Thursday, April 22, 2010

High Income vs High-Income Economy

If we think as a layman, high income is more cash.

Implicitly, this means that the income of an individual is high. That individual is also assumed to be an employee. For an employee to earn a high income, he must have the requisite education and technical skills as well as soft skills in dealing and working with people and even playing office politics well.

In exceptional cases, which are probably rampant in a certain type of environment, it is even possible for individuals without the requisite education and technical skills to earn very high incomes compared with the incomes of highly trained individuals simply by just playing politics, though I would also add stealing ideas from the technically trained. In such a case, the environment degenerates to stagnation (and wallows itself in the so-called "middle-income trap") as the technical workers become demotivated and refused to come up with new and better ideas, and the ideas thieves in order to keep themselves in afloat in their own pool will resort to lies and half-truths as well as mouthing motherhood statements and advertising themselves ceaselessly of their half-baked ideas. This is a mud pool which will suck everybody in contact with it in.

When we think of ways of generating high income for individuals, we think of the educational system as well as the type of investments that are being encouraged in the economy. By definition, investments from low-tech industries generate low-income jobs and investments from high-tech industries high-income jobs. When promoting investment, the job is simply to switch the emphasis from low-tech to high-tech industries. This is no sharp thinking, although it is techically correct.

But when we think about how to create a high-income economy, it is an entirely different thinking process from that of an individual. Afterall, an economy is a system that is dynamic and alive and will either grow or shrink depending on whether certain parameters (such as with regard to optimism) are higher or lower than others (such as the propensity to consume and not invest).

It is not enough just to promote massive foreign investments in order to achieve the target of a high-income economy. While it will create high-income jobs if certain types of investments are encouraged, the problem is the acute dependency on foreign investments which are nothing but foreign savings looking for lucrative environments to make huge profits to pay high dividends to their investors many of which would be houshold savings. In a high saving economy with clever managers of money and investments, it is possible to generate a high-income economy where people living comfortably at home in their own natural environment enjoying life with their families and friends because they save and invest well.

They leave the dirty work to the young strong and educated people of third world countries which ideally should be in the lower middle income, for the children of poor third world are not ideal places for growth of profits. The lower middle income countries do nothing but spend their time talking to foreign investors (and not their own domestic investors), and educate their children to be inward and traditional with a smattering of English in order for them to get by in receiving instructions from their supervisors (when they are given no opportunity to wantonly disobey).

The lowering of the educational standard, or rather the systematic removal of the courage to think aloud and share new ideas, no matter how strange, and at the same time able to conduct decent conversations that do not necesssarily be on topics fashionable in the media at that time, is a sad destruction of the growing environment that is a real obstacle to the growth of a high-income economy. High income does not come from copying and stealing; it comes from original thoughts and ideas.

A high-income economy therefore is not created by investments in high-tech industries where government officials collude with multinationals to use their productive generation purely for the purpose of making profits.

A high-income economy is the product of national economic system that encourages the constant destruction of the old and the constant creation of the new as an essential element of the dynamics of a healthy growing environment which what counts the most is the creation of the new frontier of a growing and living entity. It is this building of the new frontier that is, in boring economic terms, called investment and this investment must intrinsically be undertaking by the citizens of that national economy in order that the growth be of a character that is in line with the spirit of the people. To accomplish this, the people must work hard to learn how to think clearly, discern the old from the new, communicate and share, and collaborate and produce new frontiers, save resources for the future, and keep reinventing themselves.

Then we can see a new dawn.

7 comments:

Anonymous said...

Hi Etheorist,

U r very modest in yr indirect description of the bolihland economical scenario!

BTW, U’ve done a good service to educate those morons within our policy-makers about the distinctions between high-income & high-income economy. Many of them think one equal the other!

BUT the saddest part is most likely this write-up would not contribute effectively for ‘someone of consequences’ to intelligently 'bootstrapping' the well-being of the nation on the door step of the economic challenges & competitions.

Worst it might ended up like below as u so elegantly wrote;

‘In exceptional cases, which are probably rampant in a certain type of environmemnt, it is even possible for individuals without the requisite education and technical skills to earn very high incomes compared with the incomes of highly trained individuals simply by just playing politics, though I would also add stealing ideas from the technically trained. In such a case, the environment degenerates to stagnation (and wallows itself in the so-called "middle-income trap") as the technical workers become demotivated and refused to come up with new and better ideas, and the ideas thieves in order to keep themselves in afloat in their own pool will resort to lies and half-truths as well as mouthing motherhood statements and advertising themselves ceaselessly of their half-baked ideas. This is a mud pool which will suck everybody in contact with it in.’

This is an intact & exact picture of the sopo economical picture of bolihland.

And WHO allows & propagates this mentality?

hishamh said...

"A high-income economy therefore is not created by investments in high-tech industries where government officials collude with multinationals to use their productive generation purely for the purpose of making profits."

Very, very apposite. I've never felt the answer was high-tech or knowledge-based industries. It's not clear that higher incomes in these types of industries would flow to the broader economy, except through mild second order effects. If this were the only strategy used, all it would create would be a society of haves and have-nots.

walla said...

Developed status from V2020 has diluted to high-income economy from NEM. Yet the factors of both remain the same - education, investment and institutional reform.

....................................

We should smile more. A u-shaped curve. The smiley curve of profit margin versus production chain.

Take Schaede's Japan. It commands over fifty percent share of critical upstream high-technologies in the global market. That's fifty percent of the advanced machinery that make electronics products, fifty percent of semiconductors, circuit boards and laser heads themselves, and some sixty six percent of polarizers for LCD manufacturing and advanced resins for microchip production. They strategically corner the high-margin upstream part of the production chain upon which other advanced economies depend for much of their own wealth-creation.

By specializing in advanced parts, they directly influence the downstream assembly segment of the chain which has the lowest profit margin and indirectly influence the retail segment at the other end of the chain which has equally high profit margin to the extent of having highly desired end-products infused with their upstream parts.

Furthermore, some seventy five percent of their biggest corporations which have been making such parts in-house have strategically restructured themselves to refocus their activities such that they can farm out some of their high-margin activities to smaller firms in their industry network, giving them opportunity to grow bigger instead of being consigned to forever be just feeder sub-industries, as some bankers seem to have concluded.

In some instances, the japanese companies have even made themselves generic. For example, companies which traditionally made textiles have become materials specialists making high-tech environmental membranes, carbon fibers and pharmaceutical patches. One understands that their global market share of carbon fibers is seventy percent. It's blue-ocean wide.
.....................................

walla said...

2

When Mida corporatizes, it must have people who know global technological and market trends intimately and can articulate credible strategic directions out of them for more relevant national planning.

Right now, we are only showing chutzpah by saying we are selective in wanting higher-end investments. If investors are to ask do we have the right caliber of people to man their investments, how do we answer?

Meanwhile we are indirectly pushing substantial FDI to other upcoming economies at cost of local employment, albeit low-end.

Thus the next question is whether we will be performing high-margin upstream or retail activities by the time they make their moves to swing out from downstream in their smiley curves.

In other words, will we automate faster than they assemble?

......................................

The answer to that we may have to take a lesson from the economic history of the world.

Clarke summed it in one graph - per capita income from 1000 BC to AD 2000. He remarked that until 1800, the world was in a malthusian trap where short-term gains in income were nullified by natural population growth. Then something happened. The industrial revolution sparked material consumption down societal stratas, and raised per capita income by ten to twenty times in countries where it happened. But it also created income inequalities between societies inasmuch as it created more income equality within some societies. This led to the global income divergence in the order of fifty to one.

---------------------------------------

In describing the NEM, are we using classical language to shape a modern strategy to earn higher national income in a chameleon global market?

Are we still in the low-margin downstream trough of the U-shaped smile that is the malthusian trap of the production chain of tomorrow that has arrived today?

In generating the NEM, can we generate our own diverging revolution?

---------------------------------------

We may say it was creative destruction of an agrarian society which personified the Industrial Revolution which replaced it with bourgeois values in a new social environment.

In generating our own diverging revolution, what must we do to embed those values to create a new environment?

---------------------------------------

Education, investment and institutional reform. These are the pillars that hold up the roof of the new house we must build.

Last night there was a tv program. It was forum of and by year two undergraduates of the local public universities. You see youthful enthusiasm and innocence. But, troubling enough, nothing else. No content, no awareness of what the world outside is all about, no drawing of examples. Just unquestioning obedience to some yardstick and standard imbibed within the boundaries of unstretched minds centered on motivational transacts only. This is u-shaped trough.

The bourgeois values of the industrial revolution that sparked the great divergence of per capita income came about because enterprising people wanted to be borne on the upstream and retail wings of the smiley curve.

Whether it was England post-1800 or Japan post-2000, the common factor was strategic focus on specializable activities which catalyze high-income activities in blue oceans.

Only with specific educational transformations can we sharpen our own focus to do what must be done in order to climb out of our u-shaped trough.

For that to happen, we need immediately three generations of inquisitive young minds whose energies will be bridled by outstanding command of the appropriate knowledge and know-how that (a) creatively destroys the methods of old, classical language even, and (b) sustainably creates the methods, products and services of new for a chameleon global market.

walla said...

3
You can't have flexible nimble minds if they are only trained to be obedient and self-deprecating by the method of knowledge limitation.

They must know the world. For instance, they must know that local history didn't start in 1400. What happened before that? When was our own big bang? Without such logical inquisitiveness, how can there be the right social environment in which to nurture the positive bourgeois values of our own PCI-upgrading industrial revolution?

--------------------------------------

But education doesn't end with a first degree. In today's increasingly complex world where everyone tries to be more relevant by chasing the edge, it doesn't even begin with a postgraduate degree although one can say the technological hegemon that is the US has the world's best postgraduate training focus.

Education is continuous renewal. That's a mixture of personal curiosity, drive, intelligence, focus, means, lifelong learning and self-actualizing competitiveness. Furthermore, education connects when imparted, shared, interacted, tested, questioned, defended, changed. In the field of education, trying to be well-behaved to some past norm is but stultification.

---------------------------------------

Investments. Do we have enough domestic investments? Why don't we have enough domestic investments in higher income activities?

True, every dollar of foreign investment is magnified before it even comes in. It looks nice on paper to declare that a big sum is coming in, especially when the bigger the sum, the more the incentives. So, apart from the seventy three billion ringgit subsidies this country pay out every year, we also seem to indirectly subsidize more when foreigners come invest here, especially on incentives given out on top of inflated value of their equipment brought in.

The key is productivity. A mass-volume low-cost activity doesn't necessarily mean one is productive enough to be competitive on the global market. After all, if a low-cost worker only produces ten percent in a given unit of compared production time, then he or she is ninety percent less efficient than a machine which produces one hundred percent all the time, furthermore across timezones. Soon the line may cross where the more expensive machine pays for itself above and beyond an army of low-cost workers.

Do we have an automation incentive scheme for our own domestic investors?

Do we have a national training and promotion program for automation?

Can high-income services be automated too, starting with best-of-breed world-class kick-ass training modules?

---------------------------------------

Institutional reforms. They can be blue-ocean activities too. Why the need to check on politics before rearming the firing pins of economics? Why not grow the economic pie immediately, get those three generations up immediately, and then reduce divergencies by better methods that don't have to sell the snakeoil of politics in order to cure the ailments of inequalities?

---------------------------------------

1000BC to 2000AD is a long time. Yet in that stretch only three hundred years made a complete difference. Created a spike of prosperity. Changed the world.

Time is a paradox. We ignore the critical importance of time at our own peril. We are out of time. If Cebu is fast becoming a global outsourcing hub while we are still trying to muster greater interest in our own backyard which has already been built, what must we have done last month to make the difference count in the near future?

If the people in our institutions cannot answer that, we are more than out of time. We are out of ideas.

And with our growing hungry population fed on depleting oil and politically deluding innocence, that's another malthusian trap.

walla said...

http://is.gd/bEhYS

GoatKY said...

From what I gather, you are saying that Malaysia is not conducive for entrepreneurship? By that I mean "google-like" entrepreneurship.

If that is the case, I agree.I don't think a growth model based on foreign investments is sustainable for the long run. Politically at least some people can weave it as their contribution in bringing in high paying job. High paying jobs that will leave if MNCs get a whiff of workers in other regions who are willing to work longer for a fraction of the pay.