Wednesday, September 1, 2010

The Danger of Putting Politics Before Economics

It is true that economics is not without its shortcomings, being the study of human behaviour in contact with each other to provide goods and services to each as each person searches for happiness in this troublesome and, sometimes, too long a life.

The difficulty of the study arises because the behaviour of human beings, individually but usually as a whole, changes as their operating environment changes which, in turn, brings on new sets of behaviour. From this perspective of dynamic change, we see a tendency for collective human behaviour, and hence the economics (and the politics), to ascend (becoming more optimistic) or descend (becoming depressive).

Malaysia is in a unique situation of having a potent mix of many colourful ethnic people in an economic cauldron with the fire underneath being gently stoked by the clever few. If the fire is gentle long enough, Malaysian will meant into a homogeneous entity, probably reluctantly. However, if someone decides to stir the pot with a stick as well, the different little bits and pieces will spin in their own little eddies round and round the pot, knocking against each other as if in violent agitation.

The New Economic Policy was a policy attempt at creating a new economy. While poverty is, rightly, a universal concern, the other concern was in regard to wealth distribution.

Poverty (or wealth creation) and wealth distribution are both social as well as economic problems. Poverty is a social problem when the family unit breaks down or when people are physically or mentally handicapped. It becomes the duty of a moral community to help the unfortunate. It can be an economic problem, through lack of (proper) education. It can be a systemic economic problem, when an economy goes into a recession or when it is not creating sufficient (good) jobs.

Wealth is distributed as a product of the peculiarities of an economic system. An economic system is created to produce wealth, either for the masses, for a select few, or for the top leader. The economic system is invented by human beings, which means of course it can be changed. Different economic systems (or models) will create different results, with regard to wealth creation and wealth distribution.

Several economic systems have been tried out in the economic history world, and they are still being tried out - including the one in Malaysia. The models go from the Garden of Eden, robbery, subjugation (enslavement and forced labour), conquest, and colonialisation. Apart from the Garden of Eden model (which is favoured by roaming natives in thick jungles), all the other traditional models are based on the labour of others for the benefit of a few.

The current more popular model that is being widely promoted by academicians and practitioners of all persuasions is the model of free enterprise based on free competition and free movement of capital and labour. This is argued on the basis that it benefits more people (than other more coercive models), as they compete with each other to provide goods and services for each other in order to survive, with the incentive to labour in the form of perceived wealth.

It is argued that people are more given to hard and harder work, which is not a chore to them, because they have a choice, a choice to do the things they want to do, or a choice to do the things they do because they have a noble goal to pursue (such as a better future for their children) - which could just be their meaning in life, their raison detre for existence. But, they may not be happy to work that hard if they feel that they are being forced (directly or indirectly) to work that hard because of an artificial quirk in the system which they have no choice to get out of.

In the design of any good economic system, the thing to watch out for is the incentive to hard work now in order to reap long-awaited much-desired fruit in the future. It may just not be wealth, but education for their children.

The hidden fire under the cauldron of life is the fear of uncertainty, the fear of failure, the fear of having to beg from others, the fear of desertion, the fear of being disrespected - that drives normal sane people to slogging their hearts out, as if to expiate some unaccounted-for sins of theirs (demons, I call them).

Remove that fear and uncertainty, you have removed the incentive to hard work.

The availability of opportunity for everyone of all abilities to climb the economic ladder is arguably the most value asset of an economic system. As more individuals climb, society improves.

When the people are demoralised and despondency sets in, society crumbles.

It may be necessary to discuss economic issues in racial terms, in order to have a clear picture of which particular groups are in trouble and why. When politics gets in to solve economic problems on racist terms, by blaming economic problems on particular groups, then the stage is set for policy to take on a more racist solution, if the rhetoric is left unchecked.

The world has seen before how nasty racism can become.

Malaysia's economic problems today may simply be that old policies did not allow it to adjust to the new world economic order, as in the case of many countries, that the old economic system is obsolete. The challenge therefore is to find new economic ideas. This is also a great time for political agitation, with no one having any answer and each blaming the other.

These are indeed dangerous times, as sentiments harden into logic in narrow minds. When logic fails to persuade, as people talk at cross-purposes, emotions may just rupture, if care is not taken.


Neil said...

Thought-provoking comments.

Here politics is good business. Even institutional processes are bent to serve political ends to lubricate gravy trains.

Here economics is bad business. Economic systems which would otherwise have grown capability to earn more and capacity to spend or save more get politicized using non-economic notions like race and religion to distort.

Therefore any economic system which may be good elsewhere gets nullified by a political system which is bad to the extent of playing the race and religion cards. Business growth is thus de-optimized.

Moreover, the mindset gets rigid and resists change. It becomes defensive of what is indefensible in the face of reality. It breeds more doubts and fears which spread more negativity which is used by politicians to propagate the status quo by dividing what should be natural team players.

Soon enough the situation will degrade to an unstable state and communities will find their own solutions, repelling anything a government may offer.

Social-economic cohesion and national identity will then disintegrate. The country and its economy will become even more communalized. Those politicians who want this will get what they want but then they will soon enough realize the entire edifice is collapsing.

The result will be crumbs in their hands, disillusionment, mistrust and ire in society, and promise turns to peril in a once-emerging nation.

A country is just a notion. Economic systems are just tools to enlarge and sustain prosperity. Properly delivered with universally accepted upright standards, politics could give meaning to peoples and lend weight to progress in harmony.

Malaysia lost the plot; only some of her more enlightened peoples have seen through the mess and are doing their best to bridge the gulf.

But if changes are not made and if old ways and blind minds continue their escapades, even bridges will be drawn up instead of connected across.

The country's economic history points to that. The faster this is seen by all, the clearer the steps to remediate the situation can be taken.

By the look of things, that itself is just another pipe dream.

Hail ale.

semuanya OK kot said...

Success --> Rigidity --> Retrogrssion.

In addition to promoting artifical needs, the traditional way to increase uncertainty is to promote unfettered reproduction and to visit destruction and injustice on the populace in an unpredictable fashion.

There is certainly no need to re-invent the wheel. Sane alternatives already exist. The only option to bring them about is also obvious.

semuanya OK kot said...

A key aspect of evaluating reward (utility) is that it is relative. What was a source of pride yesterday may be bitter today if we find out that a higher benefit is going to another who is less or equally qualified/productive. This is can lead to more productivity (after you vote with your feet) or less.