Tuesday, March 24, 2015

Lee Kuan Yew

Lee Kuan Yew died yesterday at 91.

Lee Kuan Yew fought for independence for Singapore from the British which, together with Malaya, Sarawak and Sabah, created a new federation called Malaysia on 16 September 1963. He also fought for the independence of Singapore in Malaysia and finally got in on 9 August 1965 when Singapore was ejected from the Federation. The story of the development of Singapore after 1965 is the story of the greatness of Lee Kuan Yew.

The economics of the development of Singapore was fairly simple. Singapore has not much natural resources, so agriculture was not the way to go. The first means of survival was the development of the entrepot trade where Singapore became the hub for all shipments from Malaya, Sarawak, Sabah and Indonesia with the rest of the world. The development of the port was paramount. Singapore also built its economy on tourism with its duty-free shopping and the promotion of the charm of Singapore. Lee Kuan Yew made Singapore pristine for tourists. The next major stage of development was manufacturing, and capital was brought in to create high-paying jobs. Alongside that was the development of Singapore was an international financial centre, which took advantage of the management of money from Malaysia and Indonesia. He did not favour the current push of Singapore into the casino industry.

Lee Kuan Yew built Singapore on its comparative advantage of a strategic position in Southeast Asia, and created a rich and modern nation with its world-class efficiency, something which Michael Porter has coined as competitive advantage.

World-class efficiency is an excellent thing in the abstract because it is about everything performing like clockwork. For the whole system to work exactly how it was designed and to produce the desired results, no one is allowed to think or do otherwise, without threatening to destroy the system. Efficiency means everybody is taken care of, with a basic pay and housing and social amenities and an education system which is good meaning that it feeds into the operating system. No thinking outside the box.

Singapore's problem is what do you do after you have hit full employment. Economy theory says you have achieved your policy objective and therefore you should relax.

At full employment, the policy objective then switched to the corporate objective which is to sustain the rate of growth of profit. In political terms, this objective is translated as GDP growth.

It was nor should it be surprising that the People's Action Party (PAP) has made sustaining the GDP growth the raison detre for its continuing mandate to rule Singapore. For the economy to grow after full employment, there is a need to import foreign workers and professionals. This deliberate infusion of more foreign people into a nation of migrants creates a new dynamics which the government of the day has to try to resolve.

The important point is that if sustained GDP growth is important for Singapore, then Singapore must find a way not to view the new influx of people as foreign workers but as new citizens. This, to be fair, the Singapore government is doing. But the newer people are in newer industries which are necessarily more productive than the older industries that the older citizens are stuck in. Herein lies the folder for the opposition. The important for Singapore today is the reconciliation and resolution of the generational gaps of migrants in Singapore, in a city state that is made up of migrants.

In this perspective, one must give very high marks to Lee Kuan Yew for having a vision and delivering that vision for Singapore and Singaporeans. He was focused and steadfast and the system he created was efficient in delivering his vision. In management terms, Lee Kuan Yew was an effective leader and an efficient deliverer of his results.

There were and are of course other visions which may or may not share with Lee Kuan Yew's view. This was and is normal. But these different views do not make Lee Kuan Yew's view less correct or less honourable. The test is in the results which were good. The test is in the way he delivered the results, and it was honourable. On all counts, one must give the greatest respects to Lee Kuan Yew for a life well fought and a life well lived. How we all envy him.

Thursday, February 26, 2015

Deduction & Inference

Most people take logic to be objective; but it is not necessarily so.

Logic is just another way of thinking. Logic is the basis for the advancement of science in recent times for humans.

Much of logic, as we know it, is called deduction.

Deduction means that you look at reality, the real world and examine what it is. Deduction tries to discover things as they are. To look hard at what is in front of our noses and what what it is. It is not what you imagine it to be. This is what it is, exactly like this.

Logic and science have a difficult birth in this current civilisation of ours. It was strongly opposed by the religious establishments that ruled the world at the time.

Religions are of great service to manking. Religions bring men and women to the spiritual side of life on earth.

But religious establishments, when they ruled the world, were political establishments. They laid down the rules and laws of how ordinary people should behave in their ordinary lives in order to be religiously correct, and hence politically correct.

All religions are founded on good common human values. Religions exist to make people humble, especially when their circumstances are capricious, when people cannot be trusted anymore. We act as nobodies, humble, unobtrusive, undamaging to others.

The problem with religious establishments is that they stagnant. They go back to the distant past to look for the source of the truth. From that truth, they try to identify the implications.

Inference is from the general to the particular.

Religious doctrines are inferred from perceived religious truth.

The danger of inference is that if the basic proposition is incorrect, then all the derivatives are false. There is a need to check on the basic proposition all the time.

There is inference in science. Once deduction has conclusion on a general proposition, that general proposition is then used as a basis for inference.

Some religious doctrines do get re-examined and revised. Some don't and they stick to what they want to believe.

In a lot of ways, political establishments work similarly to religious establishments. Political parties that constantly revaluate their missions will find themselves better align to the majority of the people. Political parties that rely on old ideas for longevity are fighting an uphill task trying to convince the majority of the people that their arcane ideas are still good.

There is that new trend from the business management gurus who say everybody, not just businesses, must have their visions and missions. This is jolly well and good if you are pursing your own personal jihad or crusade. But personal visions and missions may be at odds with the aspirations of society, especially when one thinks that one has the solution to all problems, and that is to eliminate others who stand in the way of one's vision.

The elimination of obstacles, rather than going round them, seems increasingly to be the way forward.

There is no more resourcefulness; there is now force.

The rise of militancy is now a global problem, caused by the expansion of the military complex supported by the printing of money. Weapons are now being exchanged for oil. Those with money and weapons now pursue higher level of goals, and that is spiritual fulfillment. They try to dominate others.

It is a fact generally accepted in economics that work makes people disciplined and circumspect and encourages respect for others who they have to trade with. Financial independence create arrogance, of people, of nations.

The overplay of the power of politics and religions is a dangerous thing for ordinary people. There is no mercy for people on the other side.

There is a need for discussion and consultation, which take longer time, but it will produce great benefit of understanding of each other, or how other people think and feel, and how we can all live together peacefully. These are simple truths, as fundamental as any religious truth, and which forms the basis of a tolerable life on earth.

Monday, February 16, 2015

Hurray, Not A Net Oil Exporter!

Hurray, it is time for Malaysians to celebrate. We are no more a net exporter of oil and gas as of 2014. So we are not adversely affected by the fall in the price of oil. In fact, we should consider ourselves lucky since our import bill for oil will be smaller, even if our currency is also taking a beating. After all, oil price fell sharper than the ringgit, didn't it.

That is why we must bring the benefit of the drop of oil price to the average consumer. All these greedy sellers are to blame for being so reluctant to cut retail prices when the price of oil drops, while they were very quick to raise retail prices when the price of oil at the pump rose.

Never mind imported inflation. It is only a small part of the economy. Not everything we consumer is imported. We are eat kangkong, right, all grown in the Cameron Highlands where we are now trying to catch illegal immigrants growing vegetables. We don't want illegal workers but we want food production to stay and if possible to go up.

Never mind about the fall in government revenue as the oil price drops. The government will continue to spend regardless. Now, as the government cuts spending by a little bit to stay within budget (?), the GDP growth will fall a little bit. A little bit is not a lot, right?

Forget about the GDP. The government is not a big player. That is why when the government has less revenue, the GDP will fall.

Focus instead on the private sector, the part of the economy that policy is trying to stifle. We are imposing GST on all businesses, as all businesses must register even if they do not qualify to pay GST. It is just one of our attacks on illegal businesses - illegal means not following the law. The government makes the law. The GST will have a little impact on prices. Who says the impact is a lot? In fact, the government thinks that retail prices may fall, because the GST replaces the SST who was a bad tax that the government had imposed on society for so long and nobody really saw that. At best, the impact of the GST on the public and the economy is very little. But the government hopes to collect only RM25 billion which is also not a lot. But good enough to solve the government's revenue problem - which is a little problem.

In fact, the private sector, whom the government always loves, should seize the opportunity of the low oil price and be more competitive and become world brands. Of course, other countries will experience the low oil price but they are not as good as us, right? Our policies are better and we are always looking ahead. We are pro-active. We know what is going to happen before it happens. That's why we remove the fuel subsidy even before the oil price drops. Even the fuel price drops without subsidy.

We have this big plan for the economy and the government is doing everything we can to make sure that the GDP number goes up. You don't have to do anything. Just sit back, relax, and pay your GST.

Everything is going to be all right.

You are all too pessimistic! Ours is such a lovely country!

(My way of chasing the silliness out of the old year.)

Thursday, February 5, 2015

Racism & The Social Good

Everybody relies heavily on their ethnicity and background to identify themselves, to give themselves a sense of identity, a sense of belonging.

In everyday dealings, it is not unusual for people to refer to each other by their background or ethnicity, as a way of trying to place each other in context for further engagement.

Problems appear when insecurities come in.

If a race is afraid that they will be marginalised, they will call attend to themselves in order for some proactive solutions to be made to their particular benefits. This is on the assumption that society at large would not care for them. This may not be entirely true. But this assumption immediately brings into the picture a sense of victimisation. They want the government to institute "corrective" policies to help them.

When the government institutes correction policies on the basis of race, the government has introduced racism as a matter of state policy. State policy becomes racist. When racism is made "official", it becomes "acceptable" for politicians to become racist while denying they are racist because they really did not mean to be racist as racism has crept slowly but surely into his or her consciousness.

We are therefore vigilant that politicians who have influence of policies are enlightened as to what is good for society and that state policy must be good and beneficial for all citizens. We do not allow politicians to behave or speak without thinking about the larger implications for the whole society. Especially, when a section of society is being bamboozled for the benefit of another section.

It is difficult enough to try to help. But it is not acceptable to try to help by down others. The "proactive" racist policy of the state has turned into a blatant racist policy against a specific race. Not intentionally, but somehow an innocent policy has morphed into a mutation.

I would put the blame squarely on unenlightened politicians or wannabe politicians who are desperate for votes and use to race card to clinch their positions.

It in incredible to see in the country how policies are made consistently to exclude the participation of a genuine home-ground "non" group while at the same time welcoming foreigners of all kinds to invest and to work and to live. This explicit segregation is the elephant in the room. It does not help if the government of the day gives excuse for racists while asking those who are being victimised not to bring up the matter anymore.

The correct action is to sack the politician who made racist remarks.

It is not OK for politicians to garner support by playing the racist card. In day-to-day private conversations, race will be an inevitable subject for discussion as well as for sharing, especially on cultural matters. But race should not be a subject for public discourse or definitely not for policy.

Tuesday, February 3, 2015

GST: An Economic Blunder?

The imposition of the 6% GST on 1 April 2015 will raise the price of goods. If not, then the GST will not raise any money for the government. Unless the government is asking businesses to absorb the cost of the tax, a day dream.

The GST has already raised the cost of services, namely, restaurant dining. There used to be no service charges or taxes of any kind. We gave tips. Then hotels imposed a 10% service charge, probably because Malaysians are not good in tipping. Then came the SST (Sales and Service Tax) in 1975 and hotels charged 10% service charge and 6% service tax. Eventually, this practice was taken up by restaurants outside hotels. And, of course, the 10% + 6% are imposed even on top of the cost of tea, peanuts and towels which used to be the implicit tips for the workers of restaurants.

By a series of indirect taxes, the government has successfully raised the cost of living of the ordinary people.

Now, the GST even threatens to ruin the lives of small traders.

Let it be clear that the GST now gives absolute power to the Customs Department to prosecute anyone which has not registered their businesses for GST.

(This works the same way as the Inland Revenue Board to prosecute anyone working or doing business who are not registered for income tax.)

The upshot of this is that the GST registration exercise is more akin to a census on all businesses in the country. Of course, not all businesses will register, either out of ignorance or defiance. Like the Inland Revenue Board that can charge anyone for the evasion of income tax payment, the Customs can do likewise for businesses with regard to the collection of the GST.

Non-registration, in itself, is already a crime.

Then, they can look through your books to see whether your turnover is more than half a million ringgit a year. This is where the grey area comes in. The enforcement part.

The government hopes that by the introduction of a software (hopefully it works well under all scenarios), the problem of  managing the GST is only a push of the button away. Everything will process itself and magically the coffers of the government will bulge.

I am only very sorry for the thousands of small traders or businesses who used to survive quietly in oblivion who will now be living in fear of a prosecuting force that will comb through very nook and cranny for any potential unregistered GST offender or, if registered, compelled to collect the GST.

Should the GST programme fails to live up to its expectation of a revenue booster for the government, I fear the pressure to prosecute will be high.

All this because the government is too big, too inefficient, too spendthrift.

The government should not replace lost oil revenue with the GST. The government should downsize, be more efficient, and get out of business. The government should just ensure law and order and security of the nation. And take care of our children. Too much?

Wednesday, January 21, 2015

Economy January 2015

It is early in the new year and we are already making adjustments to our expectations and resolutions.

The first thing to note is that the current developments in the world economy is not a short-term blip and will prove to be a major structural adjustment in the global economy.

We are probably witnessing the end of nearly three decades of expansionary monetary policies by both Japan and US. Standard monetary easing evolved into "quantitative easing" as the central banks ran out of papers to buy from financial institutions instead bought governments papers directly. This was when money flooded the global economy and China boomed, as the US and Japan governments tried to spend their way out of recession.

The US reckoned that its economy has adjusted enough and that early shoots of a recovery can be seen as evidenced by job growth. QE can now taper. This signals to US money all over the world to go back to motherland because US interest rates will be the first to rise. The US dollar strengthens as funds go back to the US after having sold down stock markets in Asia. This is where we are as a fundamental factor.

The second thing is that the discovery of shale oil in the US. This must be seen as a strategic move by the US to regain control of the global economy. This go-ahead on shale oil is to make the US less dependent on oil imports. The lower the cost of fuel also helps to strengthen the economic recovery. The IMF revised US growth to 3.6% in 2015 (from its October forecast of 3.2%).

The third thing is the regime change in China which requires that a major structural change is required for the Chinese economy. The old political power which has gained control of real assets must be eliminated by triggering a consolidation in the property market. The IMF expects China to grow 6.8% in 2015 (from the October forecast of 7.1%) down from 7.4% in 2014 and 7.7% in 2013.

The increase of oil from shale and the slowdown in China, the price of oil has come down to US$55 per barrel, from US$100 before.

It is in this context that the Malaysian government is reviewing its situation.

The adjustment is basically financial. Because of a loss of revenue from oil, and in some part made less painful by the resultant cut in oil subsidy from the oil price drop, government expenditure must be cut accordingly. The government decides to cut operating expenditure while keeping development expenditure unchanged, probably on the thinking that OE is boring spending stuff and DE is major capacity expansion stuff. In truth, massive projects cannot be simply abandoned without wastage, and trouble must be taken till completion. While unnecessary OE should be cut, there should be increase in OE in order to improve the efficiency of the government further, by putting in more machinery to do the work with human cannot or are unable or unwilling to do.

The government budget deficit rises from 3% to 3.2% of GDP. Economic growth is revised down one percentage on the lower end to 4.5% which optimism is kept at 5.5% on the upper end of the forecast range. The deficit increase would more likely be seen from the smaller denominator.

There is no word of the GST which presumably means that the government is pushing ahead with its implementation on 1 April 2015. Without the GST revenue, the government finances could become worse. The GST has come in time to replace oil as a revenue for the government.

Isn't it time for the government to size down? Or rather, to cut down on its massive development projects? This supposedly "counter-cyclical", "stimulative", etc fiscal expansion has been going on for too long. There is a need for the government to expand to increase economic efficiency so that more growth can be squeezed out of existing assets. Capacity expansion should come in when decent efficiency levels are reached. It is not good to cover up inefficiency through side-way expansion. It doesn't create high income for all; it create high income disparity.

The world is undergoing a structural change. At home, we are shuffling things about.

We should create a better ecosystem for entrepreneurship. Not the type of entrepreneurship that go after government projects (a legacy of sustained development expenditure of the government). The key word for entrepreneurship is efficiency and competitiveness. We should operate in moderate sizes. It should not be a world dominated by conglomerates and monopolies. The government should be small and efficient. The private sector should dominate the economy, be big and efficient. People should be busy cracking their brains, rather than playing politics.

In the face of the loss of revenue from oil and gas, are we building our non-oil economy?

Monday, January 19, 2015

The Price of Liberty

It is a bit difficult enough to understand the French, but it is harder to understand French liberty.

Liberty is not just about freedom of expression. Liberty is about freedom from the tyranny of dominate power, but it political, religious or others.

Monarchy and the dynastic power of a few families over societies is the first form of attack, by which we are all familiar with the term "anti-establishment". It is the mere disdain for authority that tells us to behave while they can misbehave. Or that they can tell us to do thing so that they can benefit.

Religion in the past, and sadly at present as well in some cases, had been the dominant power in societies that the call was, and still is, for the separation of religion from politics. To most extent, this separation of power between religion and politics has been accomplished in most modern and enlightened societies. Politicians go about doing their normal business of fighting either for businesses (good for jobs!) or workers (improve welfare!), while religious leaders go about preaching the good life in wealth (if possible) or if not, then in health.

But the pursuit of liberty had not been bloodless in the past. Heads had rolled, and blood had been spilled. One ideology takes over another ideology, both seemingly good for everybody (can't be, right?). Everybody tries to cling onto his or her power. Nobody wants to let go of their "strategic" position in the world.

The wisdom of Adam Smith (a member of the Scottish Enlightenment who ignited the French Revolution) is the liberty of everyone to pursuit his or her economic objective through competition, and doing away with monopoly and collusion and the concentration of economic power and wealth in the hands of a few. His book is called "The Wealth of Nation" and this wealth is to come from the economies of scale and market economies through competition.

In other words, economic wealth is to be created by the dissolution of the controlling power of politics and religion on societies so that ordinary people with no titles or social status but only the wherewithal and business-mindedness for material survival can have an opportunity to provide for themselves and their families.

It is necessary that economic prosperity for all can be derived by a government and the religious council to let the people live as they see fit, with the government ensuring fairness and security and opportunity for all, and the religious council administering to the faithful if they so wish to keep their faith.

It is not without reason that religious leader Thomas Carlyle called Adam Smith's economics as "the dismal science" as he saw Smith to promote material well-being rather than spiritual salvation. This sentiment probably still echoes today as people get tired of the "good" life and sought the "more meaningful" life.

We may be seeing the completion of a cycle, as religion now comes back to take over politics and economics.

As with all powers, there are splits internally as well, as each faction vies for power and the spoils.

The religious war today is therefore at two levels: one to take over the world, the other to fight one's own brother for the throne.

The pursuit of liberty may be priceless, but one should not imagine it to be painless.