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.


walla said...

The lion has been recognized by its paws.

Both angst and conclusions are shared.

If one may gently say, the core matter is intrusion of politics into economics.

Politics is by nature inefficient. It panders to emotions. Economics is by demand efficient. It panders to competition.

The politics of this country is feudalistic patronage which spawns obedience whose unquestioning nature seeds sub-par performance in the absence of competition.

So the sub-par performance of politics intrudes into the domain of economics, wrecks havoc on market efficiency, locks in status quo, and saddles the country with high costs, both real and opportunity.

Patronage, obedience, ineptitude, inefficiency and status quo are hardly transformation factors.

That this is so can be observed from the approach. Instead of saving time, it is separated into economic from government.

Instead of facing up to the core matter, political transformation is frozen which confirms that economics in this country is used to serve politics while the exercise that is being rolled out is sold as politics pushing for the transformation of economics.

In the coming weeks as they tussle and grapple with a myriad combination of the 'model', they will find that the root issues are more in the arena of political and governmental transformations needed to create the final will to grab the bull by the horns.

Now the government transformation exercise has been more an extension of the system, inter alia how to measure desired benchmarks and achieve key indicators using the same infrastructure. It is not about whether the very way the government has been organized, staffed and functioning needs to be re-engineered. It is again status quo, protected by political patronage.

In the age of high-velocity virtual government, Putrajaya stands as the ultimate grandiose bulwark of a sluggish brick and mortar age of some past fairytale era.

If this be the real situation, would anyone be surprised if in the end it is the matador who has to jump over the barricade and run helter skelter down the street?

Even in its presented form, there isn't enough time and right resources to run the NEM to yield the results needed. They probably know it. That's why the social net idea is featured prominently. It also acts as a buffer. But it reflects there is doubt the approach will efficiently deliver the targeted results. Because the challenge is not just income elevation and distribution but also capability-building to reduce future subsidy and social support.

Sustainable performance is the hallmark of intrinsically high-income generating nations made of financially independent citizens.

walla said...

Which comes to the matter of how.

Taking hint from what they have not admitted, one can then agree the present system will need to be made 'flexible and dynamic with basic rules'.

Which was why it was earlier mooted that a dual track solution is needed.

In the interest of national preservation, those who can must be helped to achieve their best so that they can contribute their most to enlarge the general pie to create opportunities for others.

But if those who can are themselves insufficient in critical mass numbers, then a program must be started immediately to lure global talent to come.

We missed two chances to do that during the global dotcom crisis and the Asian crisis. We now have a window of opportunity in the present financial crisis. There are plenty of smarts and professionals who are out of jobs all over the world.

So the first order of the day is to make those policy changes that will create the most attractive business and social ecosystem to lure them to come.

In the process of doing so, that new ecosystem will become embedded as the template for our own local transformations - mindset, social, et cetera.

To make it work, there should be a cracking pace to roll out everything. If ever the MSM needs to exalt itself, that can be their crowning moment. They can do the spin honors.

In a nutshell, make Malaysia into the most electrifying cosmopolitan nation in the next two years.

What are the programs for this? Completely duty-free? Fun country? Tourism galore? Sports all year round? World hobbyists center? E-ventures hub? New educational models? Ale-drinking competition? The offerings are only limited by imagination.

Once such things are started, all the core issues, angsts, doubts and resistances will have to face up to the business operators and industrial investors who will suddenly come alive and roll in by sheer momentum (if the promotions are done excellently). These productives need not even be locals. They can be from any country.

If Malaysia is going to hollow out, let her prosper as a hollowed out nation. So hollow it is filled immediately.

Because even the economic world abhors a vacuum. Especially one as nice as ours.


The forex part...i leave to the real smarts and the august learned's.

ps: the blogger's post is excellent for its sharp insight, if one may be so bold to comment.

Anonymous said...

Bottom line is .... what do I (young, old, employed, unemployment, m.i.c.o, public servants,etc) have TO DO different for ACTION project our behaviour.

Rukun Islam has 5 tenets.
No 1 is Belief, Vision and Commitment.
The Other 4 are ALL ACTIONS that are aligned to No 1.

The message is shining clear.