Wednesday, December 11, 2013
Direction of the Economy
I think Malaysia has got it right to cool down the property market with the RPGT. It doesn't make sense that property prices should run ahead of wage increases, such that ordinary people in decent jobs cannot afford to buy a house in their lifetime. If the government truly cares for the people, then the economic policy must be set right so that decent jobs are constantly being created so that housing can become affordable. It is not right that the property market should be stimulated by rampant asset inflation and inflationary expectations.
What are decent jobs? Decent jobs are jobs for which our youngsters are being trained and educated for. We encourage the supply of education by establishment of more institutions of higher learning and upgrading technical colleges to the status of university. At the same time, we implement an economic policy that encourage the establishment of plantations of oil palm and housing estates and major complexes which do not in any way use the education and skills that we are instilled in our young. Unemployability is as much a problem with the economic policy of growth and development, as it is with the skills supply. Clearly, there is a disjointed labour market in the country. Education produces a supply for which there is no demand and a demand that can source its supply of low skills from abroad. The reason for this disjoint must be that there is excessive intervention in the labour market by the government, with one government department making policies on the supply of local labour and another (or two) making policies on demand. Call it national pride, if we must, if we think that we can make political decisions devoid of economic reality. But the price of policy errors are paid not by the government but by the unemployed young voters who would surely punish the government of day for their sorrows whenever there is an opportunity.
So how is the situation being remedied? The government is identifying all the young and old and disabled as well as the unemployed - all lumped under the general label of poverty whether urban poverty and rural poverty and dish out cash. In principle, helping the poor is good and honourable, for there will always be the poor in any society as a consequence of the society that we have created for ourselves, and we must increase the overall well-being of our society - and we do not discriminate. But this welfare payout will not solve the problem of youthful unemployment which is at once a disaster for the economy and a contingent liability of any government of the day. It is only logical that the young, unable to find work at home, will emigrate and look for greener pastures elsewhere. In the meantime, the industries being contented with their lack of productivity gain and relying for their profit growth on sustained low skills and low wages and the continued expansion sideways of their operations with more of the same, are creating a potential social problem with a floating low-level foreign labour that, because of fear and poor living conditions, can degenerate into a melee. An otherwise well-disciplined and well-educated society is being replaced with one that contains all the problems that the well-intended government policies have been trying to solve all these while since independence from foreign rule but not from faulty thinking. We could be developing our nation from a well-groomed economy to one where the primary focus seems to religion and discrimination, and to use the word of Mandela - domination, which kills the market economy.
The loose monetary policy of this country, no doubt dictated by the monetary policies of major trading nations, has created an environment where there is no incentive in saving in the bank - and the bank now threatens to charge for almost every transaction that is done through it - and where the bank is ceaselessly serving itself by lending to the collateral it prefers for its loans - real physical assets. All this because there is too much cash in the system. Cash, by itself, as we can see, with its low interest and inflation elsewhere, means that savers are keen to divest out of cash and into whatever can make money. That cash finds itself into the zero-sum game of the stock market where a major redistribution of wealth is taking place, from the ignorant to the market makers. When the stock market gets tired, the cash goes into the property market whether a simple asset play comes in. Where is the end-game? All stakeholders would want to the game to go on forever, and the only end-game is the bursting of the bubble - for the markets and the financial institutions - two very strange bedfellows. So the current intervention to cool down the property market is a good move in the right direction.
The way forward is for the lending institutions to do their proper job of lending for productive purposes. In the past, it was easy that lending for commerce and trading and manufacturing are considered to be productive. Lending for productive was considered to be non-productive and hence capped as a minor portion. The general structure of the world economy may be changing from manufacturing to services. But for a small economy like Malaysia, we cannot be lopsided in our development. We need to develop our non-plantation agricultural sector well because our rural heartland depends on it. Our great national divide could be closed faster if only we put money to the development of our rural communities, transforming them into rural towns with a strong connection to the world market, through local leadership. It is not true that all the rural communities could be rich by moving to the towns. But new towns can be created within the rural communities so that new centres of growth can be developed across the country without undue rural-urban drift. The plantation sector is for the big boys and they have been laughing all the way to the bank before independence and since. The manufacturing sector has been mangled with nationalisation and bumiputra-lisation. It doesn't really make sense to cannabalise existing companies and worse still kill them, than to create new ones, unless there is a severe lack of ideas. Instead of enhancing the economy structure and its dynamics, there is an apparent attempt to stifle growth and dominate. We have moved from a market economy to a controlled economy consisting of oligopolies and some monopolies that are controlling the national retail prices. Worse still, the government, in entrusting its duties to the government-linked companies, has basically become the biggest shareholder in the national economy. This is danger if the government consists mainly of a major political party.
The political economy is a complex issue and I do not think there is an easy solution. The government needs to reconstruct the nation by restoring the integrity of its institutions and agencies. No policy can be good if its fundamental is discrimination and domination. Policies should be fairness for all, with intervention for the disadvantaged but within the overall context of fairness for all. Policies must be centred in the middle, and it can verve left or right according to the wind of changed. Policies cannot be centred either on the left or on the right, and pretend to be balanced and fair for all. Only when policies hold the middle ground can confidence be reestablished and the economic prosperity restored through the steady saving and investment of happy people.
Posted by etheorist at 12:14 PM