Wednesday, March 31, 2010

NEM: NEAC Presentation at InvestMalaysia 2010

Went to the morning sesssion and came away with mixed feelings.

The NEAC presentation was about 10 slides based on the report NEM Part 1: Strategic Policy Directions.

The whole thing has been incredibly boring because it has got everybody talking about what's wrong with the Malaysian economy - and the whole agenda is making the whole nation with interested foreigners to bicker about our economic afflictions.

It would not be difficult to gather the data and details to support various arguments - especially by a well-paid team of young and enthusiastic graduates - and I would even imagine that NEM Part 1 would make a good read in this regard and probably be therapeutic for those reading it.

The tendency of everybody in the session - and even my tendency now - is to try to identify what are the real problems with this economy - but at one point or another, what needs to be said has already been said and probably a hundred times over.

This whole NEM has become a national nightmare.

The common phrase we now hear about the NEM is - the devil is in the details of the implementation. The other one is this - change we must but it may not be easy.

I choose to differ.

I think the most crucial aspect is to identify the core issues and to make core changes to policy and everything else will follow.

If we are going to get ourselves stuck in another rigid (and rigged) - though modified - system, then I think we are going to be no better than before.

The PM gave several guiding principles yesterday. I wish to give some of mine now on the NEM.

1. We should build a flexible and dynamic economic system with basic rules, and not a rigid system based on a new set of rules. There should be dynamism for investors and savers.

2. The key agencies should be answerable to the general public in some way on a regular business basis. We should call up BNM, MOF, MITI. MOE, MOT to explain what is happening on the ground. To my mind, the greatest misjudgement in policy is on the exchange rate which plays a key role in restraining Malaysia from getting out of the middle income. (But there are groups who are happy with us being in the middle trap because they are personally enjoying a good life while cracks and strains are appearing in the rest of the economy.)

3. There are some stale mindsets staying in senior officials. When asked what about the SMEs in the NEM, Amirsham - to the best of his ability - said, "I thought the role of the SMEs is clear - to support the big companies." This is a layman's view. What a shame, Amir! My view is that SMEs stay small and medium sized because they failed to grow to be big international firms, and this could be due to market constraints such as being hampered to serve just local MNCs or GLCs. We should be building a national route for local firms to compete in the global markets.

4. This brings me to the point about the state of the local economy. We have been so dependent on government spending to get the economy to grow since 1990, thanks to the greatness of our previous economic architect, that almost every corporation of any measure in Malaysia looks to the government for some form of business. And the argument now is that since we do not have the cash anymore, we should look to private investments. If the "private" sector is government-dependent, then tenders for government projects become a major issue. To focus therefore on the government tender system is therefore to miss the point.

5. A point is made that middle income economy depends on semi-skilled labour and graduates, and a high income economy depends on masters and PhDs. This takes time. The immediate solution is to grant PRs to foreign skilled professionals as well as double citizenship to Malaysians or ex-Malaysians already abroad.

6. The list can go on. But to create a great list to fix the national economic system is a telling indiction of the government system - that the ministers and the civil servants that we have now are a hopeless lot. They have to be told exactly what they have to do in order to do their jobs well. The so-called detailed Roadmap that is to be in NEM Part 2 a further proof of this paralysis in the public sector. I can be sure that the Roadmap will be extremely detailed and will take years to implement. To blindly implement a detailed Roadmap is to create yet another rigid system, albeit a better one. I think we are not getting out of the box.

7. Being stuck inside the box is a real problem. One of the slides this morning made the point that if our real GDP grows by 6.5% pa for the next 10 years, we must hit US$17,700 per head by 2020 which allows us to sneak in at the bottom of the high-income economy. I would interprete that income to be the top end of the middle-income economy, and if this is even trying, then we could as well slide down the pole to the bottom of the middle income, and below - if we fail to become flexible and dynamic as a society and economy.

8. If our administrative system is already efficient and functioning properly, the NEM is supposed to take a strategic role. We only have to provide one or two or even a handful of specific directions - such as market economy, transparent government, independent courts, poverty eradication - these should be sufficient to get the ball rolling for the system to change. No, instead, we are stuck arguing the details.

Tuesday, March 30, 2010

NEM: PM's Keynote Address at InvestMalaysia 2010

I was supposed to attend but didn't make it due to short notice, but managed to catch it live on TV just now.

First impressions:

1. The coverage ranges from poverty eradication, price distortions, middle-income trap, social safety net to high-income goal, political will, change, innovation, Bumiputra policy, investments, EPF, institutional change (MIDA) listed companies, GLCs, divestments, and property development. It is too comprehensive to be focused.

2. I feel at times that the first part of the speech was drafted by an analyst, which is a bit impersonal, while the latter part is a bit more gutsy and more categoric.

3. I feel that poverty cannot simply be eradicated by just raising the income level of the poorest section of society to solve the poverty problem. Poverty is inherent in the capitalistic system that we are in, and therefore needs a system to over-ride the system defect. A higher-income economy does not necessarily mean that will be no poverty. Widening the social safety net is one, but it must be seen as a systemic issue about helping those unable to participate in the mainstream.

3. The real juxtoposition is between change/high-income policy and the Bumiputra policy. There is so much psychological baggage from the latter that it is going to distort the thinking on economic policy. I suppose it is this politics that is hard to shake off. The Bumiputra policy has graduated out of the poverty discussion and is now concerned about rights in taking a cut in the pie. The PM talks about being more transparent in the tender process for Bumiputra where the definition of Bumiputra is now more inclusive of other Bumiputra. It is as lapis a cake as you can get, without the cream or core or investors of the economy.

4. EPF is to divest into foreign markets to make way for foreign investors to come to the Malaysia stock market. It is as silly an idea as you can get. I blame the advisers. I thought the original intention of having an EPF is to fund local development in order to accelerate the growth of the local economy. If you put an accountant in charge of the EPF, you are going to get a non-economic strategy.

5. The change/corporation of MIDA into the Malaysian Investment Development Authority is a step forward in removing the excessive power from the MOF who deals with all things strategically and financially important for the local economy. The trend should continue to remove more authority from the MOF, in lieu of the MOF authority not removed from the PM. (Would this mean that the MIDA CEO will now be half an MOF?)

6. When a PM talks about economic policy, he should just focus on policy. The moment he gets into specific cases, such as the divestments by GLCS and the nature of the divesments, I think we are zoomed back into the same old matrix.

I could have gotten some of the points off, so let's see what the reports say and see if I need to correct myself later.

Thursday, March 25, 2010

NEM: Pandering To Short-Term Investors

Stockbrokers and fund managers, no matter how they style themselves, are short-term investors based on long-term views. Investors with short-term views are called speculators.

I do not understand why the Prime Minister of Malaysia has to go to Hong Kong to talk to stockbrokers and fund managers about the New Economic Model for Malaysia. It is none of their business.

The rightful audience for the NEM are the local people, the citizens of Malaysia, who must be convinced that the NEM is the best thing that can happen to Malaysia and Malaysians such that the NEM will create the greatest confidence and pride that the people of Malaysia can have in their own country - so much so that they will sink in all that they have - the wealth their parents left them (if any), the wealth they have made in Malaysia, the wealth they have made abroad, their current savings, and their current efforts - and build on what we have new structures and systems that will improve social and economic life in Malaysia.

The last thing you want to do with the NEM is to convince short-term investors and speculators in Hong Kong that Malaysia is the place for you to take a quick punt - of at most nine months - by ordering that government agencies cut down on their holdings of listed companies so that these foreigners can do that punt.

I think the Prime Minister is being ill-advised in this case to pander to these opportunist investors. What we want in Malaysia are proper investors who will sink in their capital into machinery and work to produce output to serve the world.

In this world of excessive liquidity, liquidity is not the problem for the economy. It is the lack of good ideas for real investment in Malaysia that is hampering Malaysia from getting out of the middle-income trap into a high-income economy. It is the unwillingness to do the hard work of building a business that is the problem.

If you then mix in politics along racial ground, then you really are caught in a mental trap that is dragging down the economic strength and resolution.

Wednesday, March 24, 2010

Unemployability Or Social Change

I have been distracted by this idea of the "unemployability" of a whole new generation of children around the world, even in the developed world.

If the problem of "unemployability" is limited to a small society like Malaysia, then there is a need for the education system to change. But if the problem is spread across several societies, then it would seem that there is a need for change or that there will have to a change (by policy or otherwise) in the way society will function and look like in the years to come.

I am reminded that the IT revolution of today was and still is helmed by a few hippies of the sixties who seemed to have dropped out of the system and went on their own path. Steve Jobs, Bill Gates. The focus is not on their not having completed their education, but they saw different things.

"Unemployablity" can be elaborated in several ways. The first impression is that these young people who have passed through the educational system are "useless" - being "unfit for job vacancies that are currently available." Precisely. If only these young people would come up with ideas based on things they know how to do or wish to do.

Young IT savvy people who spent their formative years interacting with an illuminated piece of glass are typically shy and ungregarious. They are totally unfit for the incessant talking and cajoling required of the modern sales people who are now called business development executives or whatnots. There is stress in present industries because of overproduction and overconsumption of hackneyed products - which define the jobs that are typically available to young people who may feel they would rather be involved in other lines of "business."

The world is today caught in probably one of the most significant structural changes where the focus of the global economic power is slowly but surely shifting to the east - and not without must protest from the west. We should therefore expect societies around the world to change and transform and take on an entirely different shape. What that shape wil be will depend on the currently "unemployable" young people - who being unemployed will have to then employ themselves by doing whatever they can do.

I think the young people do not need new things. Their parents have already cluttered the whole house. Their parents have already bought more houses than any one family however extended will need. Their parents have enough big cars to drive around empty. I think the young people will do simple things which they really want to do and live a fulfilling life. At this, the GDP that measures quantities produced will have to fall sharply. The young people could save the world from being dug out wholesale to make things which the world do not want. The young people could eat simply and healthly - and they do not need to have a glib tongue to earn money and pile up on the material stuff.

Am I right or will I be right? I do not know. It doesn't matter. What matters is the way to get out of the box that we find ourselves in, without doing violence to the box.