Thursday, August 19, 2010

Some Theoretical Issues in the Malaysian Economy

After my recent trips into nostalgia, it is time for me to head back to the world of harsh realities. Given recent events, I thought a theoretical perspective may be interesting, in order just to get to a different plane.

The reality is always harsh, as the jungle is always neutral. It is how each of us or a group of us traverse the difficult terrain that we get to the other side, not levelling the ground (by someone else) so that everybody can sit and fall asleep (by doing nothing), although it might be useful if someone who has gone through the journey before could signpost some of the danger points.

I have always thought, and still think, that Malaysia is very forward in its socio-economic thinking by bringing out the New Economic Policy explicitly for implementation. In any modern society, the issues of growth and distribution are the twins that always appear in any national agenda. My only unhappiness is that there has not been much discussion about how a more egalitarian society can be created in Malaysia, although there has been much discussion on this issue of social justice in modern economic and political literature. It is as if Malaysia is stuck with its foot in the mud of 1969, unable to extricate itself from the political rhetoric of the time and getting itself out and become relevant in the modern borderless world where sovereignty of all sorts is being threatened. As the global economy construct changes, the issues of growth and distribution change as well, and hence the required solutions to the problems.

Growth is often pursued in modern societies at the expense of distribution because of the very nature of this capitalistic and market-oriented economic system where incomes are not earned evenly across the social strata, where different communities consume at different rate in relation to their incomes, and as a result, savings are done also at different rates. Wealth, being created out of investments and hence out of savings, is therefore unevenly distributed, and some would say, unfairly, by going to those how know how to create it, and eluding those who desperately are in need of it.

It is now recognised that the modern economic world is built by those who are the best, the most capable, and the most brilliant - but not necessarily the most noble nor the righteous. The modern economic world is a world of output and production of goods and more importantly now of services which, could be compared to the olden days of alchemy and magic but today of the financial and derivative kinds, and not excluding the age old services of prostitution, drugs, robbery and murder. The modern economic world is therefore a mishmash of all sorts of people of able minds and bodies.

The diadvantaged are typically those who are not in the travelling band, because they cannot be - the very young, the very old, those nursing the very young and very old, the handicapped, those disturbed of minds, the unschooled and untrained and hence unable to be of service to others. Or simply those who are caught in a time warp oblivious to the shenanigans of modern economic activities. These are those whose welfare the modern society must try to look after in order that we all feel that we are doing our bit to alleviate the necessary suffering of this world.

That we feel like having to do charity is because we may, deep in our hearts, realise that the world we live in is an artificial world that we have created out of our own imaginings for our own fancy - based basically on little bits of paper certified by some authority to be legal tender, and that trading of those bits of paper are allowed. The modern world of investments is based on the confidence that bankers have on the borrowers to pay them back their money, and their collateral today is real estate but in the days of old when real estate was in its infancy trust and word and character of the borrowers. Now, the modern world grows quickly with the real estate as the right foot and the money lenders as the left foot.

The value of the real estate is defined by location, the value radiating out of the urban centre where the concentration is the greatest, as defined by the number of people or business per unit area. It is this interplay of the supply and demand forces that defines the value of the rent and the land. It is this different rate of output that determines that (sharp) differences between the value of the real estate in urban centres and the rural areas (the latter defined mostly by agricultural output, which can be intensified by plantation technology).

The battle therefore is on the rate of output and the rate of improvement in productivity. Economists know that the rate of improvement is the slowest in the primary sector, with rapid growth during the industrial revolution and the Japan-type revolution of the manufacturing engineering, and now the services sector propelled by ICT and globalisation.

It is a challenge to try to reduce the difference in productivity in the rural areas and the urban areas. But it is this reduction that will resolve the disparity in distribution in a traditionally agricultural society that is rapidly modernising. Over time, the trend could be in the form of the growing importance of urbanisation where old towns become bigger towns, and new villages become new towns. The importance of urbanisation is economic efficiency in the provision of basic amenities such as education, health, and security which are critical for uplifting livelihood of communities.

In the end, the linkage with the rest of the world will define whether Malaysia will become a successful global trading partner. In this sense, successful Malaysians will be those who are resourceful, agile and open to new ideas with an affinity to dealing with communities other than themselves.

With the focus on the livelihood of Malaysia, the correct approach to measuring the improvement in the economy is the GNI or GNP, and not GDP. When the focus is on GDP, the focus tends to concentrate on foreign investors. With GNP, the focus will the opportunities that are being offered or made available to Malaysians, whether those opportunities are at home or abroad. GNP should be an integral part of the 1Malaysia concept, for it counts Malaysians whether they may be.

There is a serious need for discussions on the Malaysian economy to focus on issues where positive policies can take place.


semuanya OK kot said...

"... not necessarily the most noble..."
Call a spade a spade.

"The disadvantaged are typically..."
Another polite statement. The problem is much more widespread. The bulk of people everywhere are serfs, desperately running faster and faster to stay in the same place, as Alice (in Wonderland) was told by the Red Queen.

"The value of real estate..."
This can change dramatcally, e.g. if supplies of fuel fail, if used in desperate times to grow food, etc.

The spell of economics is broken, but there is no will in its former acolytes or critics to enforce structural changes. This is because of the financing of "democracy". Here at home, there is only hysteria, beggar-thy-neighbour and plunder-as-usual. I see no intention of (a) getting on with key issues of competence and entrepreneurship (b) tackling basic challenges like food security and education. We certainly have no inkling of climate change outside the coconut shell.

walla said...

It's a global challenge. How to practice unfettered capitalism with socialist sentiments.

The simplest solution is to supertax the ultrarich. But that will demotivate them and others who aspire to be rich.

So make borders porous in order to attract those with ideas to come park and make their money.

But the same tax regime will also turn them away. And if preferential tax is given, disparity itself will be challenged.

Secondly, affirmative policies like the NEP had a function based on two elements. Poverty reduction in economic growth.

But their implementation here was toxified. They were applied to one race by the same race and then the implementers leveraged it for themselves so that the distribution became layered; say, eighty percent for selves and friends, twenty percent for the community.

What about the other communities? So the argument next was it's in the constitution. What about the sovereign rights then of the others as protected by the same constitution? So the argument again was nationalism above all. What about the plurality of nationalism over and above the monoracialism of nationalism? At that moment, all arguments stopped because officialdom slammed further discussion.

That's why today the issues are still unresolved.

The faultiest result of the implementation is that people lost their socialist sentiment and turned to the law of the jungle. The policy undid the goodwill in the heart and turned the mind into a calculating machine.

One step below that - the belief that social welfare is a right for some so much so they can be assured of freebies and special channels so long as they continue to vote the same implementers - who then continue their syndicated activities covered by underlings of the executive and enforcement offices.

Thus socialized capitalism became kleptocracy which denuded the economy and as such the NEP could not be sustained because it was predicated on a growing economy. Which wasn't where it really matters. In the real, globe-relevant, capability aspects.


It is said this quarter's growth is 8%. Yet the bulldozers are still rolling over the old Matsushita air conditioner plant just after Western Digital in Petaling. It's not like yonder days when every week one could read of new entrants with big bucks setting up factories employing thousands so much so MOF could say we had so much money we didn't know what to do. Those days are completely over.

The manufacturing we have been doing is in the same quadrant as the agriculture we have been doing. Long-cycle, scale-based. More made or planted, more income. The main feature is physical asset. Land, buildings and hardware.

But globally there has been a shift from that. Ideas have come to the fore. Suddenly the physical piece of real estate was worth very much less than the paper that declares the value of a virtual real estate. Like google, ebay, facebook.

And that virtualized paper value itself is determined by other factors, like the big idea, the viral marketing, the mass consumer uptake, evolution of business models, creative destruction of old ways to do new things, stickiness and fan clubs around the clock by anonymous patrons from anywhere in the world, even strategic valuations from mergers and acquisitions. Long-cycle volume-scale economy became short-cycle creative destruction blue-ocean economy.

Geography and community have been zapped in one stroke. And in the new world, one is either dude or duh.


walla said...


Which comes back to us. Is our economy a dude or a duh or a dud?

To answer this laterally, let's observe something.

We go to the bookshop and pick out those big travel or architecture books. Yours shall only be on the island of Bali. I insist.

(thanks, Star, for the recent Made Wijaya coverage; an Aussie, he actually jumped off a ship when young and swam to the island to become a famous landscape designer later).

Distractions aside, one observes all of them are printed in the dot.

So, with hundreds of SMEs in our backyard, and zillions of acres of natural resources like timber for paper, and oil for synthetics, beautiful foliage, and a headstart in the printing industry of this entire region, how come not us, and why are our printers making a living not printing beautiful architecture books that shelve for rm200 apiece but printing cheap textbooks students don't read and workbooks that change every year to no avail, or at their best, annual reports that start with "it has been another challenging year"? Challenging only at the nearest golf course, it seems.

Could the reason be because our architecture industry has been stymied and too localized (ask the prime condo developers)?

Or, because we don't have enough writers to write in english on the beauty of the region. What people can't read, they won't buy ((ask the MOE)?

Or, because our printers could not get funds because of reasons like:

"Deputy International Trade and Industry Minister Datuk Mukhriz Tun Dr Mahathir informed the Dewan Negara on July 27 2010 that SME Bank from 2006 to June this year approved a total of RM9.8 billion loans involving 5,447 applications and other programmes of which 90 per cent of the beneficiaries are bumiputra SMI’s.

According to the Federation of Chinese Malaysia Youth Section Strategy Research Committee, there are about 519,000 SMEs in Malaysia and they have not received loans from the SME Bank."

walla said...


So, feeling nice about social ethics in a capitalist regime will only work if all implementers are honest about how they distribute.

Once the line is crossed where social welfare creates exclusivism at the expense of economic growth, then the alarm should signal a revisit of all assumptions. The matter must be dealt with to final resolution.

Otherwise we may have a hundred Malaysia Plans, economic models and global thrusts to make glocal experts but people will still do things like:

"Under the NEP between 1995 and 2000, the Seventh Malaysia Plan for primary education development allocated 96.5 per cent to the national primary schools which had a total environment of only 75 per cent.

The Chinese primary schools which had a total enrollment of 21 per cent was allocated with only 2.4 per cent while Tamil schools with 3.6 per cent of the total enrollment was allocated one per cent of the budget."

So we killed our SMEs and then we tried to kill their feeders, and now we tell them they will drive the NEM.


With so many miscues and pressing issues that only serve to draw guffaws but for their severity on society, what else is left that can be done?

Redefine prosperity. It becomes 'financially comfortable for all' with enough savings for old age, and some left over for social welfare which shall apply to all communities according to need and merit but in such a way as to enable them to fish for themselves, not eat the sekap like it's dropped from the sky everyday.

A scandinavian model? But we already finished off our petroleum reserves and so can't start a fund based on the norwegian sovereign model.

Such a ponderous matter deserves a good beverage.

Like coffee from the beans explicated from the bowels of the civet cats of Vietnam and Java.

However that won't fit here, because the topic here is theoretical issues in the Malaysian economy whereas that is in fact a last-ditch practical issue.

Since when people move their funds out of the country because of insipid and fork-tongued local conditions, trillion-ringgit GNI’s will remain only a pipe dream. They will go where the coffee smells better.