Shareware Beach

Wednesday, 2 January 2008

Living Costs and Living Standards

Filed under: Life & The Universe — Jan @ 18:06

In a comment to my previous post “Lifestyle Company“, I was asked if I’d be able to live like this in a country with higher living costs than Thailand. This actually implies two questions. First, is there really a difference in cost of living between developed and developing countries? Second, do you need to live in a cheap place to be able to focus your small business on quality of life (for all involved) rather than making ever more money? Today I’ll tackle the first question.

I lived the first 24 years in Belgium, just because I happened to have been born there. Belgium is very much a first world country. A European welfare state with “high cost of living”.

Five years ago, I married and moved to Thailand, my wife’s native country. Though Thailand has made a lot of economic progress the last few decades, it is still very much a developing nation, with a reputation for “low cost of living”.

But exactly what is “cost of living”? To put things a bit in perspective, let’s consider the living situations of Joe and Somchai. Both have university degrees and work as 9 to 5 computer programmers. Joe makes $5,000 a month in the USA. Somchai braves the traffic in Bangkok for $1,000 a month. And that’s after the dollar’s dramatic decline the past two years.

If we determine cost of living by how much Joe and Somchai spend, we’d find the US to be five times as expensive as Bangkok. And before you say that’s no way to compare cost of living (of course people spend what they have), it is exactly how most cost of living comparisons are made. Except that they do it in a roundabout way.

Studies compare the average cost of all sorts of items that people buy in both locations, add it all up, and then declare the cheapest place. But they don’t compare the same products. You can’t compare “US food” with “Thai food”. What is “food”? Is it corn-fed beef and hydroponics vegetables? Or is it a pack of instant noodles? Do you buy fresh fish in an air-conditioned supermarket, or do you buy hopefully fresh fish from a stall in a sweaty roadside market? People will buy the food that they can afford. Joe will stick up his nose for some of the things that Somchai considers normal. Joe will spend more on food just because he can. Food prices in his area will be higher, not because the place is expensive, but the people who live there are expensive. People who can afford the best want the best. I certainly do. Too-cheap-to-be-true sellers go out of business. And on the flip side, Somchai can live much cheaper, because a lot of people have to make do with even less than he does. Did you know that the Thai variety of the giant dung beetle is threatened with extinction due to… overconsumption of its larvae?

To make a real price comparison, you not only need to compare oranges with oranges. You need to compare big, juicy, chemically-treated-to-make-them-more-orange oranges with the same. How much does Somchai pay for a Big Mac? Pretty much what Joe pays. How much for a grande latte with cream at the Starbucks near his office? Same outrageous price. The Starbucks in the mall near our house looks deserted most of the time.

In fact, luxury items are typically more expensive in Thailand than in the US. If Joe wants to a digital SLR, he’ll buy the E-510 with two lenses at Amazon.com for $650, with free shipping. Had Joe wanted to be first in line when the E-510 came out, it would have been $990 MSRP. If Somchai wants the same, the Olympus shop at Pantip plaza will laugh at the suggestion that there exists a two-lens kit. The one-lens kit is $850 MSRP and the extra lens is $250 MSRP, just as it was when the E-510 was released.

Because of low sales volumes, I presume, the Thai distributer only imports the kit with one lens. Shops don’t feel any pressure to discount on high-end items that most other shops don’t even carry. Amazon.com doesn’t ship cameras outside the US. Some US online retailers do, if you can convince them you’re not a thief, and if you don’t need a warranty that’s valid in your own country. So I paid full price for my E-510 with two lenses.

The short answer is that there’s really no difference in cost of living from one place to the next. The real differrence is in standard of living. People who earn less simply have to make do with less. But Somchai doesn’t complain (much). He’s glad he has enough so he can send some money back home to his parents in Isan every month, who only manage to survive on $100 a month because being farmers, they can eat their own food. They don’t get their protein from corn-fed beef though.

So before you complain that you lost your job because somebody else enjoys lower living costs, you may want to think for a minute about how they live. Would you be happy living like that? I know I didn’t reduce my living standards when I moved from Belgium to Thailand. As a result, my living costs stayed pretty much the same too. Some things are cheaper, while other things are more expensive. Whether Belgium or Thailand is the better place to live really depends on what you like and what kind of person you are.

Think about it. Suppose I found that I could buy certain stuff here at one fifth of the price that the exact same stuff costs in the US, just so Somchai could afford it? I’d buy a container full of the stuff, ship it two the US, sell it at 100% markup, and still be 2.5 times cheaper. Two months later, the guy next door takes notice, and does the same for a 50% markup. That’s what we call “globalization”.

The only thing where real price differences exist is time. Somchai’s plumber likely charges only a fraction of what Joe’s plumber charges, for the same hour of time. But for most people, that’s a double-edged sword. Somchai himself only gets a fraction of what Joe gets for the same hour of time. While the world has a WTO to ensure the free movement of stuff, there’s no free movement of people. And if Somchai did win the green card lottery, he’d only use it if he could get a well-paid job just like Joe, and enjoy the same standard of living.

There are many valid reasons why somebody might want to move from a developed country to a developing country. But cost of living is absolutely not one of them. Do not believe that you can live in Thailand like you live in the West for (significantly) less money. If you expect to live on a Thai budget, expect to live a Thai lifestyle. Depending on your personality and outlook on life, living with less can certainly be a happy choice. But that is not the choice that I made.

2 Comments

  1. I’d like to preface by saying thank you for responding in such detail, I wasn’t expecting such a long post.

    I think you’re ignoring that cost of living may include a lot of things you don’t want or need. Things that may not affect your standard of living, but you’re paying for anyway. I think much of it stems from a desire for security, a demand that increases as a country becomes wealthier (the more you have to lose…) The country I live in (the USA) is a prime example of this. The current wars, the huge numbers of lawyers and lawsuits, the large bureaucracies dedicated to regulating the quality and safety of consumer products, all of them stem from a desire for security. Directly or indirectly, I am paying for them through taxes and higher cost of goods. Although they don’t always add to my standard of living (sometimes even detracting from it), they do add to my cost of living.

    I do appreciate some of the security, but I think it has gone too far, and I’m paying for far more “security” than I want. A certain level of security is appreciated, but it has gotten to the point that it exists not to protect, but to feed itself.

    If your cost of living is the same in Thailand as in Belgium, I’d expect your standard of living to be somewhat better. For the same price, you may have traded some intangibles you didn’t care for in Belgium for things you do in Thailand. Of course, this will vary from person to person, so maybe it was foolish of me to ask my original question.

    Regarding the cost of time: “But for most people, that’s a double-edged sword.” This is what particularly interested me in your business and the reason for my original question, because I think one side is duller than the other in your case. You may be paying for others time at the local cost, but you don’t have to sell your time at the local rate. And although globalization may bring prices down, developed countries have been working with and developing software longer and so for the time being, they have an edge.

    Comment by Paul Miner — Thursday, 3 January 2008 @ 0:02

  2. I was talking about general comparisons of average living costs and standards. You can’t say, in general, that life in Thailand is cheaper in the USA because there’s less lawyers to pay for, without also saying Thai people have less legal resources at their disposal than American people.

    If you don’t care for an expensive legal system, you can indeed choose to move to a place with a more basic legal framework, and spend the savings on things you do care about. And that will increase your personal living standard, as viewed through your personal preferences.

    The key point is that if you were to move, you’d be making a trade, not get something for nothing, as trade unions would like people to believe when they decry offshoring and outsourcing.

    I’ll talk more about cost of time in my next article.

    Comment by Jan — Thursday, 3 January 2008 @ 15:27

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