Wednesday, November 26, 2014

Race & The Nation

A nation is made of many races, in any country. There is no country in the world that is absolutely homogenous. The homogeneity is usually borne out of symbiotic association.

The Chinese are a race of many different dialects, who have graduated from calling each dialect a race and consider all dialects to be Chinese, although one really cannot understand what the other is saying. If left to themselves, the Chinese would have fought among themselves over their dialects. And they did.

I am sure that this aggregation of convenience occurs among the other races in Malaysia, although I will not delve into them.

Except to mention that in Sarawak, it will do the indigenous people much good if they are willing to subsume their individual language under a larger agenda. But the way things are, given the education system, it will be that Malay will dominate as the national language and everyone else has to speak plus English. There is much to be said however about the preservation of ethnic cultures of all language/dialect groups in the nation, if only to remember the roots of where we all come from.

But looking ahead in forging the identity of the nation, it will do well that the Nation has an identity that is a composite of as many of the key and good elements of all of us.

We have already seen the successful amalgamation of religion with race, whether the key identity of the race is religion. But even then, with the religion, not all races are the same. In other races, we see of religions being practiced within a race. This integration of various elements in a race occurs naturally according to the fancy of each individual of each race and therefore cannot be stopped. To do so will be to ostracize an individual as an outsider and not be a member of the inner fold.

A political party therefore is no different from a club whereby membership requires a fee and there are benefits to be derived from being a member. How the nation has been and is being divided is that the holders of positions in the club stand to be elevated so that command by the club over the whole of society can be maintained, with the club imposing its values on everybody.

The club is as good as what it can deliver to its members. If the club fails to deliver to its members, its members will leave.

Other clubs will also rise looking for members, peddling probably the same old stuff of the old club but with a twist - that new members have a chance to be part of the core team. The community therefore splinters into different groups.

But what is the catch for everybody? It is nothing but money and wealth. It is telling that one old guard could declare since we have not managed to make everybody a millionaire, at least we have made a few people billionaire, including himself and his friend, of course. It is all about money.

It is of course true that everybody is in it for the money. You and I and everybody else, because this is the construct of our present society - that we need money to survive. But money for wealth sake is an entirely different kettle of fish - it is about greed and jealousy and domination.

So it is therefore no mystery why politics is couched in racial terms as a means to obtaining the monopoly on wealth. It is about the distribution of wealth. Wealth distributed through projects and it is not surprising that public projects are big projects financed by debt, and this debt is to be reduced by extracting as much as possible from the general public in terms of taxes and reduction in subsidies.

The distribution of wealth in this country is therefore a direct result of the government policy to redistribute wealth directly, at the expense of growth. This policy is leading the nation downhill. When an elite can be made rich and the rest should pay for it. Those who are poor will be given handouts in order to keep them quiet.

The key to economic prosperity is always through economic growth. Through savings and investments and hard work to make a success out of their ventures. It will be a combined effort of skills as well as acumen in business to know the business terrain and to compete. This is what makes a nation tough. But a government that looks jealously at the successful businessmen and say I must have a share of your success without your losses is a recipe for national failure.

Where is the entry point for young people into the economy when the government creates companies that dominate the economy. The structure of the economy is fixed by the politics. The rest, if they want to succeed, must go underground to create an alternative economy.

The obsession of wealth distribution over economic growth leads to the result that is to be expected. That wealth will be distributed and growth will decline.

It is a perverse strategy that to try to keep the economic growth up, the government brings in a foreign third force - foreign direct investments, after having stifled local direct investment. The success of local direct investment will be seen in the form of local physical assets and hence a display of wealth which jars the eyes of politicians. Foreign direct investments merely take their profits out, leaving behind a skeleton physical structure which they are always willing to let go. And the building of infrastructure for foreign direct investment is paid for by the general public in the form of taxes and reduction in subsidies.

With everybody now quite comfortable with handouts, small businesses suffer a shortage of manpower and the only solution seems to be to import foreign workers. There are now many foreign workers, which is leading to a second wave of immigration (issue of citizenship yet again). I should think this second wave is good for the nation, in terms of economic growth. Whether it is good for racial politics or not is something that is left to be seen. We really have to think seriously about our nation.

Monday, November 24, 2014

Friendship & Entrepreneurship

In this digital information age where information is a commodity and social networking is the new frontier for friendship, the question I have is this: Is it possible for this new form of friendship to be a major force in the new economy that we are trying to invent for this brave new digital world of ours?

The first thing about this digital world is that we can be instantly and constantly connected at all times - if we want to. Most of us imagine that this constant contact is the best thing that can happen to the modern person or to all modern persons. I can call you at any time and you can call me at any time. What can we possibly say to each other if we are constantly talking to each other, and not dedicating ourselves to doing something else so that we can report new stuff to each other. It is as if gossip can in itself generate new ideas (possibly) or information (possibly not).

Constant contact can generate new information only when we are simultaneously trawling the net which therefore means that we are then susceptible to be baited on the net, because we belief the net to be the best source of information.

I would not imagine any clever person using the net to deposit new ideas (not necessarily innovative ones) which no one has ever thought of before (except probably this blogger who, by definition, means he is not so clever after all). It is therefore foolhardy to therefore be on the net all at times in the hope that somehow, somewhere a gem will float out from the screen like a genie out of the bottle which then asks: What do you want me to do for you?

It is therefore likely that what you will get from the net is what economists call "arbitrage" - the opportunity to bridge values or prices in different places because of time difference or local knowledge gap. So the person who gets the information first will have the advantage of acting with "insider" information, so to speak. (Like what David Ricardo did using pigeons to bridge the information gap on stocks between UK and Europe.) But then if you are getting information from the net, so would everyone else on the net as well, and therefore you would have that first advantage. You have serious flaw in your networking and information system.

The way to play this information-as-commodity game is to take at least a first order differential on the basic information, if not a second order differential. You have to process the basic information. Processing requires theoretical knowledge, some hypothesis or theory, or an insight into how the reality actually works.

This is why we all have to go to school to learn the old ways of thinking, to learn how to think differently from the old ways and from others present, and to take leaps in our thinking and vision. We have to learn to stand on the edge and learn to have the courage to take a deep breath and dive into the unknown, oblivious of what the crowd at the back are saying how stupid you may be.

Courage is borne out of conviction and conviction comes from knowing what you know, and knowing what everyone else does know. Conviction is a lonely journey inside oneself which culminates in an act of determination and persistence. Conviction is the product of hard work and deep thought. It doesn't come from chitchatting.

But new ideas can come from chitchatting - with different minded people. You are comfortable only with your own kind, then you might as well talk to yourself; you are a comfort junkie. But if you want new ideas, talk to people with different ways of looking at things. These different people make you uncomfortable, because it is hard to listen to different ideas without wanting to shout them out first. But once you are comfortable with different ideas, you can't bear to listen to copycats (people who copy ideas learned from the net). You hear music from different notes.

I am apprehensive when I hear people say they want to be entrepreneurial but are unable to accept different views or see things in different ways. The problem is often comprehension. A statement can have multiple meanings in normal language, unless you have couched the whole statement in legalese which has covered all angles and tied up all loose ends. A common sentence is often ambiguous or imprecise - it requires a "you know, I know" kind of nod to affirm that we are on the same page and on the same line. Otherwise, it is easy to quarrel, if we are looking for acceptance. I would rather use this ambiguity as a source of inspiration for new ideas.

So, for this little piece, I merely want to make the point that by playing with your mobile the whole day every day until forever, you are not likely to become an entrepreneur. An entrepreneur makes and sells things. You on the mobile is a consumer.

Monday, November 17, 2014

Modern Guillotine

Now, we have a state in our great Nation that proposes to chop off offenders' limbs for crimes which are now considered minor by modern standard, such as stealing. I do not like people stealing from me, and I certainly do not like to see their hands chopped off for that either. For all I care, I could have also been inadvertently stealing from others, such as ideas, and I certainly do not like either to have my head chopped off.

Total elimination has always been the simplest method for solving problems by people with little ideas and no compassion. The cruelest punishments are devised by people with the more devious minds, those who cannot imagine why others can resort to desperate acts. It is unfortunate to have to live in a society where desperate acts are common, for it must mean life is very hard for many. It is the duty of the leader of the state or the nation to think of ways and means to lighten the burden of people who cannot help themselves except to do things that they know society despises them for.

I don't think it is ever possible for society to be homogeneous for long. Imagine a society that stays the same forever, doing the same thing day in and day in, year by year, decade by decade, century by century. Japan may immediately spring to mind. But Japan is last of the feudal states of the world, and look at what desperate acts it had chosen to undertake in the name of survival, not just of its neighbours but also of its own people. In the end, everything boils down to the preservation of an old institution which has refused to change in the face of change. Everything else must adjust to it.

Ancient philosophers had taught us that it is possible to build a society of civil people where stealing does not exist, not because people are not hungry but because people are honest. They may not have to beg, but people will give. In this world of economic exchange, the market is a devise constructed whereby it is encourage that people should exchange things which they have too much for what they want, even if among perfect strangers. But this thesis presumes that outside the market, people do exchange because of their kindness and their friendliness and their attempt to be nice to each other. In olden days, this friendly giving is called charity; now, it is called corruption.

In this world of polarity, we think in terms of black and white. This is how the world has been mostly explained, so far that my books tell me. Positive or negative, yes or no, male or female. One is unity; it is also stagnation. Two is the minimal that is required to exchange motion, dynamics, and hence the rest of the world with its myriad manifestations. I am more inclined to think in terms of spectrum and distribution, whereby everything exists, in all its infinite realities, but it varying quantities. Amidst this natural spectrum, we are not likely to see black overwhelming white, or light overwhelming dark. The world is as it is without domination; thereby without elimination or annihilation of others who are different from you.

It is of course for self development and self improvement that one chooses to cultivate oneself in a certain direction. While I think think of the good stuff that one can try to cultivate for oneself, I can also imagine situations where individuals simply mutilate themselves to look different. I have nothing to say to them except to have fun. To each his own. But be restrained, very restrained in doing it to others.

This great Nation has seen the modern guillotines operating in many spheres of our daily lives. You cannot be involved in this economic sector and hence cut off because you are of the wrong race or religion. You are cut off from government funding because you are of the wrong r&r. You are not allowed promotion because you are of the wrong r&r. You cannot think these thoughts because they are seditious, even though you are peaceful. It is therefore not a great surprise that we should come to this frame of mind, to think it is even now in this day and age quite all right to chop off someone's limbs, as a matter of rule. Is this law?

Tuesday, November 4, 2014

Creating Expectations

I wish to suggest that this government has finally managed to do what most economists feared most in realty - the creation of inflationary expectations and following close by expectations of handouts in the face of the policy of reducing or cutting subsidies.

It is a sign of poor policy formulation and implementation (in lieu of a more accurate single word which I think is not so polite to use in public disclose) that a simple idea that requires a clear decisive action is being dragged out along a long series of half-baked pronouncements which nobody in the world understands what they are all about.

At the root of the whole debacle is politics mixed up with bad economics.

The fundamental issue is that the oil money is running out, but how much and how fast is a question that needs to be properly answered. The days of roses are over. The old prime minister has resigned and is smiling. The fundamental economic policy is government mega projects to stimulate the economy (which is a junk idea) funded by borrowings which are now hitting their limits. The proposed solution is that there should be more mega projects, but the government deficit to be reduced by increased government revenue sourced from the GST and the reduction of subsidies. This is pure static analysis.

The dynamics of the reality is that increase fuel prices is working through the economy like wild fire. The transportation industry is the first hit, which quickly translated into all goods and services that have to be transported - which is everything. The Ministry of Domestic Trade, like a poor midwife as the baby's head is showing, tries to hold the head and all prices as long as possible, with danger being put on the life of the baby and the economy. The formal pricing system does not work and everybody tries to work around the formal system through the black market. Smuggling becomes rife, and the customs are now into the game to catch the smugglers, but not the culprits.

While all these are happening, the big announcement came that the 6% GST will be implemented on April Fool's Day in 2015. This is the straw that breaks the camel's back. There are now no holds barred. Everybody now comes out to say that they cannot hold on to the old prices any more. Price adjustments are proposed to be as large as 40%. These proposed price adjustments are what we read in the papers. In realty, these are price increases already happening on the ground. There is no way that any one government agency can supervise every nook and cranny of the country, unless we transform ourselves into an authoritarian state. The reality is that price adjustments have already taken place on the ground as a result of the multiple sequential announcements of price increases on inputs. It just requires so much time for the government to accept formally that these price increases have in fact taken place.

Against this series of announcements of price increases for inputs, the politics says that the poor must not be unduly affected. This brings forth a series of announcements on livelihood support entitlements for the poor. Everybody is poor if they are in the right constituents. The poor wake up every morning asking where is my next entitlement coming from. It is a full time job receiving entitlements, for you have to register yourself and your family, and you have to queue up to receive. You now cannot concentrate on working hard to survive. There is a greater certainty in receiving the handouts, as they are a steady flow. The creation of expectations of entitlement is always dangerous for it creates dependence.

I would suggest that the third force that is going to take this country out of the quagmire is for this government to create the expectations among the private sector that there are opportunities in this country for making money. The quality of the management of our financial system is debatable. We have no special qualities, and we justify everything here by saying that we are a small open economy which we cannot possibly insulate. So, as with the rest of the world, we enjoy asset inflation in real estate, we welcome foreigners to buy up properties and push up and hold property prices at high levels - thanks no doubt to our weak currency.

The property market now is at a stalemate. This is the clincher. Of course, local interest rates will rise, "in line with the rest of the world." The US and Europe are hesitant. But the US economy seems to be doing better, thanks to fracking. We are at the inflection point of the QE. How strong are our banks? As strong as their reserves. How much reserves. As much as their exposure to real estate.

The management of the loan books of the banks, no manner how big or small, depends on their ability to diversify them out of real estate and into entrepreneur activities. Where these entrepreneurial prospects lie is the problem and challenge for everyone, not just the ordinary citizens looking to a future at home, not just the bankers hoping to diversify their loan books, but also the government policymakers who are being entrusted with the responsibility of charting out the future of this country, "from middle income to high income."

The excessive focus of policy, and the media, on politics and religion and everything that is unhealthy and unsavory is detrimental to the future of this nation. There is simply too much politics in public life. There should be greater focus on economic and business opportunities in this country, and how these are being promoted for the general public. Instead, with very nice announcements, we are subjected to minions in government agencies acting big because their non-attention can be detrimental to you, and there is reward for doing bad jobs. You get bribed or you get promoted out.

The current focus of the government on its mega projects to get the economy out of its hole is only self-serving, with no benefit whatsoever to the general public on how to earn a living.

It should not be surprising that, in this tough environment, the desperate are reacting badly to their daily conditions in order just to survive the day.

There is much that the government must do for this great country of ours. But, first and foremost, the government must manage the expectations of society so that we can begin to invest in our future knowing that after all the hard work, there will be light at the end of the day. We have to contain our inflationary expectations, kill expectations of handouts and entitlements, and improve our expectations that there is a future for us through hard work, not playing politics and stealing from others.

Monday, November 3, 2014

Creativity & Dogma



I must say I am greatly pleased by the reprinting of this classic book by Edward de Bono on Lateral Thinking now entitled "An Introduction" after all the years of elaborating on the teaching of the concept, as opposed to the original title of "The Use of Lateral Thinking."

Lateral thinking is as opposed to vertical or logical thinking. In vertical or logical thinking, the whole argument is built upon a particular premise which, in a broad perspective, must be seen as arbitrarily came upon in the first place. From that one premise is built the whole gamut of logical conclusions of various types and eventually ending up with the ultimate extreme logical conclusion. Philosophers are familiar with the situation when logic, taken to extreme, is reduced to absurdity.

de Bono cited the case of the science of physics when physicists felt utter confident of themselves thinking that they really had attained the full knowledge of the physical laws of nature until Einstein came along which then threw the physicists into a tailspin and the realisation that the study of physics was only starting for real.

The same application of logic taken to extreme would apply to all branches of knowledge including branches of religion which claim to have a logical fundamental premise. The clinging onto a single basic premise and the building up of the whole infrastructure of logic to support ultimate conclusions must, in the extreme, lead to absurdity when the conclusions can no longer be supposed by facts and the observations of reality. This is pure dogma.

Lateral thinking seems to challenge the fundamental basic premise used in any branch of knowledge, and to explore alternative basic premises in the hope of discovery one that is most useful for explaining the world as we currently observe it to be, or the beginning of a better understanding of the world or where we as human beings are in the world. de Bono likens this search to the oilman who dig holes in different locations in the hope of discovery more oil, rather than digging deeper and wider a single hole. I would liken the exercise to the venture capitalist who is looking for projects that will give supernatural returns, and the venture capitalist must spread his investments among many projects in the hope that even a small handful of successful projects will be worth his troubles.

In Malaysia, we are fighting a hard and battle to stimulate some form of creativity in our cultural and living environment in the hope that this economy of ours can stand on each of our own two feet, before we finally run completely out of oil and gas to comfort us. There is now the changing climate in education where English is now slowly reclaiming some of its rightful ground as a medium of instruction so that our children can learn to read works of knowledge in their originally written language. There is still plenty of work to be done for creativity to reign in our society. Perhaps we need to think laterally as we fight age-old dogmas and rigidity of minds promulgated by the uneducated and unlearned and the ignorant.

Monday, October 13, 2014

Malaysian Budget 2015

1. The first question is whether the overall Budget 2015 is going to be expansionary or contractionary on the economy? Is the government sucking money out of the economy or is it putting money into the system? The answer is obvious since this is widely acclaimed in the local newspapers that Budget 2015 is good because the government is going to cut its overall deficit from RM37.3 billion in 2014 to RM35.7 billion in 2015, a reduction of RM1.6 billion. We can say that Budget 2015 will be contractionary on the overall economy by this amount of RM1.6 billion.

The government will be taking out from the general public RM10.1 billion in tax revenue while increasing its spending on operating expenditure by RM2.3 billion and development expenditure by RM6.2 billion.

2. Where is the critical assumption in the whole calculations in Budget 2015? The trick is in the GDP deflator. The government expects the headline inflation (the CPI) is expected to be 3.4% in 2014 and about 4% to 5% in 2015, because of the 6% GST and the cut in fuel subsidy. The GDP deflator is assumed at 4.2% in 2014 and 4% in 2015. With an economy that is expected to grow by 5% to 6% in real terms, it is not surprising that nominal GDP will grow by 10.2% in 2014 and 9.4% in 2015. All these inflationary effects are very good in lowering ratios of nominal debts in nominal GDP terms.


3. There is clearly a shift in direction from direct to indirect taxes. The attempt at avoiding the entrapment of average salary earners in obsolete income tax brackets is to be applauded, principally because salaries have been unable to keep up with rising costs of living and the escalation of property prices. Personal income taxes are reduced by 1% to 3% points to take into account contemporary income levels.

4. Corporate income tax is also reduced by 1% to 2% points. This may not have been necessary. Corporates are among the richest entities and foreign ones do not even have to pay tax.

5. Bumi Agenda. It is heartening to see the government's relentless pursuit of the bumi agenda. It is good to see help to the needy. But it is also strange for a government that is concerned with inclusiveness and private sector growth to neglect any section of society which may also be in want of assistance in entrepreneurs. The Budget even has encouragement for foreign start-ups in Malaysia with one year work pass. I hope I am wrong, but there seems to be a serious gap in economic thinking.

6. In general, I do not have much other complaints. There are lots of little smatterings of everything all over the place. In economics, these are considered marginal adjustments. The big item is the GST. Let's see whether that will bring the economy up to speed.

Tuesday, September 23, 2014

Independence: Scotland The Great

The Scottish referendum on independence was a show of the greatness of the Scottish people.

No where on earth have we seen a referendum that was so intense and yet so peaceful, except for a few scuffles on the Friday evening of the counting. In an imperfect world, it was as ideal a demonstration of the proper practice of democracy as we can even imagine that a group of people can perform.

We saw people from both sides debating the pros and cons of independence for Scotland, with great emotion and with great restraint.

The argument for independence for Scotland, as with the argument for independence for any notion of nationhood, is a highly emotionally charged one. Who does not want to be independent, to be the master of oneself, not to be controlled by someone else? It is this very notion of being the master of one's own destiny that is so at once romantic and so compelling. It is this very notion that now drives many other states to try to split from a federation or a union, in order to again a sense of freedom and liberation.

The argument against independence and for Scotland to stay within the union of the United Kingdom is an argument of great economic practicality. It is the economic argument that has created the European Union, for example, and that is pulling more states in peripheral of the EU towards the union. Most people want to be part of a bigger economic bloc so that ordinary people can also find good jobs outside their homeland. This is economic freedom. Which also means that there are people in the homeland who do not find jobs, and therefore blames the union of their inability to find something decent to do at home. If creating good jobs at home is easy, jobs can also be created while within the union.

Unless, of course, we are talking about some macroeconomic policy changes, the biggest of which is the currency which must be devalued in order to make the homeland more competitiveness, which then of course devalues the wealth of the rest of the population and since the unemployed is only a small fraction of the population, there is overwhelming argument against independence because of the currency issue.

The pro-independence camp arguing that the economic uncertainties highlighted by the other camp is pure fear mongering, which is incorrect. The economic uncertainties are real, and I think it is the reality of the economic argument that finally won the day over the romanticism of the political argument.

This is true of almost every country on earth where democracy is properly practiced, that the prime concern of all citizens is the day-to-day reality of survival and earning a living, and with it the importance of proper education, and law and order. In any union, therefore, the pulling force lies in the soundness of national policies, their fairness or "social justice" as the Scots said recently. It must be this sense of fairness in the treatment of all citizens that people feel they truly belong to the place which they were born and not be rejected considered as weeds in a monoculture plantation.

The greatness of the Scottish people, as shown by the recent referendum on independence, is that they give confidence that level-headed and rationality can prevail even in a highly contentious situation. Bear in mind that the Scottish mind is probably one of the most enlightened of the human mind, which gave birth to the idea of independence of the French Revolution which the French then exported it to America. For economists, of course, the greatness name is Adam Smith who fought for economic freedom for all people and nations. And David Hume who gave the idea of rent and rent-seeking, as well as the marginal returns to land. There are many more.

The greatness of the Scottish people is their elevation of mind from the primitive and irrational to the rational and disciplined. May the whole world learn and follow.