Monday, June 8, 2009

Malaysia's Problems I: GDP vs GNP

Is Malaysia's GDP losing out to GNP?

GDP measures the output produced in Malaysia, regardless of whether by locals or foreigners.

In trying to boost GDP, we have invited FDIs and foreign workers to Malaysia to invest and to work.

We have built massive infrastructure for these foreign investors and foreign workers to use - for them to make a profit and for them to earn a wage.

The whole purpose is to boost the "economic growth" as measured by GDP.

But I can tell you, a priori, that GNP may or may not be growing under the present circumstance as fast as GDP.

You have to net out foreign profits and foreign wages from GDP to get GNP.

GNP measures incomes that accrue to Malaysians, whether at home or abroad.

To be fair, therefore, we must add the incomes of Malaysian firms and Malaysians abroad to get a proper GNP.

Now, we have grown local Malaysian firms to become large so that Malaysia becomes too small for them and they have to get jobs from abroad.

(What happens to the strategy that Malaysian firms, when made large, will be able to reinvest in Malaysia and regenerate growth at home? Could it be that their lack of ability to innovate is forcing them to do the same stuff elsewhere - having learnt the tricks of dealing with politicians at home?)

Of course it is good that Malaysian firms can do well abroad and create jobs abroad - but that does hollow out the local economy - when we do not invest at home - why? - because the investment climate at home is not so good any more - because easy money is no more?

For accounting purposes, we can require Malaysian firms to declare their global income and add that to our GNP.

For Malaysians abroad, I am not so clear.

It has to do with how we treat fellow Malaysians who have decided to work abroad.

If they take up a PR or a foreign citizenship, Malaysia seems to be very happy to "get rid" of them.

If that is the case, then we may not technically be correct to include the earnings abroad of fellow Malaysians who have decided to make a foreign country their home - although they may each feel every inch a Malaysian in their hearts.

In the meantime, we seem to be quite happy to trade our well-educated multi-lingual born-and-bred Malaysians for illiteral foreign unskilled labourers.

We seem to have traded off our middle class for a low-class manufacturing sector and basic services sector that rely on cheap third-world labour.

As we now stop the inflow of illiteral labour, are we changing our policies to bring back our talented professionals?

For 1Malaysia to work, we may have to redefine Malaysians.


de minimis said...


This is the most lucid examination of the manner in which Malaysia's economic performance should be measured that I read ANYWHERE. This is certainly a key matter that the to-be-formed NEAC and the EPU should be looking at in depth.

I hope you will not mind my borrowing this post of yours in toto for my blog so that some discussion on this can be generated. It is very, very relevant.

walla said...

One suspects the questions asked are actually statements made.

For instance, people who migrate overseas will be starting from scratch in developed countries with higher costs of living. So they won't be able to repatriate any money even if they are sentimental. The flip-side is that today those overseas countries are down which means the reason for them to come back will depend on how much they can liquefy their investments in capital, effort, time and roots sunk there. The faster those economies rebound, the less likely they will repatriate. If anything, the absolute failure of the brain gain programme says that reasoning has some traction.

And for companies which have ventured overseas, the cycle will probably takes years before good backflow reinvestments can take place. We have investments in oil and gas, real estate, roads, some banks and two casinos. The gestation and latency periods are longer than offshore trade and services.

There are air pockets all over the place in our national economic planning.

We say we want more value-add. But continue to employ unrepriceable low-cost labor, falling into the same quadrant as even lower-cost competitors; the capital investments will then get increasingly risky which will raise the cost of financing, reducing the competitiveness measured on bottom-lines.

We say we want a stronger services sector. But continue to shift goalposts in terms of recognizing our brains so that they leave in disgust, adding to the store of our future competitors. We give birth and train them to go to other camps to pulverize us.

We say we want to achieve developed status but do not push national quality programmes wherever needed that will make the country more cosmopolitan not only in outward working and living environment but also in inward mindset and world-view.

All of which in turn affects our future overseas FDI because as they can afford more, those overseas countries will start to be picky about the quality of people and investments from elsewhere.

In short, we screw up our human capital and thus our future.

etheorist said...

de minimis,

You are most welcome to it.