the famly (.e., whether or not t s n the Phlosophy of Suffcency Economy prototype vllage), however, has no sgnfcant relaton wth the famly s ncome. Author`s Note: The authors would lke to thank to the Research Insttute of Rangst Unversty for provdng fnancal support for ths research project. 1. Introducton 1.1 The Anatomy of Fnancal Crss The Asan Fnancal Crss 1997 had brought down Thaland nto severe recesson never experenced n ts economc hstory. The cause of fnancal crss n Thaland was attrbutable to free nternatonal captal flows whch enable Tha nvestors to nvest more than domestc savng and allow Tha consumers to consume more than domestc output. Ths over-spendng behavor by Tha nvestors and consumers was fnanced manly by external borrowng n the form of captal nflows. The over-spendng actvtes fnanced by foregn borrowng dd not last for long, however. Once the level of borrowng reached the threshold where the return from nvestment projects was not large enough to servce the loan repayment comng due, the bad loans started to spread all over the balance sheets of all fnancal nsttutons. These bad loans had eaten up the captal of fnancal nsttutons to the pont where these nsttutons must stop bankng operatons due to captal nadequacy. The fnal epsode of fnancal crss saw the whole fnancal system collapsed completely whch sent the busness and producton sectors grndng to a halt. Severe recesson followed when large porton of labour force was lad off and became unemployed. The economc crss spread out to some other Asan countres lke South Korea, Indonesa and the Phlppnes. There s a general consensus among economsts about what causes fnancal crss. They agree that the man culprt s the free nternatonal captal flows whch allowed people n the A Journal of the Academy of Busness and Retal Management (ABRM) 87

2 Internatonal Journal of Busness and Economc Development Vol. 3 Number 1 March 2015 captal- recpent countres to borrow more than domestc savng. Consequently, people n these countres wll consume more than the output they produce. Ths over-consumpton wll be reflected n the defct n current account. Such s the stuaton called Double or Trple Defcts, when the balances of all sectors (prvate, government, and foregn trade) are n the red. 1.2 Can we blame t on economc theory? After the world has experenced so many fnancal crses, many people started to cast some doubts on the soundness of modern economc theory that we teach students n the vast majorty of unverstes around the world today. The smple queston s rased: If the assumptons that the producer maxmzes proft and the consumer maxmzes utlty are correct, why do they behave n a manner lke over- nvestment and over- consumpton, whch lead them to end up n fnancal crss, or bankruptcy n plan words? Some proponents of modern economc theory argue that the economc theory s always sound. The behavor of economc agents devate from the assumpton n economc theory s smply the result of government nterventon n prvate sector. In partcular, the economc agents are wllng to take too much rsk by performng over- nvestment and over- consumpton because the government provdes them wth some knds of nsurance lke ncome guarantee, health care, bal-out plan for faled banks, and fxed exchange rate. These nsurance provded by the government wll dstort the behavor of the people to become rsk takers, who wll be complacent, wllng to take hgh rsk and not afrad of falure. Ths stuaton s well known n economc theory as a Moral Hazard of Government Insurance. 1.3 Phlosophy of Suffcency Economy (PSE) The 1997 Fnancal Crss was a panful experence for Tha people operatng n all sectors and sectons of socety. It took almost a decade to recover from that crss. Durng that prolonged recoverng process, polcy makers tred to revse mplement new economc measures to ensure that Tha economy wll not slp nto crss agan n the future. Among these new economc measures amng to rebuld Tha economy, a certan economc development program called Suffcency Economy, whch s under Hs Majesty Kng Bhumbhol s ntatve, came to a man focus. As a matter of fact, the Phlosophy of Suffcency Economy (PSE) has been recommended by Hs Majesty the Kng to Tha people about 30 years ago, long before the occurrence of 1997 Fnancal Crss. The essence of the PSE s the focus on sustanable development through the practce of reasonableness, moderaton and self-mmunty by people of all walks of lfe. But not untl 1997 Fnancal Crss, the PSE has not been followed serously by Tha people. It was only after the Crss, that Tha people realzed the sgnfcance of Hs Majesty s teachng, the PSE has been brought nto serous attenton by all sectors. Snce that crss, Tha government started to use the PSE as a gudelne for economc development program for the country. Nowadays, there are many PSE prototype vllages located all over the country. It s hoped by polcy makers that once the practce of PSE has been carred out by the majorty of Tha people, Thaland wll be able to move forward wth hgh and sustanable economc growth, wth mnmal rsk of falure. The assessment of success of the prototype PSE vllages s the man focus of ths research paper. The Suffcency Economy Prncples s mxture of economc development practce and the phlosophy of lvng. In a nutshell, the PSE can be summarzed n smple framework known as Three Prncples and Two Condtons to be explaned below. A Journal of the Academy of Busness and Retal Management (ABRM) 88

3 Internatonal Journal of Busness and Economc Development Vol. 3 Number 1 March 2015 The Mddle Path Moderaton Reasonableness Self-mmunty Knowledge Condton (Prudence, Careful) Moral Condton (Integrty, Dlgence, Patence, Sharng) Balance/ Stablty/ Sustanablty Of Economy/ Socety/ Envronment/ Culture Fg. 1: The Phlosophy of Suffcency Economy Concept Moderate means to be smple, not to take thngs to the extreme. The practce of moderaton wll help ndvduals to make a stable growth n lfe. Havng smplcty as a norm, the ndvdual wll tend to have a happy lfe, wth no envy n mnd, and hence wll always create good thngs for socety. Reasonable means to be careful n dong thng. Reasonable ndvdual wll gather all relevant nformaton for makng any decson. He wll calculate the results n advance to assess the rsk and return and the mpact on other people and communty as a whole pror to takng any acton. When ndvduals use reasonableness as a gudng wsdom, t s no doubt that the socety as a whole wll beneft n terms of peace and prosperty. Self- mmune means to be able to cope wth rsk and adversary wthout havng to depend much on the help from other people or the government. To be self- mmune, the ndvduals must be prudent and well-aware of rsks nvolved. He may employ the rskprotecton tools n the forms of savngs, buyng nsurances, jonng the club or assocaton, and creatng good connecton among people n communty. Knowledge s one of the two pllars that wll help support ndvdual n the practce of the three rngs. Wth suffcent knowledge, he tends to be reasonable and self- mmune n makng a daly lvng and a careful plan for a future. Moralty s another pllar that can guarantee that ndvdual wll behave n a reasonable manner. A person wth moralty wll be a good ctzen, cooperatve, and always wllng to help A Journal of the Academy of Busness and Retal Management (ABRM) 89

4 Internatonal Journal of Busness and Economc Development Vol. 3 Number 1 March 2015 others. Furthermore, wth good conscence, he can lve a smple lfe and not takng thngs to the extreme. It can be envsaged that, ndvdual practcng the smple framework of PSE as llustrated wll surely has a good lfe, wth smple lvng and stable growth. When ndvduals n the socety behave n ths manner, the economy as a whole wll prosper and s more lkely to expand along sustanable path. It s worth notng that, suffcency n the PSE does not have the same meanng as self-suffcent n Robnson Crusoe story. Whle Crusoe s self-suffcent means everythng s scarce on a lonely sland, the suffcency n PSE means that people should have plenty of everythng once they follow the practce the PSE serously. The suffcency economy supports the producton and trade actvtes as conducted n modern captalst system. What the PSE recommends s that, ndvduals must be reasonable, moderate, and self-mmune, so that they can avod economc crss as frequently occurred n the present tme. 1.4 The Phlosophy of Suffcency Economy and Modern Economc Theory It s well- establshed n modern captalst economc theory that the economc system wll perform at ts best when no market falure occurs. The market falure condtons nclude, among others, the monopoly, publc goods, externaltes, mperfect or ncomplete nformaton, and devatons of the system from ts equlbrum due to external shocks (generally called busness cycles or economc crss). These market falures, when they occur, wll cause the economc system to perform at lower than ts optmal level, whch wll result n the welfare loss to the socety as a whole. The exstence of the market falures, whch s usually unavodable due to market mperfecton, calls for government to ntervene n order to restore the effcent performance of economc system. However, more often than not, especally n less developed countres, the government has no ntenton to correct the market falures. Ths s due to the fact that, n most less-developed countres, the government s the representatve of the nterest groups. These nterest groups are clearly those who beneft from market falure condtons such as monopoly, externaltes lke the emsson of polluton to the earth atmosphere, the destructon of envronment n any form, just to name a few. The above clam can be supported by the evdence that, n less developed countres, the market falures stll keep flourshng. Even though there exst the laws to regulate the market falures, but the enforcement seems to be so weak. Wth the understandng of the PSE among general people, the market falure condtons can be mtgated wthout useless nterventon from the government. For examples, when people practce the prncple of moderaton, they wll have no ntenton to monopolze the use of resource or nformaton, to produce externaltes lke polluton, or to destroy envronments for ther own monetary gan. Furthermore, when people learn to practce the prncple of self-mmunty, they tend to be more careful n dong thngs. In other words, they wll become more rsk averse n modern economc termnology. Consequently, they wll focus more on savng and less on consumpton and borrowng. Obvously, self- mmunty prncple, the economc crss can be avoded. It can be seen that, the PSE s not n contradcton to the modern economc thnkng. Rather, the PSE can help reduce the degree of market falures, whch wll n turn mprove the performance of the captalst system. 2. Lterature Revew Mongsawad (2010) proposes that the phlosophy of suffcency economy conveys new theory n addressng current development challenges, whch are ssues of nsttutons, human captal, envronmental sustanablty and the role of government. The phlosophy of suffcency A Journal of the Academy of Busness and Retal Management (ABRM) 90

5 Internatonal Journal of Busness and Economc Development Vol. 3 Number 1 March 2015 economy, as a new paradgm of development, ams at mprovng human well-beng as a development goal. Bunyasre (2010) uses the concept of suffcency economy to analyze the causes of the Tha fnancal crss n She ponted out the weaknesses of Tha economy and suggested the ways to prevent such crss from happenng agan. She also recommended that the suffcency economy and creatve economy could be harmoncally ntegrated to acheve a sustanable development. Stückelberger (2010) clams that the future ethcal market economy wll be a suffcency economy. It wll provde enough for everybody s need, but not for everybody s greed (Mahatma Gandh). A new vson of what human bengs are wll grow: human bengs are not only graspng for maxmum of materal wealth and for maxmum proft on the back of the others. They also look for communty, soldarty and a meanngful lfe. Such anthropology wll balance competton wth communty. It wll modfy economc and poltcal theores. It wll lmt ndvdual and nsttutonalzed greed and lead to a new economc paradgm of far and sustanable markets. Calkns (2009) has constructed suffcency economy matrces for use by local development planners. He apples constraned optmzaton, rsk programmng, and suffcency economy phlosophy to a case study of a sub-dstrct n Northern Thaland. A seven-step process takes local decson-makers and planners from ther current sub-optmal, unprotected stuaton to an optmal, mmunzed 5-year plan. Shadow prce analyss, suffcency economy ndcators and parametrc programmng are also ntegrated nto the 7-step procedure. In ths paper, the authors attempt to fnd the relatonshp between the understandng of the Phlosophy of Suffcency Economy concept (PSE) and the qualty of lfe of people. At ths stage, we use the famly s ncomes as a proxy for the qualty of lfe. The data on the level of understandng of PSE are obtaned from the survey questonnares sent out to people lvng n rural northern part of Thaland. The logt model s employed to fnd such relatonshp. 3. Methodology Ths research work s amed at nvestgatng the relatonshp between the understandng of Suffcency Economy Prncples and the well- beng of the households. It s postulated that those who have good knowledge and understandng of PSE should have better standard of lvng than those who lack the knowledge of PSE. We collected the data from questonnare ssued to and responded by households from two types of vllage, one s under the government-run PSE program, and the other s not. Varous questons regardng the prncples of suffcency economy were asked on the questonnare and the total score s gven to each household partcpatng n the research. The research uses famly s ncomes (Y) as a proxy of the well-beng of a household. We let Y=1 (representng good lvng standard) f the famly s ncomes s equal to or greater than 10,000 baht per month, and Y = 0 (poor lvng standard) f the famly s ncomes s less than 10,000 baht per month. The study uses 10,000 baht per month as a threshold snce ths level s approxmately an average ncome per capta of Tha people at the present tme. The study employs a logstc regresson to analyze the data. The logstc regresson equaton s as follow. p ln KnowSuff Edu FamNum MStatus Gender SuffV u p (1) 1 where A Journal of the Academy of Busness and Retal Management (ABRM) 91

6 Internatonal Journal of Busness and Economc Development Vol. 3 Number 1 March 2015 p ln = The natural log of the rato of the probablty that the event wll occur (n our case 1 p the event s the household wll have a good lvng standard,.e., a famly s ncomes equal to or more than 10,000 baht per month) to the probablty that the event wll not occur (generally called the Odds Rato ). In the regresson, the data on famly s ncomes wll be set to 1 f t s equal of greater than 10,000. It s set to 0 when t s less than 10,000. KnowSuff = The household s score of the test on the knowledge of PSE obtaned from the household s response n the questonnare Edu = The level of educaton of the head of the famly 1 (lower than/ not complete hgh school level) 2 (complete hgh school/lower-level vocatonal school) 3 (hgher-level vocatonal school/certfcate) 4 (bachelor degree) 5 (hgher than bachelor degree) FamNum = The number of the members n the famly MStatus = The martal status of the respondent 1 (sngle or lvng separately wth spouse) 0 (marred or lvng together wth spouse) Gender = The gender of the respondent to the questonnare 1 (male) 0 (female) SuffV = The type of vllage that the sample famly s located 1 (n the PSE prototype vllage) 0 (not n PSE prototype vllage) = The dsturbance term of the regresson u 4. Regresson Results 372 observatons were gathered from questonnares and the logt regresson was run on EVIEWS software. The regresson results are as follow: p ln = KnowSuff Edu FamNum 1 p ( ) ( ) ( ) ( ) MStatus Gender SUFFVILL ( ) ( ) ( ) The fgures n parentheses are z-statstcs beng used for testng the sgnfcance of parameter estmates. It can be seen that the parameter estmates of level of educaton and gender are sgnfcant at 5% level, whle that of knowledge of PSE s sgnfcant at 10% level. Ths means that these three varables are sgnfcant n explanng the well- beng (famly s ncomes) of the households. Other varables such as martal status, and located n PSE prototype vllage are not sgnfcant n explanng the level of famly s ncomes. The parameter estmate obtaned from logt regresson can be nterpreted as a margnal effect of a unt change of an explanatory varable on a change of a probablty that event under consderaton wll occur. In ths research, t s the probablty that the famly s ncomes wll be equal to 10,000 baht or more per month (.e., the probablty that Y = 1). The dervaton of the margnal effect can be explaned below. The logt regresson equaton can also be expressed as A Journal of the Academy of Busness and Retal Management (ABRM) 92

7 Internatonal Journal of Busness and Economc Development Vol. 3 Number 1 March P E( Y 1 X ) or P ' 1 2X F( Z ) Z 1 e 1 e where Z 1 2X. The margnal Z dp e effect of Z on the probablty P s f ( Z) Z 2 dz (1 e ). Then the margnal effect of a partcular dp dp dz X can be wrtten as f ( Z). Here, the value of Z s the mean value of the dx dz dx estmated regresson equaton. Hence, from the regresson results obtaned, we can construct the table ndcatng the margnal effect of each explanatory varable on the probablty that the event wll occur as follow: Table 1: A summary of the margnal effect of a one unt change of each explanatory varable on the probablty that the famly s ncomes wll be 10,000 baht or more per month (Y = 1). Varable Mean β Mean x β KnowSuff Edu FamNum MStatus Gender SuffV Constant Total = Z e (1 e Z ( Z) Z 2 f ( Z) A Journal of the Academy of Busness and Retal Management (ABRM) 93 f dp dz ) From Table 1, the results reveal that the margnal effect of knowledge on PSE equals to , meanng that f the test score of PSE (randomly pcked) ncreases by one pont, then the probablty that the famly s ncomes s equal or greater than 10,000 baht per month ncreases by 1.41 percent as a consequence. The margnal effect of educaton equals , meanng that f the educaton of the head of the famly (randomly pcked) ncreases by one level, then the probablty that the famly s ncomes equal or greater than 10,000 baht per month ncreases by percent. Also, the margnal effect of famly members equals Ths mples that f the members of the famly (randomly pcked) ncreases by one person, then the probablty that the famly s ncomes equals or greater than 10,000 baht per month ncreases by 1.71 percent. As well as the margnal effect of gender s Therefore, f the gender of the respondent (randomly pcked) s male, then the probablty that the famly s ncomes s equal or greater than 10,000 baht per month ncreases by percent. Notceably, the margnal effects of martal status and stayng n the PSE prototype vllage are negatve. The margnal effect of martal status s Thus, the martal status s sngle or marred but lvng separately from spouse, then the probablty that the famly s ncomes wll be equal or greater than 10,000 baht per month decreases by 9.8 percent. Lastly, the margnal effect of stayng n the PSE prototype vllage equals , meanng that f the famly (randomly pcked) s located n a PSE plot project, then the probablty that the famly s ncomes s equal or greater than 10,000 baht per month decreases by 7.77 percent as a consequence. There are some nterestng ponts worth notng from our margnal effect analyss above. Frstly, most of explanatory varables show the sgn of effect as expected. However, we expect the effect of stayng n the PSE prototype vllage on the probablty of famly s ncomes to be postve, the estmated result shows the opposte. Ths contradcton may be attrbutable to the

8 Internatonal Journal of Busness and Economc Development Vol. 3 Number 1 March 2015 fact that the PSE plot project s targeted at the very low-ncome vllage, n order to help poor people to begn wth. Consequently, the data obtaned from our survey reflects ths pont by showng that the average famly s ncomes of people n PSE plot vllage s lower than that of people n non-pse vllage. Secondly, t can be seen that the factors that show strong mpact on famly s ncomes are educaton level, martal status and gender. For educaton level, the result obtaned n ths paper seems to be n lne wth modern growth theory whch proposes that the economc growth depends n large part on the qualty of human captal, n whch the educaton s a sgnfcant determnant. As for martal status, t s qute obvous from the fact of lfe that, a household wth two people lvng together should make a better lvng than a household wth sngle person. For gender, t s qute natural n developng countres that when the head of the famly s male, the ncome wll be hgher as compared wth that when female s the head of the famly.lastly, the knowledge of PSE, whch s the focus of ths research paper, yelds the postve effect on famly as expected. Its mpact may not seem large, but statstcally sgnfcant. However, as we stressed earler n the paper, that the am of PSE s to gude people to fnd way to have better qualty of lfe, not just to earn more ncome. Therefore, f we can construct a qualty of lfe ndex comprsng varous dmensons such as ncome, health, socal, and envronment, then we may fnd somethng more nterestng than usng ncome alone as we do n ths paper. But let us leave that for a future research. 5. Conclusons Ths research focuses on the fndng of the relatonshp between the understandng of PSE and the qualty of lfe. In ths research, we use famly s ncomes as a measure of qualty of lfe of a household. A number of questonnares have been sent out to people n rural areas n Northern part of Thaland. These questonnares nclude, among others, a set of questons to test how much each household understand the PSE. Ths study used the logt model to run regresson wth the data collected from the questonnares. The dependent varable s the famly s ncomes, and the explanatory varables are the level of educaton, the understandng of PSE or knowledge of PSE, number of members of the famly, martal status, gender, and whether or not the famly lves n the PSE plot project vllage. The regresson results show that, level of educaton, the understandng of PSE, and gender are statstcally sgnfcant, whle the rest of the explanatory varables are not. In concluson, the understandng of PSE, whch s the focus of ths research, s found to be one of the key factors havng nfluence on the qualty of lfe of the household as measured by the level of famly s ncomes. 6. Research Lmtaton and Drecton for Further Research Snce ths research uses only famly s ncomes as a measure of the qualty of lfe of the household, t wll be more nterestng for future research to brng nto consderaton other measures n varous dmensons, such as socal, envronment, health, securty, and etc. To do such that, t s necessary that the composte ndex for measurng qualty of lfe must be constructed, wth approprate weght gven to each dmenson. Ths wll nvolve a collecton of massve data and the constructon of ndex of well-beng wll also be a challengng task ndeed. References Bockermann, A. et al., Modellng Sustanable Development. Inthe Internatonal Systems Scence Conference, Osnabrueck. A Journal of the Academy of Busness and Retal Management (ABRM) 94

9 Internatonal Journal of Busness and Economc Development Vol. 3 Number 1 March 2015 Bunyasre, V., The Suffcency Economy and Creatve Economy: Substtutes or Complments for Thaland? Executve Journal, pp Avalable at: Calkns, P., Suffcency Economy Matrcs: Mult-Perod Optmzaton for Local Development Planners. Journal of Economcs and Management, 5(2), pp Communtes, E., Indcators of Sustanable Development: A Plot Study Followng the Methodology of the Unted Natons Commsson on Sustanable Development, Belgum: European Communtes / Unon (EUR-OP/OOPEC/OPOCE). Daly, H. & Cobb, J., For the Common Good: Redrectng the Economy toward Communty, the Envronment.., Unted States: Beacon Press. Jackson, T., Measurng sustanable economc welfare: A plot ndex: , Stockholm: Stockholm Envronment Insttute. Van de Kerk, G. & Manuel, A., A comprehensve ndex for a sustanable socety: The SSI the Sustanable Socety Index.Ecologcal Economcs, 66(2-3). Mongsawad, P., The Phlosophy of the Suffcency Economy: A Contrbuton to the Theory of Development. Asa-Pacfc Development Journal, 17(1). Pearce, D., Barber, E. & Markandya, A., Sustanable Development: Economcs and Envronment n the Thrd World, Unted Kngdom: Edward Elgar Publshng Ltd. Pruetpbultham, O., The suffcency economy phlosophy and strategc HRD: a sustanable development for Thaland. Human Resource Development Internatonal, 13(1). Rungwtoo, T., Suffcency Economy and the Manstream Economc Theory. In the Meanng of Suffcency Economy Internatonal Conference. Avalable at: UN, Indcators of Sustanable Development Framework and Methodologes, Unted States: Unted Natons. UN, Report of the Unted Natons Conference on Envronment and Development: Ro De Janero, 3-14 June 1992, New York: Unted Natons Pubns. WCED, Our Common Future: World Commsson on Envronment and Development, Unted Kngdom: Oxford Unversty Press, USA. A Journal of the Academy of Busness and Retal Management (ABRM) 95