Thursday, February 10, 2011

Effecting Change: System vs System

When I was earning a living making forecasts, my emphasis was on forecasting turning points, not projecting straight lines. Projecting a straight line (in any form) is the dumbest thing a forecaster can do - the only judgement one can make is how straight is the straight line. One cannot really forecast a straight line; I contend we can merely project it. To me, a line will continue to be straight (or sort of) until something happens that causes it to go off its trajectory. Normally, people assume a straight projection (that life will go on as usual) until the expectation is proven to be wrong and then ask what happens. As forecasters, we have to know what are the key parameters which give rise to the existing situation, which key parameter is likely to change first and when that happens what happens next. In the mind of a forecaster, therefore, the main task is always to assess the integrity and condition of the key parameters as well as to look out for any extraneous factors that are likely to intrude into the system which will alter the whole picture. In the end, the quality of a forecast rests on judgement, based on the experience in the assigned field as well as the breadth and depth of knowledge of the world around him or her and us.

Living a good life is living a boring life, as boring as projecting a straight line. Same thing, day in and day out. Nature is boring. One can make one's life a bit more interesting with variations around the same theme. Today, I eat steak instead. The system does not change; our activities change. When the system is stable, we can dream - about how we are going to make progress in life through material acquisition so that we can show off to our friends and relatives - and we take our time trying to accomplish our vision and mission, step by each of our own slow and painful step. The system is in equilibrium, probably static equilibrium (in and around the same area more or less like some nomadic tribe in the jungle) and if lucky dynamic equilibrium with ability to accommodate population growth with sufficiency which in most societies is termed prosperity. Systemic equilibrium is crucial to happiness, no matter how much people may gripe about the ordinariness of everyday life which is really a liberty that only happy people can indulge. The English complain about the weather, and monks talk about the dreariness of mundane life.

Let us now introduce trauma, otherwise and now popularly known as change. We shake the tree vigorously and see what falls. We bonsai the branches by twisting and turning and telling people what they can and cannot do or how they should do things in order that we may create a brave new world by transfiguring the present. We imagine a better world, but we end up in the end with the same old dullness, sometimes kept interesting only by the unannounced potential threat to our soundness or mortality by some madman in power keen to stay in power forever, at whatever level of hierarchical structure that has somehow been erected all around us. In effecting change, the easiest way is to replace a lousy system with another lousy system. This is when reformers are unimaginative and uncreative. They see a lousy system, and wanting to replace it, end up giving the same lousy system except for some suggested modifications which hopefully give better results which did not quite materialise which then leads to another call for traumatic change and another sameness.

If therefore we are going to get the same system (albeit with modifications), we might as well determine what that core system is going to be and strengthen it. In most human systems, the core element is the absolute right of the individual and of all individuals, each same and equal in terms of right. The right to freely think and speak and associate and contract and exchange and indulge and believe and practice. The right to live as humans. The underlying structure of any human system must be founded on the recognition of these rights, and institutionalised. Once this core is corrupted, change will come after change. In order that the system will transition over time through the generations, this change can also be institutionalised so that not one person or a group of individuals can monopolised an entire generation. The call for change through rallies is usually a rally for generational change when an individual has been dominating an entire generation. In building in the required change and transition in the system, there will be scope for creativity in government when individuals or groups can propose newfangled ideas. In the end, however, when prosperity has been bestowed on the society, there will be fear over the protection of the people's assets and if the assets are not so fairly distributed, problems of the unemployed and the poor. The final battle in the capitalist world is always the fight between capital and labour.

Traumatic systematic changes are costly to social property or capital and they should be avoided if possible. If not, it may be the only way out. But there must always be a system to be put in place or else we will have no social cohesion.

Wednesday, February 9, 2011

Change: Breaking Point , Turning Point

Obama brought the word "change" to current circulation. meaning "revolution". He could have been inspired by the parking vending machine which says "change is possible". How does change occur?

In general, people do not like change because change implies uncertainty. As I understand it, the whole economic apparatus that people have erected around ourselves is to reduce uncertainty and to create stability of some sort. So long as the existing apparatus is still workable, people will maintain it until there is a critical mass of sufferers of the system who then demanded that change be made of the apparatus or system or paradigm.

We can see very clearly that political change will be brought about by the masses of ordinary people when their quiet suffering and despair could no longer be tolerated, when what they see around them is unbearable daily difficulties in the face of opulence - which indicates to them somehow that it is a systematic problem, not a natural problem. Nature can of course make things worse, but in a stable system natural calamities by themselves do not call for structural breaks as they create uncertainty; if they have faith, they want the system to help them, as is the case now in Australia with politicians shedding tears for ordinary people who are suffering from the natural disasters. It is when the prevailing system is seen to have lost its integrity which means that the integrity of the system has been corrupted that ordinary people rise to demand the obvious - that the system be improved or, better still, changed. "Improvement" to a corrupted system doesn't usually bode well because it usually implies that the "second tier" will simply "move in" to take over the "first tier" as well as to take care of the "first tier" which has somewhat "gracefully" made way for the "second tier" to come up to the podium. As we know from the computer, once the system has been corrupted by viruses, and if the corruption is severe (which must be in the cases that we are talking about), then we need to reinstall a new system. Those impoverished may install the same old system which is not the wisest thing to do because it has been shown to be easily corruptible. A completely new system is required to be installed, as in the old system with new safeguards or a new system with a completely different platform or paradigm altogether so that the viruses as we know them to do be cannot penetrate. In the realm of politics, the opposition to the incumbent government is usually of the same mould except that it is the opposite. The real challenge for change is to come up with something that is completely different from the incumbent and the opposite, and in the comfort zone of human horizon, the third force is usually a synthesis of the first two (acknowledgment to Hegelian dialectics). I prefer the George Bernard Shaw vision: People see things as they are and ask Why?; I dream of things that are not and ask Why not? In this way, we truly move forward and beyond the ordinary, meaning beyond what we are used to.

As in politics, economic change can also be traumatic. In the world of economic theory that many of us grew up in, the economic change is very much Victorian - small little marginal changes (mathematically called perturbations) which do not really upset the system at all, merely to test the robustness of the system. What happens when the system is not robust? The system breaks down, and a new system has to be reconstructed from the old model or constructed completely new from scratch. That is in the world of economic theory. In the world of economic reality, what happens?

In the world of economic reality, when the economic system shows any sign of struggle such as the rattling of some parts, the political masters, being control freaks, instinctively try to and usually do takeover the economic system completely. This is usually done by a process called Emergency Rule when the system is deemed to be at the very breaking down and the Master must now be "hands on" to smooth things over. As when a non-doctor tries to cure a (severe) headache with blind prescription of panadol, likewise in economic policy, the non-economist blindly prescribes monetary expansion as the cure for all economic headaches. Central bankers in trying to please their political masters consciously try not to trigger off any economic adjustments in order the central bankers not be blamed for any consequent crisis that will be created later on. When this happens, it is a sure sign of weak leadership or technical ignorance in both the political and the economic policy arenas. As in medicine, if an illness is not cured immediately at the root (preventive medicine) while merely plastering over the obvious symptoms, we have been taught that the illness is going to become very bad and can even become life threatening. In economic policy, we know that when the root economic problems are not properly resolved, economic adjustments will be forced onto the system and explode. The 1990 Japanese Asset Bubble, the 1997 Asian Financial Crisis, the 2010 US Financial Crisis. With political repercussions. These are all adjustments of the socio-politico-economic systems that politicians have been trying to lord over around the world in the last two decades or so.

At the very least, the US economy is now undergoing some drastic adjustments - collapse of property prices and the US dollar as well as some banks commercial and investment. In this way, I believe that the US economy will manage its find its own feet after a few years and give the Chinese a good fighting in the global economy. Malaysia, in looking east and following Japan, is still caught in an asset bubble, and banks with a huge loan book to households, can only stay solvent so long as loan growth is high enough to cover up the subprime problem which must be festering. The problem with monetary policy is that you really cannot stage manage a "soft landing". You are flying at 30,000 feet and suddenly you let go of the fuel pedal; what happens. Brakes become irrelevant. Such events are studied as chaos theory or catastrophe theory. It starts with a smooth ride with a little change, and the next thing that hits is breaking point or if lucking a turning point.

With the present being an accident of the past, the Malaysian economy is now saddled with some fairly difficult problems. Now truly Malaysian, the purpose in life is to be very very rich, and for that you do not need an education. Education in fact can become a hindrance to material wealth for you really do have to go to garbage dump and shift through while the government keeps bringing in truckloads of banknotes to dump. The scavengers now employ bodyguards to mark out territories in the name of politics and justice, and the only fellows who work are those poorly paid to do the manual work. The end result of the activities must be handled to the masters of monopolies who compete among themselves to see who is the cleverest. What else get done in the economy? Houses, roads, cars.

The current government in Malaysia is in a most unenviable situation. The party is over, the cash is spent, now we are living on borrowed money. But everybody is well trained to be mercenary. Grab and run. How do you change this mindset.

In the macroeconomic front, there are a few variable to grapple with. While the ringgit will try not to fall with the US dollar - and hence heading from 3.00 to 2.70 and 2.50 - it is not that particularly strong either as can be seen from its Singapore dollar rate of 2.30 although this is an improvement from 2.40-45. A real show of strength for the ringgit is when it can go to 2.00, 1.80 and 1.50 to the Singapore dollar. I would be happy to see sterling at 4 ringgit from the current 5.

Of course, now the financial markets are in turmoil in Malaysia. Will there be an election rally. Will interest rates be raised to curb inflation. These are rumours used by currency speculators from offshore financial centres to shore up the currency and equity markets for a while. Buy on rumours, sell on news. All these will be over by May, June. The central bank can be concerned with the reserve requirement to reduce the credit multiplier from capital inflows, and banks will be incredibly silly to lend long term using short term funds as we had seen in 1997.

In the meantime, let us try to build our economic foundation of a solid education system, a court of justice, an economic system where those who work hard will get the fruit of their labour. Let us bring proper pricing back to the local system. Let us continue to teach our children that they have a bright future in Malaysia if they work very hard. This will be real change.

Tuesday, February 8, 2011

Malaysia In A New Paradigm

I have been unashamedly enjoying myself writing this blog in the last few months by taking a long detour through my childhood experiences, the transformations I went through while being educated and still being educated by the world in which I find myself in.

As you can see by now, Malaysia is my country and this is my way of fighting for it. Race is not a matter that I can choose, and I have to accept it as it is like all the things in life that I must accept if I am not to become witless. Religion is a personal thing between me and myself and how I come to terms with myself, with the community I am in, with the environment which I have unwittingly helped to destroy and the endless everlasting universe and cosmos that I can only hold in awe in all my little eternity.

I think we have all come away from the old foggy nationalism that arose way back when our fathers were trying to drive off the old colonial power - which was nothing but an institutional structure with the ability to impose a certain set of strictures or law and order as they call it in order to derive a certain end result. It was an order of establishing a global social economic network to drive resource-scarce but value-added rich industrial machinery first in Europe then Japan and now China (it seems). Those so-called imperialistic tentacles do stretched themselves far and wide and they are now collected called globalisation.

Malaysia is nothing but a little stretch of tropical land with fertile soil and some valuable deposits in the ground. The once idyllic community was disturbed when the economic machinery was brought in with people to man them in order to produce an economic output. That little act became a way of life for the people working here. In chasing the colonial investors out, Malaysia had effectively severed its economic ties with its major trading partners, and its economy took a major dent. In looking east, we tied our fate with Japan whose economic miracle pulled up Asia including Malaysia but only for a while before Japan failed under the weight of the American attempt to "rebalance" the exchange rate to correct its poor budgetary management. Asia worked hard to create the American obesity. Having seen the rise of Asia, or rather South East Asia and the city states, China realised that there was also a way out of their economic misery.

Malaysia's economic fortunes are closely tied to these global developments. As the global economy swings, the Malaysian economy must also adjust itself in order to make itself relevant to the latest new world order. We have rested out fortunes on the minerals that we can dig up, the produce of the land we can from planting and harvesting, and we have to some extent ventured into the assembly line business. The rest are just pure services connected with banking, communications, transport and logistics, education, commerce and a host of other services that ordinary people can provide.

In restructuring society, the first attempt was to bring the Malays into the modern economic mainstream which is the world of towns and cities and plantations and factories. It is urban pressurised living which goes according to the clock and not the heavens. There is a disconnect between man and nature, and there is very much a connection between man and man through agreements and contracts and other artificial constructs in order to solve urbanised connected living such as economic risks, healthcare and other urban ills.

But the modern economic mainstream thrives on openness, on communication and trade, the creation of markets, the synthesis of old ideas into new innovations, the stimulation of waves and waves of forward movement in order to keep up with the new developments around the world.

The Old Malaysia responded by imposing strictures, a corset to cater to the chosen few and ignoring the masses. The battle for a piece of the old cake was futile as the cake eventually crumbled out of dryness and lack of care in nurturing its growth. When the economy faltered, new money was injected by oil money while Japanese investments kept some urbanites in fairly well managed state of progressive misery. Once upon a time, firm control was held over the money supply to prevent any unwarranted exuberance, otherwise called speculation. Then suddenly, the new elite in the government took over the treasury. They burst into the stock and property markets. When things didn't go their way, they took over the central bank. They took over the judgment over criminal and commercial and political justice. They took over the monopoly of the economy. They created inflation and this fueled the state of dysfunction that the economy is now suffering, when fiscal stimulus means more jobs for unskilled foreign workers and the local graduates are left with nothing much to do except to contemplate revolution, and causing so-called political tsunamis.

The New Malaysia that we are now in is a honky dory world of escalating property prices and pushing the stock market through monopolies. Nobody has to work that hard. Money flows easy as banks send everybody cash to spend now and pay latter. In this new paradigm, the Old Politics looks decidedly anachronistic. Old Politicians look and sound decidedly dinosaurial.

The New Malaysia does not talk about religion, race or nation. The New Malaysia talks about building an effective and efficient economic structure and institutions that can create flexibility and dynamism in the New Economy. A robust New Economy. The New Malaysia wants New Leadership at all levels to be able to lead, to create New Frontiers for the nation and the world. The New Malaysia is not about Old Money but New Ideas. Forget about the 30% equity. Create New Wealth and you will get your percentage. The New Malaysia requires New Collaborations between all Malaysians, and between Malaysians and Foreigners. The Old Malaysia was about the Old Malaysian Elite collaborating with the Old Foreign Elite to make use of the poor locals to make their money. The New Malaysia must explore the potential in the local economic and social environment to create a New Malaysian Economic Force to fight the rest of the world, armed with electronics and brains. The New Malaysia does not kill and destroy other Malaysians.

In the new paradigm, Malaysia must guard itself against international human trafficking, international money laundering, international crime rings, international terrorism. The much expected beauty of the new world of globalisation has also ushered in a new world of globalised undesirables. The free and rapid movement of people, capital and goods means tighter security run by well-equipped and well-trained personnel. Who says there are no jobs for graduates. The only challenges is to kick out the Old Politicians in the civil service and replace them with fresh technocrats. There is nothing much to lose. The civil service has lost so much of its credibility and intellectual rigour that things cannot really get much worse.

Tuesday, February 1, 2011

Social Unrest, Networking & the Economy

Is social unrest a reflection of the rise of social networking on the internet, or is it a reflection of a more fundamental flaw in society that demands a paradigm change?

Social unrest is nothing more than just a bunch of people who gather in a particular geographical space and time to demonstrate for a common cause. The communication of the mind and intention could be transmitted by way of smoke, paper, buns, or electronic signals. The medium doesn't really matter. What matters is that there are a sufficient number of people who are willing to risk their lives to make their views heard. The risk is worth taking presumably because they have nothing else to lose. Why?

It is very hard to imagine that comfortable working men and women will not got to work but instead take to the street to give vent to their emotions, unless those emotions are very strong and overwhelming their senses. Such a condition arise in human beings, as well as other creatures, I believe, when they are hungry and angry.

The problem with the stomach is very real. For the lucky ones, the stomach needs to be fed three times a day. For the unlucky ones, refill once a day seems like a luxury. When the refill is not forthcoming, anxiety arises. And when there are enough number of people who share the same traumatic experience, they will act. There is nothing for them to lose: they will die soon if they choose to do nothing. They choose to act as an act of survival.

In traditional society, the distribution of food is by way of rationing. I have more and you have less, because I have political power - that power being obtained by how many men and women one can employ to do one's bidding (pursuing one's agenda) by the degree of access to food resources.

In modern times, this power to access food resources is obtained by way of money or wealth. This access is usually thought by good people to be obtained through hard work by means of diligence and wit. Unscrupulous people can obtain access to food and other resources by way of quantitative easing, among others - which is just an economic jargon for the central banks to give cash to governments in returning for a simple IOU called government bonds. That extra cash is then distributed in the form of contracts for jobs for public works - the bigger public projects are, the bigger the leakage to the elite. One sure sign of troubles for the finances of a nation and eventually the economy is the spate of new public projects which are usually undertaken on the pretext of national pride, rather than economic necessity or pure business opportunity. With more public projects, real estate prices increase and while the elite feels justified that their is an increase in asset prices and hence asset value, rentals get pushed up for pay higher returns to property speculators, and retail prices soar. As new public projects are laboured by poor under-represented foreign semi-skilled labourers, the home grown fresh graduates, the semi-skilled and unskilled become left out of the mainstream of economic development. The graduates take to the streets to talk of justice, and the uneducated take to the streets as gangs to loot.

Things can be made worse by natural disasters which suddenly and unexpectedly put a dent in the national budget. This the Chinese have long called the Mandate from Heaven.

The underlying economic disaster is served its final straw when a stone is thrown to cause a ripple across the waters.