Tuesday, November 4, 2008

The Purpose of Investment

The primary purpose of investment is to create opportunities for people to earn a living.

The focus is on local people. There are two perspectives: (a) who exactly are the people and how they can be incentivised to make themselves useful; and (b) what is the shape and structure of the economy and society that we want to see in future so that we can work towards it.

To start this process, the education and re-education system must be primed for flexibility so that people can train and retrain themselves in areas of technical know-how, thinking skills, and the ability to express themselves and to communicate. Excellence through discipline and effort. Originality of ideas, no matter how seemingly weird; this creates self-confidence and tolerance for others.

Investing in the workforce and education is I think one of the greatest investments a nation can undertake. Create graduates who can be employed anywhere in the world.

In an educated society, an educated entrepreneur can scan the globe and seek opportunities anywhere in the world, write a project paper and a business plan, and propose it to an educated banker who knows what he or she is talking about, assess the risks objectively and make an educated decision on lending. The educated entrepreneur can work together with a few educated friends and as a team go out and make waves in the world.

With this, we may hope to move away from the self-defeating policy of being stuck in low-level technology that relies on the exploitation of imported cheap labour (which drives out expensive labour), with fortunes being amassed by the uneducated.

The restrictions we impose on our own economic opportunities through our own narrow-mindedness create a tightening screw on our society in which everybody suffers. We do it to ourselves, thinking that others are to blame.

We resort to easy money policy to let go of the steam. The easy profit from speculation in the stock market and the property market is an opium for the uban class. Property inflation misleads ordinary men and women into thinking that tying up their entire life savings in brick and mortar is a good investment. Stock market speculation is a game played by decadents. In the end, all fall down. These are not investments.

The problem with financial speculation is that it tends to run ahead of the capacity of the real economy to deliver. The collapse of financial markets is nothing but reality giving speculators a hard knock.

At the end of the day, the best investment is in human capital. To facilitate this, we have also to invest in ICT. The funding system may not be banks, but private equity and venture capital. If we can mechanise plantations and have smaller but capital-intensive industrial companies, we may be able to get ourselves out of the developing-country trap.


de minimis said...

More solid points for Malaysia's economic managers to pick up upon, if they even bother to read.

Would you be able to elaborate on the "developing-country trap"? That's an important feature that the Malaysian government seems to be ignorant about or, refuses to acknowledge, since they appear to be interested only in chasing rent-seeking opportunities.

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