Positioning Thailand for Recovery: Towards a ‘New Economy’

Plaza Athenee Hotel, Bangkok, 21 August 2009

Dr Stephen SprattDirector of the Centre for the Future Economy nef(the new economics foundation)

About nef

An independent UK think-and-do-tank (founded 1986).

Inspired by 3 principles– Sustainable Development– Social and economic Justice– People’s Well-being

Our strap-line ‘economics as if people and the planet mattered’ encapsulates our approach well

The Centre for the Future Economy focuses on policy change to further these three objectives.

What is an economy for?

To maximise ‘public benefit’

Or ‘utility’ or ‘welfare’ (neoclassical and welfare economics)

Or ‘capabilities’ (Amartya Sen)

Or ‘social value’ (nef)

Or human ‘well being’ (many + nef)

What is ‘social value’?

“Every day our actions and activities create and destroy value; they change the world around us. Although the

value we create goes far beyond what can be captured in financial terms, this is, for the most part, the only type of value that is measured and accounted for. As a result,

things that can be bought and sold take on a greater significance and many important things get left out.

Social value measures all forms of value as understood by different stakeholders: it capture what they value.

seeks to reduce inequality and environmental degradation and improve well being by incorporating

social, environmental and economic costs and benefits.”(nef, 2008)

What is ‘well being?

“The quality of people’s experience of their own lives” (nef, 2008)

“A state of complete physical, mental and social well-being, and not merely an absence of

disease or infirmity” (World Health Organisation, 1949)

What determines public benefit (1): individual?

Sufficient income to provide a good standard of living Sufficient leisure time to enjoy this Good physical and mental health Access to education and knowledge Ability to undertake meaningful and productive work Reasonable relative status Close family and community ties Ability to participate in civic and political life at different

levels of society Stability and security Autonomy to determine and to pursue one’s goals Access to the natural environment

What determines public benefit (2): social?

Countries with high inequality also have: Lower life expectancy (and worse physical health

outcomes in general) Greater mental health problems More violence/crime (particularly homicide) Higher rates of imprisonment More teenage births More drug use More obesity Less trust Worse educational performance of schoolchildren Less concern with the natural environment

What can the crisis tell us of how we can achieve public benefit?

The global financial system is far more volatile than had been commonly supposed

International trade is inextricably linked to the financial system, and so too more unstable than assumed

The system has become highly interdependent such that ‘decoupling’ was largely an illusion

Growth is fragile when overly reliant on the international financial and trading system

Economic and financial liberalisation and integration into the global economy is not a ‘one-way’ bet that guarantees national economic development

How are the other drivers of public benefit affected?

Integration increases competitive pressure, lengthening working hours and stress

Increased uncertainty and the instability of global financial markets and supply chains is negative for people’s need for security

This is corrosive for family and community relationships Previous financial crises - notably the Asian crisis - have

directly reduced incomes and increased poverty in many developing and emerging economies

Inequality is increased in both booms and busts Climate change and ecosystem pressure are a function of

the continuing focus on income growth in developed economies and an unbalanced global system

But it is not making developed country citizens any happier…

GDP and mean Life Satisfaction in the UK, 1973 - 2002

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

GDP

Life Satisfaction

The post-crisis landscape willbe different in important ways Macroeconomic imbalances shift as surplus countries

boost domestic demand and debt-laden deficit economies adopt a more austere approach.

Highly indebted developed country consumers won’t have the same level of demand for imports

But domestic demand will increase in middle-income countries, particularly the larger emerging markets.

Higher rates of developed country savings may lead to increased international capital flows to emerging and developed economies, particularly in Asia

Over the longer term, the impacts of climate change will demand a serious response, which is likely to impact upon many aspects of the global economy.

How is the Thai economy positioned today? Strong financial sector: well capitalized banks, low NPL

ratios and lack of exposure to complex subprime related derivatives.

Robust external financial sector: low level of short-term debt, good export growth record, ability to attract capital flows, reserves at more than 8 months of imports.

Robust external trade sector: good export growth, diversification of products and markets.

Despite this, GDP to contract by almost 3% in 2009. Exports fell 8.9% in the last quarter of 2008; the World

Bank had predicted export growth of 3.0% - and the fall in exports is better than in most other Asian economies

Tourism inflows down by a quarter in Q4O8-Q109

2 stage government response

1. Short-term stabilisation: transfer payments and subsidies to poor; SME financing support; exporters support; tourist sector support

- delivered through Sufficiency Funds, SME Bank, EXIM Bank and other agencies

2. Medium-term support: large increase in public investment infrastructure (transport and water)

• If the external environment will be very different, how should the long-term strategy take account of this?

• What might a ‘new economy’ that seeks to maximise public benefit as described, look like in this context?

The key features of a ‘new economy’…

Are easy to imagine and to describe. It would be one that:

Generates sufficient income growth to eradicate poverty as rapidly as possible

Distributes the proceeds of this growth as equally as possible across the population

Creates the conditions where human well-being can flourish and all have an equal opportunity to lead fulfilling and meaningful lives

Achieves these outcomes in a way that is compatible with long-term environmental sustainability and achieves a lasting balance between these objectives.

But far from easy to achieve…

External refocus

Over-reliance on the external sector creates fragile development due to its instability

Lower demand in ‘big 3’ will induce change Exports could be reoriented towards final consumer

in China, ASEAN and other emerging markets Requires more value-added production Which requires better and more equally distributed

education and appropriate skills A concerted investment in education and skill is a

‘win-win’ - it would also reduce inequality and boost domestic demand

And internal integration

For demand not to just suck in imports more production for the domestic economy needed

Focus on supporting SMEs key, but could be strengthened by linking to an ambitious education and skills development strategy

Domestic supply could be strategically developed to meet domestic demand, and to further develop the supply chain for the export sector

The SME Bank is ideally placed to take the lead, building a human capital development strategy along its strategic support for SMEs at the local level.

* But development for social value and human well being is not only about growing economic activity…

And community-development

Being able to actively participate in a vibrant community builds social value and well being

The autonomy to determine and pursue one’s own goals is equally important

The Sufficiency Funds established at village level are the ideal institutions to combine these goals and to fund and facilitate community-led investment that leads to equitable and environmentally sustainable outcomes

* But can we measure, monitor and drive up ‘social returns’ in the same way we do with financial returns?

Building local ‘social value’

The social return on investment (SROI) methodology developed by nef measures social value from the perspective of key stakeholders

Value is related to desired outcomes and a monetary value is ascribed to this creating a social return ‘ratio’

SROI is about value not money, but monetisation creates a common unit of account, allowing different options to be compared for their ability to create social value.

It can be used to assess prospective projects before (predictive) or afterwards (evaluative)

SROI is a powerful tool for developing and improving interventions that maximise social value - crucially value is based on what matters to people and communities

National well being

Academics have studied the measurement of what is often called ‘life satisfaction’ or ‘happiness’ since the early 1970s: every year since 1976, levels of happiness in Europe have been measured.

It is only recently that the science of well-being has developed to the point where rigorous, thorough assessments of people’s well-being can be attempted

These separate out different aspects of well-being, and that allow policy makers to begin to consider how their policy areas impact on well-being as a whole.

In 2007, nef constructed the first National Accounts of Well-Being use this data to explore the pattern of well-being in 22 European countries.

Interpreting the results

Measures can be generated and analysed at each level of the hierarchy

This allows comparisons between countries as well as within countries (e.g. between different age groups or income groups).

The table shows an example of this, by looking at the ranked scores of countries for the two top-level indicators (personal well-being and social well-being).

Studying these patterns can help policy makers identify where to focus their efforts.

Personal Social Denmark 5.96 Denmark 5.89

Switzerland 5.80 Norway 5.77

Austria 5.61 Spain 5.58

Norway 5.61 Switzerland 5.52 Finland 5.52 Sweden 5.44

Ireland 5.50 Ireland 5.37

Sweden 5.45 Portugal 5.31

Netherlands 5.33 Netherlands 5.30

Cyprus 5.30 Finland 5.26 Belgium 5.16 Austria 5.13

Germany 5.14 Hungary 5.10

Spain 5.12 Cyprus 4.93

UK 5.07 Belgium 4.92

Slovenia 5.04 Bulgaria 4.91 France 4.97 UK 4.90

Poland 4.79 Estonia 4.90

Estonia 4.71 Germany 4.88

Portugal 4.52 Poland 4.83 Slovakia 4.50 France 4.80

Hungary 4.41 Slovenia 4.78

Bulgaria 4.30 Slovakia 4.64

Ukraine 4.30 Ukraine 4.61

Conclusions

Thailand is uniquely positioned to build a new economy that meximises social value and human well being for five reasons:

1. The focus on balance has long been a feature of Thai culture2. An interest in different forms of value beyond the straight financial

also has deep roots3. The desire to live good and fulfilling lives that enhance well-being

at the local level is at the heart of the philosophy of Sufficiency Economics as developed by His Majesty the King.

4. Also, Thailand has long been a country that is relatively open to the world, ensuring that balance could be maintained between domestic social and economic development and international engagement

5. Finally, respect for the natural environment is a thread that runs through Thai history and culture, creating the possibility of a truly new economy, one which genuinely balances economic social and environmental goals.