Wednesday, May 2, 2012

In Desperate Need For Competition

Modern economics introduces the idea of competition as a route to fairness, so long as the judgement of the masses is free and informed with no one dominating opinion. Likewise, the idea of the Olympics where, instead of fighting in battle fields, the energies of the young are pitted one against the other in fair and open competition - provided that no external unnatural artifacts or substances are used to provide unfair advantage. This ideal is extended to politics where the views of all are aired and heard and then a consensus is arrived at, hopefully in as amiable and acceptable a position as can be hoped for.

In reality, the tendency is for a few to dominate. Domination is the harsh reality. It is the ability to hold domination by a few in check that is the hallmark of a fair society. The obverse is domination by the majority which in itself is also a form of tyranny in itself. Universal fairness or consensus is therefore a special case which is hard to come by in reality.

In this imperfect world, how do we arrive at a second-best form of  fairness where the views of society is taken into consideration? In economics, the common approach is to prevent the rise of a dominant economic force or monopoly and promoting competition or smaller harmless units. This anti-trust approach runs into problem when there are foreign monopolies which the domestic government cannot control, and where the local competitors are too small to have a fighting chance. One response is to prevent the entry of foreign monopolies - but this has the problem of not being able to enjoy the fruit of foreign innovation. The theory of comparative advantages teaches that one should allow in foreign monopolies while trying to establish our own local monopolies which we can try to dominate in foreign markets. (This is interesting as the theory of international trade seems to run counter to the theory of perfect competition.)

It is in trying to dealing with the reality of monopolies or large economic forces that government has to regulate the market. The failure of the government to regulate when the market is allowed to compete freely among itself in the hope that the "invisible hand" will somehow takes care of everything has led to disastrous results in recent years in the global financial sector. (What the policymakers have failed to realise is that when the "invisible hand" works, it forces those who are incompetent to fail and this is not allowed for financial institutions because they hold in trust deposits of the public!)

In Malaysian economics, the attempt to destroy Chinese monopoly has not led to the break up of Chinese businesses into smaller units, but the creation of Bumiputra monoply which unsurprisingly work in collusion. While the monopolies stay, the only transformation is the ownership.

The major problem with the political solution to an economic problem is that the solution concentrates on power - both political and economic. It is the abuse of political and economic power that leads to the corruption of the proper functioning of the national economy and society and the major victims in this game is the ordinary men and women for they have to be deprived of their basic means to survival and livelihood so that the elite can enjoy opulence in the midst of economic stagnation. In other words, low interest rates, low currency, persistent inflation and the inability to create sufficient decent jobs for new highly trained job seekers. There is no proper investment in technology and productivity gains.

In Malaysian politics, the domination of one coalition (as well as one man in that party) is now being fought by one coalition opposition (which is being dominated by one man). What is interesting is that a supposedly racist coalition is being challenged by a supposedly socialist-justice-religious coalition. The racist argument is now proven to be a convenient strawman for the elite to share and consolidate their grip on the economy. The general public has now become wiser after three decades of abuse. The socialist-justice-religious coalition jumps in to ride the current in the hope of taking over the power.

The call for clean elections is another way of expressing the feeling that change is imminent, "if only things are fair." The attempt by the opposition coalition (which is dominated by one person) to capitalise on that call by creating social disturbance is an indication of how healthy competition can quickly degenerate into a desperado act. Who ever says politicians are ethical people?

The current political problem is purely an economic problem which has its seed in a misguided policy of disenfranchising the whole working population by giving special privileges to one group (thus giving them the signal that they can take and do not have to work) and by telling the rest that they do not have to work so hard because not all that you work hard for will not be yours - in addition to the cut that the government (and civil servants) will take from you in the form of the income tax. Malaysia has undergone the great economic experiment of how to destroy the incentives to investment and innovation while inculcating a national culture of grab and run away.

The opposition idea of how to do the same things with "transparency and no corruption" is to work on the assumption that the current economic model with its domination by monopolies is still correct.

The old guards have all gone, the intermediate generation has gone off to other countries, and the only ones that are left are those who have decided to stay back and pick up the pieces from the economic debris. Malaysia needs new political and economic leaders to provide a new and clear vision of how to stay competitive in the new global economy.

The newly imposed minimum wage may be the best first step yet. It will have problems because it will make uncompetitive businesses unprofitable. It will also say that low skilled workers may not be the path to high income. But with an economy which the central bank and economic planners still think that low skilled labour intensive plantations and assembly lines is the mainstay, we may have a long and treacherous journey ahead. However it is, do not be fooled by the promises of desperate people.


walla said...

The fixation on specific targets was the first mistake for it focused on achieving quantitative results when it should have focused on creating unquantifiable opportunities which would have attracted less debate.

Taking shortcuts was the second mistake for one can only take a shortcut through someone's garden, to wit, using his money to make your mistakes repeatedly in the same manner dot-coms had collapsed because the money they had burned ruinously was excused as only those of the venture capitalists.

And doing so led to the third mistake of assigning ownership as the primary target equated as result desired when owning something doesn't necessarily mean more opportunities will be spun out from it.

Which comes to the fourth mistake. Namely if one's ownership is challenged, then it is natural to protect one's hard-earned turf by delimiting the very inter-networking which is the key to creating more opportunities for all over and above the housekeeping measure of just achieving transient targets for some.

In a nutshell, a policy to create an equal society with low growth at the expense of an unequal society with high growth will have to create for its own establishment the same type of monopolies that it presumes to displace. The monopoly of ownership unequal to opportunity. This is like firing a million rounds to try and open a safe which refuses to budge but for want of a simple key.

As targets get missed, political power gets held more tightly to safeguard personal survival which in too many cases is deemed to be assured by the expedient of deepening more divisiveness.

This rears up authoritarianism but as society finds its own footing to exercise more critical thinking, such an arrogation of power loses not just its lustre of decisiveness but also its herds of followers and thus its managers, thereby accelerating the slide in overall standards and specific qualities of the entire system until double standards will have to invoked just to get over each resulting snafu and fiasco, coming with increasing frequency as issues converge with ever greater complications, including the unevictable issue of policy-makers playing their zero-sum game of malignant and prejudiced neglect combined with attempted assimilation to a system reeking of the low standards that its original but forgotten remit was to have surmounted.

walla said...


In such a climate of mistrust, suspicion, mess, grief and loss, how can inter-networking and cooperation without borders and prejudices thrive to make a success of ANY policy?

Just like a tsunami arising from a subterranean earthquake which is caused by internal tensions building pressure to break out as fractures and fissures, the marches, cyber-debates and e-videos have rallied to converge at the national intersection between supply and demand.

Supply has not kept up with demand for the following:

more openness of society;

more willingness to exercise creative destruction of bad things and actions;

reaffirmation of the rule of law without exception as antidote against double standards and prejudiced settings;

appropriate economic institutions that safeguard private property, public money and market competition;

more open and pluralistic political system with a greater transparency and cleaner competition for the best political officials; and

more protection of independent electorates with free access to better leaders.

That mismatch between supply and demand, if it can be so lightly put, may explain why the uncommon sense of the past has been replaced by the common nonsense of the present that is suffocating the life out of all - from the earnest marchers out of the kitchen and living room to the tipsy blogger who has already reached the zen of impermeability wrought by the hypocrisy exuded by those so many still in high office who continue to swagger in the land as if they are dressed for the next economic convention.

One may be forgiven for thinking those elements at the intervention mentioned above stir the memory of a book recently written by Acemoglu and Robinson.

Is it any wonder any more that its title is:

Why Nations Fail.

australian farmland investment said...

I actually read Why Nations Fail - great summary!