Saturday, February 21, 2009

Stimulating the Common Man

At a time when the big businesses, both local and global, are hit by their own big-headed expansion plans, the government should not sacrifice ordinary men and women for these ones by asking them to go into debt and spend. Instead, the government should find ways to help the little men and women to whether through these hard times while the big ones collapses.

At the very centre of the operation to save the national economy is the Federal Budget. I believe the Federal Budget should be looked at differently in order for us to be able to get ourselves out of this quandry.

Structure of the Federal Budget

The Federal Budget is structured in such a way that Federal Revenue is used first to fund Federal Operating Expenditure, with leftover to fund Federal Development Expenditure. If the Development Fund is insufficient, it is deemed alright to fund Federal Development Expenditure by issuing debt because development expenditure should be on development projects which are expected to earn a return in the future and earn the government future revenue.

Human Capital as Infrastructure

We are caught up by the idea that infrastructure is all brick and mortar - roads and school buildings - that we tend to favour the construction sector at the expense of all the other sectors, which are many.

1. Maintenance. Maintenance is regarded as an operating expense. This means that once an allocation is made in the Development Budget to build an infrastructure, the matter is usually left at that, with no attendant allocations made for the necessary and essential maintenance expenses. In economics, maintenance is considered as replacement investment, to mend the wear and tear. I suggest that the cost of all Development Projects should include replacement investment for maintenance.

2. Human Capital. When the Budget allocates funds for education projects, allocation should also be made for new teachers, trainers and lecturers. Human capital does not reside in buildings but in people and we must take care of the human repository of our national human and intellectual capital. The bodies and training and output of the education sector should be considered as capital expenditure, not operating.

3. Law and Order and Security. Law and order and security of the nation is important for its peace and harmony. There may be a preponderance of the Budget on the hardware, but equal emphasis should be made on the personnel. By not having enough bodies and sufficiently trained policemen and soldiers, we open our society to fear from internal and external sources. We should have proper guard of our coastline as well.

4. Cultural Capital. With the corporate world is suffering from the aftermath of a wild party, and as the economy rests, we now have the time and space to rebuild our cultural capital which we have unfortunately left unattended for too long. The Federal Budget should allocate funds to all the Local Authorities throughout the nation for them to organise culture-related economic activities which are likely to be centred on the arts. Let a thousand cultures bloom.

5. Hawking and Small Businesses. By far one of the most effective ways for individuals to counter the effects of the global economic slowdown is for them to have the opportunity to use a little capital but a lot of ingenuity and hard work and sweat to peddle things which they are in a position to produce. I therefore suggest that the Local Authorities should go all out to help individuals to set up stalls by preparing neat spaces for them to trade.

6. Lessening the Burden of the Ordinary People. The Federal Budget should allocate sufficient funds to the Local Authorities so that these LAs are not tempted to raise fees and charges during a recession just because they themselves are having a hard time with their finances. By passing their financial problems down to the general public, the authorities which are part of the government are acting as bullies instead of civil servants to the people. The ridiculously exorbitant fines imposed on small traffic offences, for example, is a disgrace to the government.

What is Operating, What is Development

As Keynes would argue, by the time you have sorted out your conceptual problem, society would have suffered untold miseries by the loss of jobs and incomes. It is far more important to act according to one's common sense and compassion to alleviate suffering rather than to be intellectually correct. There is a mental block in the way we are responding to the current global crisis and my suggestions are to show how some of the inadequacies may be overcome.


walla said...

1. The govt should encourage mergers. If a garment factory closes, its equipment would be firesold at lower value than if combined to increase volume capacity and thus more competitive product pricing with another garment factory in the same strait. Furthermore, for two of each staff considered redundant, at least one will be saved to continue working in the expanded operation. In today's global price-sensitive markets, price of goods is the deciding factor. We can use our quality edge to sweeten the price factor in such markets.

2. Housing communities should organize more garage sales. People can donate what they don't need to such sales. The earnings can be used for charity or to keep households afloat or to add to the community maintenance fund.

3. Technology should be tapped for bodies like befrienders. Some people will hit the edge. They need to be able to talk to someone before they do. The telcos should be able to assist those bodies connect to the nearest help center eg. gated guards booth to run over to the home before something untoward happens. For those in the rural areas, the community heads should organize more weekend talks and try to keep up flagging spirits, maybe even identify beforehand potential flashpoints. Then get everyone around to provide bridging support.

4. One ministry can proact on scams and schemes to prevent desperate people from being conned out of their savings. More of such things may happen. Better to be prepared.

5. The govt and others should also revisit the paradigm of national development. Acknowledge now that this global phenomenon is not only universal crisis but also an opportunity for us in this country to build the stepping stone to reinvent our economy.

What is the one thing we don't have today? Courtesy of the politically-shaped education and social-economic system, relevant knowhow to chase value-adds. The govt should not only build now the probusiness and pragmatic investment framework discussed elsewhere, it should also get relevant brainpower and experts to come settle here and add content to investment.

There may be people out there in the other parts of the world who are good at using software to design things, or to make precision machine tools, or have strong ideas for new-century business models. We would not be displacing anyone here by luring them to come in. The cost of any incentives given to them will be compensated by the potential growth earnings they may deliver from the idea sparks they can provide local industries, especially our somnabulistic SMIs.

If the key is confidence-building, then that is most needed if it so happens all the stimuli packages of the world don't work which means there will not be any business case for any investment. Those who are more gungho entrepreneurs, wherever they may be from, would be the ones to break this impasse. We don't have enough of them here.

The crisis is the only opportunity to get not just content providers and real experts in, but also use their presence to reshape mindsets and society so that this country can become more cosmopolitan and international faster.

Whether they will come or not is another matter. But if the marketing is good and the word is out that Malaysia welcomes smarts to park here and maybe later make her their new home away from their devastated present, for all the sun, beach, food and friendlies we have besides strategically located along the east-west route in this century's Asia, maybe they will.

Looking at our present lacklustre situation, do we have anything better?

etheorist said...


As usual, thank you for your suggestions.

Policy should focus on the strategic thing - taking the economy into the right directions, such as laying the ground rules for the economic game, and specific for Malaysia, for who.

The concerns of individuals in the public are different, such as saving their businesss, saving their jobs, looking for a job. This is politics that needs managing too.

Let us all be clear. This is a big crisis. It is an implosion. You cannot put your hand there and not get hurt. If there is no risk of you getting hurt, then you are likely not to be doing the right thing.

Hence, the tendency for policymakers to hide behind safe statements.

walla said...

it takes a long time to open this blogface.

etheorist said...