Thursday, November 13, 2008

How to Boot-Strap the Economy

When you switch on the computer to start it, you are only sending the computer some electrical power and the computer must start by itself. This self-starting function of the computer is called "boot-strapping."

How to boot-strap the economy?

Bank lending is only giving the private sector some cash to buy something to start a business. Lower interest rates merely mean that you can repay the bank even if the profit is not that much - provided you make a profit; if you make a loss, you are first a problem debtor and if you persist not to pay, you become a doubtful debtor.

Government projects mean that you do the project - well or not doesn't quite matter - but the government will pay you. If you do not know what you are doing and suffer cost-overrun, you do not have enough working capital to finish the project and you could simply run away and not finish the job. Some clever people sub-contract the job to another person, pocket the difference and let the other person worry about the problem of finishing the job.

Government projects are the easiest thing to do for everyone - something called a "no-brainer." It doesn't really matter whether the job is well done or not - the sufferer is not you but the general public, that is, the people who dutifully pay their taxes and the people who have to deal with faulty public facilities every day.

Now, if you want to be an entrepreneur worth your own salt, remember that the salt is sweat.

Most people imagine that you have to make something or provide a service for exports. This misunderstanding leads many people to think that they have to sell the country to foreigners. You don't have to.

To start a business, you need to have an idea of your target market segment and your product. You can start with either.

(a) Target market segment. You may think that there is money to be made from the yuppies who have cash to think according to their fancy or among the poorer people because they are used to spending all their money no matter how much.
(b) Product. The point I want to make with (a) is that your target market segment will determine your product. The other method is to dream up a product and then try to look for a market.

My point is that, in either case, you can sell to your immediate surroundings - the market that you know best. You do not have to go on a foreign trade mission to figure out what to do, unless you are going as a pretext for a holiday.

You will need input materials for your products. You can source for them locally. The challenge with using local products is that they may be very common and competitors can easily copy and the only way out of such a situation is to be very clever and come up with a way of doing things which nobody can copy easily. This is why kungfu masters are the most secretive.

If you know you are not so clever in coming up with your own way of doing things, then you may want to use imported raw materials where the secrecy is in the source of the imports.

It is therefore also a "no-brainer" when businesses import foreign goods to sell to the local people - because of the uniqueness factor - not because the product is all that great. With no competitors, importers can charge any price they like.

Unless, of course, you are also caught up by the mass media and obtain extreme enjoyment from consuming imported products.

Remember that foreigners are only human beings like you and me, and whatever they can do, we can do also. But there may also be something that we can do and they refuse to do. If it is corruption, or any excuse for taking cash from someone without putting back to society, then I think in this competition, we lose. We have to be clever in producing goods and services - or, rather, cleverer, if we want to compete.

Putting aside all the problems associated economic inefficiency, I think the challenge for you is to have the "know-how." As you can see, the "know-who" mentality has got us all into a deep rut, which only a "know-how" can get us out.

It is time for the "know-how" to get rid of the "know-who."

Knowledge and education - which teach us to be honest and hardworking through discipline - is the path to the future. If you do not know how, then you may have to go back to school or learn from a master. You may need to become an apprentice before you dream of becoming a millionaire.

Only with know-how can an easy lending policy from the bank be of any help to you. Otherwise, the bank is simply being irresponsible in lending out the money of depositors, if you are a sub-prime borrower.

Without "know-how," excessive liquidity may drown all the "know-whos."

You should therefore not fly blind. Open your eyes and learn and hopefully contribute and then be rewarded for your services to your neighbours. Only then may you be able to pull yourself up by your own boot straps.

If everybody pull themselves by the boot straps, there may be hope for beneficial economic exchanges among the people in a society rather than co-exist and interact only with foreigners. Interaction without a two-way exchange is called an unilateral transfer - and this cannot go on forever.

It is a very useful exercise for you and me to examine ourselves each day and see in what way we are exerting our efforts that lead to the increase of the welfare and happiness of other people. Happiness should be the end result of the products that we are creating so that customers will be happy to pay us for our efforts. This is the end-all and be-all of all economic activities - the ultimate purpose of an economy. It is no wonder that those who are quite fed-up with urban society dream of living a solitary life in the jungle in order to gain enlightment which produces happiness.


de minimis said...

O Guru

A most excellent primer for lost souls in the Malaysian economy. This cuts out all the crap and gets to the heart of the matter. But, I wonder how many of these lost souls will understand as they swing from one "know-who" deal to another and then abandon the deal midstream if it gets too difficult knowing that their "know-who" friends will use taxpayers money to clean up the mess they left behind.

chapchai said...

This reminds me of my favourite laksa stall in Sekama Road, Kuching (you must go there for the best laksa in Sarawak, I promise). This little stall was started by the father who passed it on to his sons, but the recipe never changed. The stall operates most hours of the day and early evening. The high standard has always been maintained. The old mother still helps out. Cash up front, no credit. Good times or bad, people still flock to this little laksa stall. Needless to say they have prospered over the years and no doubt they will be able to give their children a very good education. What former Lehman Brothers employees won't give for a piece of this action. No debts, cash rich, homes paid for, children's education secured.