Friday, December 13, 2013

Foreign Workers

The very idea of a foreign worker comes from the mind of a person who thinks that he (or she) inherits the land that he resides and therefore all else who come into that space is an intruder, and hence foreign to it.

This idea originated from olden gated communities called cities, the residents of the cities being citizens who had the sole right of governing their respective cities. The floating mass of "other" people including slaves and indentured workers and even merchants and traders were left to their own devices, with the right to do anything but any say in the government.This idea continues to today.

The population of the foreigners can swell to a size that makes their presence highly visible. The challenge for the government is to impose strict laws so that order can be firmly established. But visibility gives the so-called foreigners the power to act, so long as they can fight a good reason to do so. A good reason is anything to do with right and justice.

The invitation of a population of foreign workers to any country is initially for the selfish reason of profit - that the foreign workers can be paid cheaper than locals, supplemented by food and accommodation which can be kept cheap with basic staples and temporary shelters. It is only when the foreign workers need to engage in their very human need to socialise that they try to have contact with the local population, and this opens a whole new can of social issues.

At the end of the day, the very problem is the idea that foreigners can be kept temporarily on a sustained basis of servitude to the local gentry and citizenry. It is an extremely primitive and crude view. By the law of dialectics, power becomes to those who work. The master commands the slave to do everything for him, such that in the end, the master depends on the slave for his well-being. So, one really cannot have the cake and eat it.

People from other places are also human beings, and they have come here to work very hard to survive and to built their own future. They are not a transient float. They will be here for years and decades. Their presence must be properly recognised so that proper work of a normal government can be extended to them - health checks and healthcare, sanitation, nutrition, housing, education of their children, social activities and their general well-being so that there will be no tendency to demonstrate loudly and violently their problems; or worse still, their desire to do their "revenge" on the country.

For this, country would need to take an enlightened view on foreign workers to convert them into immigrants and better still citizens who can be encourage to help contribute to the national interest in all ways, including governing the nation. This is a long call, but it sets the direction of where the idea of using foreign workers to enhance the national good will take, if taken to its logical conclusion. The use of foreign workers in many countries now is no more a temporary issue, but a long-term structural problem which can only be resolved with a properly constructed policy of assimilation of people into the local communities. This is what proper policy making is all about - and here we are talking only about foreign workers.

Wednesday, December 11, 2013

Direction of the Economy

I think Malaysia has got it right to cool down the property market with the RPGT. It doesn't make sense that property prices should run ahead of wage increases, such that ordinary people in decent jobs cannot afford to buy a house in their lifetime. If the government truly cares for the people, then the economic policy must be set right so that decent jobs are constantly being created so that housing can become affordable. It is not right that the property market should be stimulated by rampant asset inflation and inflationary expectations.

What are decent jobs? Decent jobs are jobs for which our youngsters are being trained and educated for. We encourage the supply of education by establishment of more institutions of higher learning and upgrading technical colleges to the status of university. At the same time, we implement an economic policy that encourage the establishment of plantations of oil palm and housing estates and major complexes which do not in any way use the education and skills that we are instilled in our young. Unemployability is as much a problem with the economic policy of growth and development, as it is with the skills supply. Clearly, there is a disjointed labour market in the country. Education produces a supply for which there is no demand and a demand that can source its supply of low skills from abroad. The reason for this disjoint must be that there is excessive intervention in the labour market by the government, with one government department making policies on the supply of local labour and another (or two) making policies on demand. Call it national pride, if we must, if we think that we can make political decisions devoid of economic reality. But the price of policy errors are paid not by the government but by the unemployed young voters who would surely punish the government of day for their sorrows whenever there is an opportunity.

So how is the situation being remedied? The government is identifying all the young and old and disabled as well as the unemployed - all lumped under the general label of poverty whether urban poverty and rural poverty and dish out cash. In principle, helping the poor is good and honourable, for there will always be the poor in any society as a consequence of the society that we have created for ourselves, and we must increase the overall well-being of our society - and we do not discriminate. But this welfare payout will not solve the problem of youthful unemployment which is at once a disaster for the economy and a contingent liability of any government of the day. It is only logical that the young, unable to find work at home, will emigrate and look for greener pastures elsewhere. In the meantime, the industries being contented with their lack of productivity gain and relying for their profit growth on sustained low skills and low wages and the continued expansion sideways of their operations with more of the same, are creating a potential social problem with a floating low-level foreign labour that, because of fear and poor living conditions, can degenerate into a melee. An otherwise well-disciplined and well-educated society is being replaced with one that contains all the problems that the well-intended government policies have been trying to solve all these while since independence from foreign rule but not from faulty thinking. We could be developing our nation from a well-groomed economy to one where the primary focus seems to religion and discrimination, and to use the word of Mandela - domination, which kills the market economy.

The loose monetary policy of this country, no doubt dictated by the monetary policies of major trading nations, has created an environment where there is no incentive in saving in the bank - and the bank now threatens to charge for almost every transaction that is done through it - and where the bank is ceaselessly serving itself by lending to the collateral it prefers for its loans - real physical assets. All this because there is too much cash in the system. Cash, by itself, as we can see, with its low interest and inflation elsewhere, means that savers are keen to divest out of cash and into whatever can make money. That cash finds itself into the zero-sum game of the stock market where a major redistribution of wealth is taking place, from the ignorant to the market makers. When the stock market gets tired, the cash goes into the property market whether a simple asset play comes in. Where is the end-game? All stakeholders would want to the game to go on forever, and the only end-game is the bursting of the bubble - for the markets and the financial institutions - two very strange bedfellows. So the current intervention to cool down the property market is a good move in the right direction.

The way forward is for the lending institutions to do their proper job of lending for productive purposes. In the past, it was easy that lending for commerce and trading and manufacturing are considered to be productive. Lending for productive was considered to be non-productive and hence capped as a minor portion. The general structure of the world economy may be changing from manufacturing to services. But for a small economy like Malaysia, we cannot be lopsided in our development. We need to develop our non-plantation agricultural sector well because our rural heartland depends on it. Our great national divide could be closed faster if only we put money to the development of our rural communities, transforming them into rural towns with a strong connection to the world market, through local leadership. It is not true that all the rural communities could be rich by moving to the towns. But new towns can be created within the rural communities so that new centres of growth can be developed across the country without undue rural-urban drift. The plantation sector is for the big boys and they have been laughing all the way to the bank before independence and since. The manufacturing sector has been mangled with nationalisation and bumiputra-lisation. It doesn't really make sense to cannabalise existing companies and worse still kill them, than to create new ones, unless there is a severe lack of ideas. Instead of enhancing the economy structure and its dynamics, there is an apparent attempt to stifle growth and dominate. We have moved from a market economy to a controlled economy consisting of oligopolies and some monopolies that are controlling the national retail prices. Worse still, the government, in entrusting its duties to the government-linked companies, has basically become the biggest shareholder in the national economy. This is danger if the government consists mainly of a major political party.

The political economy is a complex issue and I do not think there is an easy solution. The government needs to reconstruct the nation by restoring the integrity of its institutions and agencies. No policy can be good if its fundamental is discrimination and domination. Policies should be fairness for all, with intervention for the disadvantaged but within the overall context of fairness for all. Policies must be centred in the middle, and it can verve left or right according to the wind of changed. Policies cannot be centred either on the left or on the right, and pretend to be balanced and fair for all. Only when policies hold the middle ground can confidence be reestablished and the economic prosperity restored through the steady saving and investment of happy people.

Sunday, December 8, 2013

Nelson Mandela 1918-2013

FW de Klerk freed Mandela from prison and Mandela used that freedom to unite the people by preaching non-domination and non-discrimination, reconciliation and unity. Mandela preached and practiced universal values of peace and love which most of us do not have the courage to do so. We all have much to learn from this great person.

Tuesday, December 3, 2013

Ha-Joon Chang: I Don't Do Maths

This article came out in the Financial Times last weekend. Entitled "I Don't Do Maths," David Pilling the FT Asia Editor interviewed Ha-Joon Chang, a Korean economist in Cambridge. What is interesting about Chang is that he is fighting against the economic theoretical conventional wisdom where everything is caught in the matrix of calculus of small changes, and tries to think and bring economics back to its original beginning as a moral philosophy dealing with politics, culture, society and morality - and not about how to be stupid and be rich regardless, as our policy makers would have us all belief.

At the risk of making FT very unhappy over its rights, my apologies to FT first and if they sue, I shall remove this blog post-haste; but I thought my readers would enjoy it as well.


Over fish curry in Cambridge, the Korean economist and bestselling author says the time is right to embrace moral dilemmas as well as mathematical models
Illustration by Jimmy Turrell of Ha-Joon Chang©Jimmy Turrell

Ha-Joon Chang’s hands are chopping the air like helicopter blades. He whirrs them in a tight 360-degree spin or brings them down on the beat like a conductor. Sometimes he tightens his fists to emphasise frustration, or holds his hands flat – palms upwards, fingers splayed – as though weighing two bags of rice. At one point he stretches both arms over his head before bringing them together as if along an invisible monkey bar. What could be prompting so much passion? You guessed it. We are talking economics.
In Chang’s hands, though, economics is not dry. The 50-year-old South Korean-born academic is the author of several bestselling books on the subject, leavened with wit and bearing provocative titles such as 23 Things They Don’t Tell You About Capitalism (2010) and Bad Samaritans: The Guilty Secrets of Rich Nations and the Threat to Global Prosperity (2007). His 23 Things, which claims that free markets don’t exist and that the washing machine changed society more than the internet, has sold 650,000 copies and been translated into 32 languages. All in all, he estimates, his books have been bought by more than 1.3m people – not bad for an economist who turned up in Cambridge 27 years ago barely able to speak English. Yet in an email sent before we meet, he spells out an irony. “I am one of the most successful economists, according to what markets tell us, though most of my professional colleagues, who are much keener to accept market outcomes than I am, would dismiss me as a crank or – the worst of all abuses among economists – a ‘sociologist’.

Chang conducts his guerrilla war against economic orthodoxy from a cramped office at Cambridge university’s Sidgwick site. For him, economics is a tool for changing the world, not for explaining why the world is as we find it. He is a reader at Cambridge rather than a full professor, a relative sidelining he attributes to his heterodox approach. “I don’t do maths,” he says, blinking softly through his round, silver-rimmed spectacles. “A lot of economists think I’m not an economist.”
He is, though, a star with a big following. In the wake of the global financial crisis, organisations such as the International Monetary Fund – which used to regard him as “an oddity” – regularly invite him to speak. Still, he reckons the economics profession overall remains resistant to fresh ideas, clinging to its status as a pseudoscience undergirded by unbreakable mathematical rules. “These things do not change overnight. The German physicist Max Planck once said science progresses one funeral at a time.”
We have come to the Rice Boat, a Keralan restaurant specialising in south Indian cuisine. A 10-minute walk from Chang’s office, it has become his unofficial canteen. The restaurant is large and, when we walk in, entirely empty, though Chang assures me it’s heaving in the evenings. The walls are a garish yellow and hung with the sort of Indian paintings you might find at a car-boot sale. The bathroom lights don’t work and I am handed a lightsaber-type wand to negotiate the darkness. The food, despite the unpromising surroundings, turns out to be excellent.
Chang recommends chicken, lamb and tuna cutlets as a starter followed by Kerala red fish curry and the restaurant’s “famous” Kerala beef fry. “You can have beef here because they are Christians.” We also choose appam, a spongy pancake made with fermented rice and coconut milk, some chapattis, and a portion of Kerala boiled rice, which Chang explains is fluffier than the Basmati variety. I wonder if he’d like to join me for a beer. “I don’t drink at lunchtime because I’m very weak at alcohol like most Asians,” he says apologetically, ordering a sweet lassi instead. I decide not to let down the journalistic profession and select a bottle of Konrad 11, a sharp and tangy Czech lager.
. . .
Chang is dressed in academic casual, an open-neck shirt and slacks. His fringe is as jagged as a graph of booms and busts – absent Keynesian countercyclical spending – and his kindly face boyishly pudgy. As he marshals argument after argument against his intellectual enemies, I think of a teddy bear savaging a Rottweiler.
“The predominant view in the profession is that there’s one particular way of doing economics. It’s basically to set up some mathematical model, the more complicated the better,” he says, advocating instead what he calls a multidisciplinary approach. “In a biology department, you have people doing all sorts of different things. So some do DNA analysis, others do anatomy, some people go and sit with gorillas in the forests of Burundi, and others do experiments with rats. But they are called biologists because biologists recognise that living organisms are complex things and you cannot understand them only at one level. So why can’t economists become like that? Yes, you do need people crunching numbers, but you also need people going to factories and doing surveys, you need people watching political changes to see what’s going on.”
The cutlets arrive with a clatter. Chang squeezes on lemon juice and cuts them up so we can share. The chicken is sumptuously juicy.
Doesn’t the success of Freakonomics (2005), written by Steven Levitt and Stephen Dubner, disprove his notion that economics is closed to new approaches? “They don’t get huge brownie points for writing for the general public because a lot of economists have a very dim view of what the general public can understand,” he says. “But the Freakonomics guys are accepted as part of the mainstream because they have this very particular view of human behaviour, which is ‘rational choice’. That is: ‘We are all selfish, we basically do our best to promote our self-interest and that choice is made in a rational way.’ ”
“I don’t take that view,” he says, cramming in a piece of lamb before he continues. “Rational thinking is an important aspect of human nature, but we have imagination, we have ambition, we have irrational fear, we are swayed by other people, we get indoctrinated and we get influenced by advertising,” he says. “Even if we are actually rational, leaving it to the market may produce collectively irrational outcomes. So when a bubble develops it is rational for individuals to keep inflating the bubble, thinking that they can pull out at the last minute and make a lot of money. But collectively speaking . . . ” His hands create a bomb blast above the cutlets.
Today the economics profession is like the Catholic clergy that refused to translate the Bible, so unless you knew Latin you couldn’t read it - Ha-Joon Chang
He takes a slurp of lassi and smiles beatifically. I ask how the economics profession has been hijacked by a single methodology. “Hijacked, yes. I think that’s right,” he says, evidently pleased with my choice of word. “Unfortunately, a lot of economists wanted to make their subject a science. So the more what you do resembles physics or chemistry the more credible you become. The economics profession is like the Catholic clergy. In the old days, they refused to translate the Bible, so unless you knew Latin you couldn’t read it. Today, unless you are good at maths and statistics, you cannot penetrate the economic literature.”
This, he says, leaves economic decision-making to a high priesthood of technocrats and central bankers. “Fat chance that a union official in Bradford will be able to beat the academic spouting rational choice theory,” he says. This – and here is his punchline – suits those with money and power. “If you have a professor from MIT or Oxford saying that things are as they are because they have to be, then as a person benefiting from the status quo you can’t be happier.”
. . .
As our main course arrives the table begins to fill with a fantastic array of curries and breads. I’m famished and eating faster than Chang. The beef, full of competing flavours, is particularly terrific. “A lot of social democrats bought into that fairy tale [of market perfection],” he says. “That’s why I am writing these popular books, because people have been told a very particular story and they need some antidote to it. I’m not saying I have some kind of monopoly over truth, but at least you need to hear a different side of the story.”
We turn to his childhood, when he witnessed first-hand how economic policies can transform a country’s fortunes. He was born in Seoul in 1963. His father was a finance ministry official and his mother a teacher. Two years before Chang was born, Korea’s gross domestic product per capita was $82 compared with $179 in Ghana. He remembers how red the soil was in Seoul, now one of the world’s most neon-filled cities, because all the trees had been cut down for firewood. “I wasn’t deprived,” says Chang, who grew up in a house with two maids and the neighbourhood’s first television set. “But poverty was everywhere.”
Park Chung-hee had recently seized power in a military coup. Korea established a steel industry, a seemingly eccentric choice for a country without iron ore (it had to import it from Australia and Canada) or coking coal. Yet steel became a foundation of Korea’s industrial success. Chang believes that Park, though a dictator, made some smart choices and that the only countries to have prospered are those that ignored the siren call of free markets and comparative advantage – the idea that you stick to growing bananas if you’re a tropical island – and planned their escape from poverty.
Chang took those ideas with him to Cambridge in 1986, where he studied first for a masters and then a PhD on industrial policy. His first impression was how quiet England was. “In those days, everything closed at five o’clock and nothing was open on Sunday. Coming from Asia, it was like walking into a ghost town.” But the UK also had its charms: “I used to joke that I came to England – not to the US where most Koreans go – because I like Arthur Conan Doyle and Agatha Christie.”
His studies consolidated his thinking. Countries, he argued, needed to develop their capabilities, just as a child’s potential is stretched in school. In 1955, for example, when General Motors alone was producing 3.5m cars, Japan had 11 or 12 manufacturers collectively producing 70,000. “From the short-term point of view, it was madness for Japan to try to develop an auto industry,” he says. “Except that the Japanese realised, ‘We will get nowhere if we stick to what we are already good at, like silk.’ ”
But can’t the protection of infant industries go terribly wrong? In countries such as Argentina and India, closed economies led to lazy monopolies selling shoddy goods in the name of self-sufficiency. Chang agrees. Only those states that forced their entrepreneurs to compete internationally succeeded, he says. “In Bad Samaritans, I have this chapter called ‘My Six-Year Old Son Should Get a Job’. I’m trying to explain that the reason I don’t send this little guy to the labour market is because I believe that it pays, in the long run, for him to have an education rather than shining shoes and selling chewing gum. Protection is given with a view to eventually pushing your companies into the world market in the same way that you send your kids to school but [you] don’t subsidise them until they’re 45.”
He tears the appam and hands me a piece. It’s airy and faintly sweet and wonderful for mopping up the curry. “We have been led to believe that the market is some kind of natural phenomenon. But in the end, the market is a political construct.” The regulations around us – for instance those banning child labour or private money-printing – are invisible, he says. He cites the example of how Park’s government engineered a 30 per cent jump in wages through a massive shrinkage of the labour force. It was achieved, he explains, by making education compulsory up to the age of 12, removing at a stroke millions of children from the labour pool. Policy changed the market reality.
. . .
As Chang turns to the fish curry, I ask about his family. He met his Korean wife in 1992 and married her the following year. “As a good Korean I am very impatient,” he grins. He has two children. His son, now 13, is still being sheltered at school from a career in shoe shining. His daughter is reading history at Oxford university. So she’s broken out of the economics trap, I say. “Good for her,” he replies, raising his lassi.
We order a double espresso for Chang and black filter coffee for me. We’ve been talking for nearly two hours but he still has bags of energy and I still have bags of questions. What’s all this about the washing machine and the internet?
“I was not trying to dismiss the importance of the internet revolution but I think its importance has been exaggerated partly because people who write about these things are usually middle-aged men who have never used a washing machine,” he replies. “It’s human nature to think that the changes you are living through are the most momentous, but you need to put these things into perspective. I brought up the washing machine to highlight the fact that even the humblest thing can have huge consequences. The washing machine, piped gas, running water and all these mundane household technologies enabled women to enter the labour market, which then meant that they had fewer children, had them later, invested more in each of them, especially female children. That changed their bargaining positions within the household and in wider society, giving women votes and endless changes. It has transformed the way we live.”
Finally, I ask whether he thinks economics is a moral pursuit. Chang’s starting point seems to be that economic policies can make the world better. “Moral dilemmas are unavoidable,” he says as I signal for the bill. “Don’t forget that, at least in this country, economics used to be a branch of moral philosophy. Adam Smith, Karl Marx, Joseph Schumpeter – they’re not just writing about economics, but about politics and culture and society and morality.” He drains his cup. “How has this wonderful subject we call economics become so narrow-minded? I find that really sad.” "

Monday, December 2, 2013

Transforming the Middle Class

I have this thing against bad arguments, especially those ones which are clearly inconsistent (we tell our children that those things are called "lies") which are purposely made to counter a common sense.

The practical problem of the bumbling middle class (in Malaysia) is that of stagnant incomes (except those in speculative activities such as the stock market or the property market and some would even say the financial services including banking) in the face of rising cost of living.

Obviously, when we say things like this, we mean that to a middle class individual person or family (earning by some definition as RM5,000 per month), he and his family is facing higher and higher cost of living. For those who are unemployed, they are not in the middle class - they are in the under class, if they persist in their unemployment or unemployability. So, one cannot go about making a counter-argument by saying that - we are creating more jobs of these salaries which put them into the middle class jobs.

At the same time, one cannot go about arguing that the cost of living is low because Malaysia has one of the biggest subsidies in the world and therefore it is justified for the subsidies to be removed (whose removal obviously will cause retail prices to rise - which is the original argument). The removal of subsidies and the rise of retail prices hit every body.

It is not an logical argument to conclude that, therefore, the only thing to do is for the middle class to become an entrepreneur - assuming that entrepreneurs are those who are entitled to make huge sums of money in no time through some activities whose ethical values are not an issue. Afterall, entrepreneurs are made up mainly of "school dropouts," so goes that argument. I think that is a totally irresponsible statement.

I have spent almost all my hard-earned savings on the proper education of my children (just like any other middle class parent), and I am not asking my children to become filthy rich. I want my children to be educated so that they grow up to be decent human beings and decent citizens to their nation who are respectably to their fellow countrymen. I expect my children to be hardworking and productive in their work - by finding a decent employer or a decent boss - and by their education will learn to be happy with little and will work hard so that the extra they earn can be used to help their neighbours who are less fortunate than they. This is the middle class value and dream. It may sound stupid, but decency doesn't have to be clever and smart. It only has to be truthful and honest.

I suppose we cannot hope to enjoy decent policies when we have people who are badly educated taking the rein of things.

Thursday, November 28, 2013

Malaysian Graffiti

Beauty lies in the eye of the mind.

I do not mind graffiti on the walls of Malaysian houses which often are nothing but rows and rows of cut-and-paste designs by local architects who work for local developers keen to extract even sen from innocent housebuyers (and some not-so-innocent housebuying speculators!).

I will not even argue the design or the method of painting or even the messages. For all I care, we could have whole towns painted red or black, if it seems OK for towns to be whitewashed or, now increasingly, spinning in various hues of yellow, green and blue.

After all, we are democracy and where people do have a certain right to do as they wish, so long as their actions are not hurtful on others. But for authorities to tell the general population that they cannot scribble on their walls is for these authorities to exercise their sense of apparent power and authority over the seemingly ignorant and brainless citizens.

We have now, just discovered, that the city hall, despite its grand sounding name, is nothing but a bunch of bureaucrats acting at the whim and fancy of some politician who happens to sit on top of everyone and telling everybody want to do. I shudder to imagine what would become of this country when we have policy decisions made in this manner.

Maybe it is a bit too late for me to worry. It is already here.

Malaysia's biggest piece of graffiti (assuming the ugly ones) are already etched into our national mindset where it is OK to pursue and continue to pursue discriminatory policies which serve to explicitly benefit a particular section of society. It is not OK to pursue discriminatory policies because it perpetuates social and economic injustice.

But the worse of the act of discrimination is the rationale that is cooked up to justify that discrimination. All major atrocities committed in the history of this world started with a word and then a book. That justification is then twisted and misrepresented to suit the circumstances and purposes of groups for their own peculiar purposes. This twisting and turning of logic on the same basic premises become the great intellectual entanglement that we now see in the national life of their otherwise fair and beautiful country.

So, like all good deeds, evil is also first ignited by a person who thinks he is doing good when in fact he is only out to kill his own personal demons, demons which are only figments of his own imagination.

I therefore do not mind physical graffiti for open paints in the tropics will crack and walls in time will crumble. We can always rebuild. But the mental graffiti that is being persistently dished out to us by old men who, after having terrorised their own generations and then our own, will now try to terrorise the younger generations.

If we are looking for the reasons why this nation cannot progress as much as it should, we only have to look inwards within our midst. We just have to whitewash those ugly mental graffiti.

Wednesday, November 20, 2013

Securing the Future: Children or Environment

China's recent relaxation of its one child policy is to counter the problem of a declining population (which it was designed in 1979 to achieve in the first place) and more critically of the working-age group (as to be expected). If this line of reasoning is correct, then I think we have a problem in thinking about how to take care of the future of the human beings on this earth.

The issue of the so-called aging population is in almost all developed or even developing countries but more pronounced in Japan. Not only is a fallen birth rate the issue - which could also be due to the rising and high cost of living in the world today - as well as to the improvement in human life longevity, I presume as medicine and diet improve. I am sure there are also other factors that lengthens the life of human beings, but there are not the critical issues for us here.

I wish to suggest, from the macro perspective, that we seem to have our thinking a bit twisted as we worry about escalating population growth, dwindling natural resources and environment, as well as economics of growing old. We want to slow down the population growth and ease off the pressures on the natural environment while at the same time we are arguing for a rise in the working population to get the economy to grow and to feed the old.

I think we have a problem with the concept of economic growth.

Bear in mind that the current concept of the GDP was invented by Keynes (and translated into the national accounts by Richard Stone in Cambridge in 1941, who gave, for me, his famous quote: "Data, unanalysed, are dead as mutton") on the fundamental idea that there is a direct and positive correlation between income or output produced and labour employed. It is this simple idea that keeps economists and politicians today pushing for GDP growth at all cost and as fast as possible - with not entirely positive results.

Instead of the increase in output resulting in higher wages, the rise in output leads to higher profits and often at the expense of wages. There is a disproportionate distribution of income between corporations and people, and this seems to be justified on the basis that corporations need to make huge profits in order to keep investing. While the rise in investment creates more jobs, the tendency for governments to give tax concessions to corporations (often foreign ones) ostensibly to induce investments has led to a disaster in the management of the government budget, especially when too the government is getting into the act of investment in the hope of raising those jobs that do not seem to benefit the local population.

The budget deficit now being the scourge of government, the fall of the knife is often on those "unnecessary" operating expenditures which deal with the welfare of people including pensions and retirement benefits. At the same time, to encourage work and income (which means to cut income taxes) and to reduce consumption, the now ubiquitous goods and services tax or the value-added tax is now proposed to be the panacea of all human material problems on earth.

But in the original conceptualisation of indirect taxes such as the GST or the VAT, the notion is that income which is not consumed is invested, by definition. This is true in agrarian economies where the rice that is not consumed today is saved for consumption tomorrow or as seeds for planting in the next season. In the heavily monetised world of today, that which is not consumed is considered as unsold goods or redundant labour and the resultant action by investors is to abandon the old investments and find new ones. There is a constant search for new ideas and new skills which calls for a certain degree of agility and hence "disloyalty" though not necessarily loss of "integrity" especially to one's own confidence in one's own skills and ability (without which they cannot survive).

As such, therefore, safety net for these workers probably relatively young ones is not there as they jump from one new opportunity to the next. It would seem that that safety net can probably best be provided by the extended family (if it is capable) for the state fears that the provision of an unemployment benefit or support of in-between jobs will lead to universal laziness. The systematic pressures that are being put to the working individual to work hard in order to keep up with the rising cost of living in order to keep the GDP growing is, I think, the biggest error in policy making today - for they lead to what governments are also worrying, which is the lack of sufficient energetic workers to support the workers who have grown too old to be productive in contributing to the concept of sustained GDP growth.

(There is currently an attempt to rethink on the concept of poverty for the urban poor.)

The problem economic policy is that there seems to be a believe that the printing of money by fiat is the only way to stimulate economic growth. This is the tail wagging the dog. The growth of an economy will result in the rise of the money supply, either in the monetary base or the velocity of the circulation of money through the economy. Attempts to increase the money supply to increase the economic growth runs the risk of throwing good money after bad investment ideas with the cost of the loss being borne by the general population which can be made to bear these systematic losses with too violent a struggle is through persistent rise in prices for all commodities and services. It is without doubt that, at the end of the day, the economic battle is fought over who gets to consume what and how much and for how long. The almost universal application of the GST (a fact that is now being touted as the rationale for its introduction in this country!) is testimony to the loss of general human welfare from the abuse and mismanagement of the money supply or rather of the international reserves by the reserve issuer.

I think the future direction of the world economy is to reduce the family size and hence slow down the world population, to reduce the overproduction of physical goods in order to slow down the utilisation of real resources, to reduce income growth and consumption growth, with poverty due to incapacity and old age being handled by direct transfers by governments through welfare programmes. I don't think we can salvage the self-destruction of the earth in its ultimate eventuality, or are human beings likely to be the last life on this earth; at the very least, we should moderate our wants and leave rooms for those less fortunate than us in this space and time.

Monday, October 28, 2013

Budget 2014: Significant for 2015

Malaysia's Budget 2014 announced on Friday 25 October 2013 is significant.

1. The Budget prepares the ground for a major tax reform in 17 months' time when the proposed 6% GST (Goods and Services Tax) will be implemented on 1 April 2015 and presumably the proposed income tax reduction will also be applicable for the assessment year 2015.

For this reason (that it is still in the future) that we cannot get the details for these tax proposals, except for these:

>GST will not be imposed on basic food items such as rice, sugar, salt, flour, cooking oil, lentils, herbs and spices, salted fish, cencalok, budu and belacan; nor piped water supply on the first 200 units of electricity per month for domestic consumers;nor services provided by the Government such as the issuance of passports, licences, health services and school education; nor transportation services such as bus, train, LRT, taxi, ferry, boat, highway toll as well as education and health services; nor sale, purchase and rental of residential properties and selected financial services.

Individual income tax rates will be reduced by 1 to 3 percentage points for all tax payers. Families with monthly income of RM4,000 will no longer have tax liability (from RM3,000). Individual income tax structure will be reviewed to with the chargeable income subject to the maximum rate raised from exceeding RM100,000 to exceeding RM400,000. The current maximum tax rate at 26% will be reduced to 24%, 24.5% and 25%. Corporate income tax rate be reduced by 1 percentage point from 25% to 24%. These measures will be effective from 2015.<

Since these proposals will be implemented in the future, there will be time for things to be adjustment presumably according to the more refined calculations in Budget 2015 in twelve months' time.

Nonetheless, I am happy that there is thought of a significant structural adjustment to the personal income tax structure which I think is long overdue as a result of the persistence of strong inflationary pressures in the economy. I like the shift of the top chargeable income bracket from RM100,000 to RM400,000 which is very much to be applauded.

2. The other significant measure of Budget 2014 is the serious attempt at reining in the escalation of property prices in Malaysia.

> The Real Property Gains Tax (RPGT) will be reviewed. For RPGT is raised to 30% for properties disposed up to three years, 20% up to four years, 15% up to five years and no RPGT after five years for citizens and 5% for companies. For non-citizens, 30% RPGT for properties disposed up to 5 years and 5% in the sixth and subsequent years. The minimum price of property that can be purchased by foreigners is raised from RM500,000 to RM1,000,000.

Developers cannot implement projects with features of Developer Interest Bearing Scheme (DIBS), where developers incorporate interest rates on loans in house prices during the construction period, and financial institutions are prohibited from providing final funding for such projects.<

It is still unclear when this will come into force. But this is significant.

Developers and financial institutions seem to be in cahoot serving their own vested interests at times when the talents of financial institutions should be trained at developing the fundamentals of the economy. I am sure there will be plenty of counter-arguments by these two major types of institutions which so far have been quite happy to be calling all the shots in the economy. I am glad that someone has finally stood up to try to correct the situation. Of course, recent property price increases were due to higher building material costs and greater demand, etc. But there must be some control.

The rest of the Budget, as the man himself said, is a post-election budget which means that as many projects so promised will be mentioned. Including national security, education, etc. There is of course whether the sums allowed are sufficient to do their proper jobs. That may be for future budgets to deal with as typically development projects takes several years to finish. The success of the collection of the GST will determine the degree of completion of those projects and others.The government deficit is likely to be significantly unchanged as of now, with hope that the GST will be the answer to all problems, as the advisers will surely reassure the PM as such.

I don't quite like the racial stuff though.

I think Budget 2014 is a significant budget for 2015.

Wednesday, October 23, 2013

Budget of the Government or People

The Budget is a tug of war on a shoe string between the government and the people when the government has the only say. The government will have free rein while the people must tighten their belts. The poor shall be used as the straw man.

Tuesday, October 15, 2013

Politics Of God, God Of Politics

Today, we learn that God in Arabic has become a word in Malaysia forbidden to non-Muslims in Malaysia for fear that Muslims in Malaysia will mistaken other Gods for their God.

Monday, September 30, 2013

Certainty, Uncertainty

I wish to examine the impact of a sense of uncertainty on the need to save for the unknown future.

Uncertainty, in the sense I am trying to use the term, is a situation where the likelihood of the future is simply unknown. I would think it to be a zero or one probability situation - either it happens or it does not happen - binary - digital - I Ching - zen. Uncertainty is the stark situation faced by each and every individual as he or she confronts the world. You do not know what will happen. So, what do you do when you are faced with uncertainty?

To reduce the uncertainty, you train yourself up to maximum your opportunity. This in fact is the only thing that a person can do, seriously for himself. This is making the best use of the talents that God has given you, in religious parlance. This is to know what you are, to know what you can do. In Greek philosophy, "know thyself" is the most well-known saying of Delphi. In philosophy, the most basic question is you do not know when you are going to die, and this determines how you are going to live. If you know exacting when you are going to live, you can very specific plans about what you are going to do. (Same as contemplating whether to tell a cancer patient the "truth" or to pretend that everything is going to be OK.) If you leave the future indeterminate, then you will have to make plentiful of preparations which are likely to be overdone, more than sufficient, because you do not want to be caught short. A person caught with an uncertain future but with the greatest confidence in himself or herself will do the maximum by working ceaselessly so as not to waste time and be caught idling. If this uncertainty affects a whole society, then such behaviour will be exhibited as a social cultural trait. There is this constant struggle to do one's best and to continue to work and to do so that there will be no let up in efforts. Life because one of the amassing of natural energy and to dispense that energy to its most fruitful or effective impact. Kung fu, Shaolin, Bruce Lee. In the same way that life force is seen to be the most fundamental element of life, so some (or rather many) will see, in modern society, that money and wealth is the most fundamental element of living in the material world. The accumulation of capital and the store of value become the sole quest in life for those who are psyched to vow never to be poor again, like how their immediate forebears were.

But for a community where the recent history or social culture is one which has established a certain amount of stability, the tendency of such a community is to maintain the status quo. A hierarchy is set so that no one upsets the apple cart and everybody has their proper station in life according to recent history. The political power structure takes over to control the situation. There is nothing much an individual person can do except to fight to get on top of the heap, as Frank Sinatra would say. Once on top, all favours drips down to the very bottom so that everyone in society can benefit. Such benefits will dispensed onto to those who are obedient or in the terms of that ideology, loyalty. Loyalty is a term that is used to reinforce the strengthen of the status quo and the prevailing hierarchy. Once that power structure is established, everything else can be accommodated within that structure, including the hiring of talents and skills. In such a community, there is readiness to sacrifice growth for distribution in order that the apple cart is not upset. But when that power structure, or any power structure, breaks down, the aftermath can be very messy, as we seen on TV. But because the emphasis here is less on maximising talents but in strengthening the political power, there is a tendency to take from the output of the productive or talented to share with the rest of the entourage or retinue of advisers, bodyguards, foot soldiers and servants. This gives rise to a disincentive to work and there will be a tendency to downplay signs of prosperity by the likely victims.

It is interesting to realise that the flavour of the type of community or social we try to create has a profound impact on our daily behaviour as we are tend to act in such a way as to make ourself comfortable or justifiable or at peace with ourselves. In realising our sense of being, as broadly dictated by the general environment we find ourselves which of course are all in turn influenced by public policies and private treaties and communal habits, we find ourselves living particular lives according to our immediate circumstances. We are not really our self-determined selves as we wish to imagine, but justified selves in the face of the circumstance.

This is a obtuse a piece I can muster to write.

Thursday, September 19, 2013

Value & Market Price

This is the age-old problem in economic theory - the difference between the value of an item and its market value.

The famous example is that air and water are precious for human life but they are practically free (not wholly true for fresh air and mineral water). Diamonds are practically useless but they fetch high market prices. As Adam Smith concluded (I think), the market price of an item does not reflect its use-value but rather the interplay between supply and demand. Air and water have little market value because it is ubiquitous whereas diamonds are expensive because of there limited supply and insanely huge demand.

When we look at the issue of the distribution of income and wealth, we have to be careful to realise that we are talking about market prices or market values.

Land in the urban centres cost more than land in the rural areas because there is a limited supply of land in town and there is a huge supply of land ready to be offloaded onto the market from the vast hinterland as we go into the rural areas. If all the rural folks try to flock to the urban areas in search for high paying jobs, then there will be an escalation in the cost of urban properties - which is another way of saying that the real incomes in the urban centres will fall, and hence the problem of the rising cost of living.

If urbanites want to live a decent life, they must try to raise their incomes which means they have to work much much harder in order to produce services for which there is demand. Urbanites cannot be arrogant about things for they are mere slaves to the way of life that they have chosen to live, although they must be arrogant when they have made it because of the immense suffering - physically and emotionally - that they must go through to struggle and fight and then to be able to emerge out and land on the shore of financial independence.

Rural folks generally have great assets of land - which if valued at the nearby urban prices would amount to a lot - and their major concern is only income for their daily needs and possibly the education of their children if they do not intend to work on the land. The great wealth of rural families can be passed on to the next generation which, I am sure, as development expands, will mean great wealth for their future generations. It is precisely because of the likelihood or the desire to hold onto the land and to keep that wealth within the community and to pass it on within the community that land-rich families eschew unnecessary consumption in order to save for the long-term wealth of the family.

I know there is a great desire by many Bumiputera families (or some family members) to sell their land immediately so that they "do not have to work so hard anymore and have money to spend." This is the story of the Malay reserve land and that of Kampong Baru in KL. Of course, if you are not putting the property into the market or if you are restricting the market to a smaller section of society, then you should not expect the full market price as can be got elsewhere there is a scarcity of supply and ample demand (fueled by generous bank loans).

As a way of reducing the income and wealth gap between the urban centres and the rural areas, I like the strategy of developing economic corridors in the various states so that more new urban centres can be created in existing rural areas, thereby raising the market price of the land and labour in remote areas. This is now not a popular view. The World Bank thinks that the fastest way for a nation to climb the income ladder is for developing nations to concentrate their scarce resources on the existing urban centres and intensify economic activities there, on the argument of creating more value from synergy. This is true, but this only means that the gaps in income and wealth distribution will widen. While greater inequalities may be argued to be an inevitable evil of development, it does not have to be the case. I prefer a more spread-out and dispersed development strategy geography so that there will be less depletion of human resources from the rural areas and faster development of the rural areas.

We all know that rapid economic development is pursued at great social and cultural costs, for this is real transformation of society and the economy. In developing nations like Malaysia, we obviously have a very strong cultural sense of ourselves for each of different communities - and it is this great cohesion that is at once a strength and a weakness. Closely knit families with strong parental guidance tend to create also material success and sustain it, whereas families with weak cultural and social sense will have to struggle to find alternate new pathways to rise above their respective situations. However, strong traditional families are at best good at maintain the status quo, and may not lend themselves to be the agents of change and high incomes. The cultural and communal pull is too strong. This is where enlightened education sets the society free, not that education is needed for entrepreneurship (although literacy is definitely needed for communication) but the courage to explore new frontiers with courage and confidence. The ability to think and the ability to think for oneself are assets to anyone who have them and to those who are fortunate to be their neighbours.

Future success can only be assured when it is properly nurtured. Affirmative actions are desirable, but these are double-edged swords especially when they are used to change the dynamics of the game. We are talking about changing the game for one group to compete with another group. Adaptation will come in to ensure continued success and that adaptation creates a new game which the old affirmative actions may be inadequate to deal with. The affirmative actions themselves, if badly designed, may probably accentuate the discrepancy by weakening the affirmed group and toughening up the unhelped group. My point is that one cannot be too careful in designing policy instruments. Numbers are not facts, and they need careful analysis and understanding or they can become dangerous.

There is a need to be clear about real value and market prices. I believe our policies tend to focus on market values rather than creating real values that will last.

Wednesday, September 18, 2013

Urban Rural Divide

Unfortunately, in the world today, we measure everything by nominal value. You live in a RM5 million bungalow and I live in a RM50,000 attap hut. You have more money than I have. I should also have a RM5 million bungalow. Well, you will have to move from the village to the prime real estate and buy my neighbour's house or even my house. Where do you get that RM5 million. That RM5 million represents the full income or savings that you will make in your lifetime. Or, do you think that the price of the house will escalate and you can make RM5 million out of it in 10 years' time.

Conversely, you could build a similar house (that's is simple English for a "bungalow") next to your attap hut. It may cost you RM200,000 - RM300, 000 to build the house using similar materials, if it is not too far away from the city. (If you live in a very ulu place, the cost of transportation may quadruple the cost of materials.) Would you be as happy as living in the house in the countryside or the RM5 million bungalow in the expensive city. It depends entirely on you, on your background, your upbringing, your social support system, your expectations.

In the end, the value of your house depends on your earning power or rather your saving power over your lifetime. (Some lucky ones can buy two or three houses over a lifetime, and that do not come from their salaries I can assure you of that.) Some people will starve themselves to buy a big house and some people will consume well and live in a small house.

The type of house we live in is mostly the result of an accident, not a free choice of their own as most people would like to believe in. Ex-post, after the fact, we may justify how we made our decisions but that is reconstruction. (I don't read autobiographies with titles like "My Success Story" - pure fiction.)

We live where we can get a job - this is a fact. If you can't get a job there, you try to get a job here. Whether you live in a bungalow or an attap is the result of your endowments, natural or otherwise. But some people do have a choice - they have the skills to work in town, but they choose to be in the countryside. But most people just simply put their skills envelope to the extreme limit at the frontier line (some may even bluff to have skills which they do not have). First preference for most people is to work in a big city, because the pay is the best. The pay drops from CEO to senior management to officer and clerk and driver. But you start from the bottom, the highest of the bottom that you can get.

Traditionally, for companies that are struggling to survive, they try to hire the best skills at the market price. For companies where profit is not important, there is leeway to hire the people you like, and those who are the best. But the world is a fluid place. Even if you hire who you like, it is only natural that the best will be able to get a job elsewhere - and most probably produce better result. Unless, of course, the rules of the game are peculiar and the better outcomes are bestowed upon those who are likeable. But in the larger, the best will produce better results, and in our case, earn the highest incomes.

If the best is not a natural endowment, and can be nurtured, which it must be, I believe, then we must be able to recreate those preconditions for success - for everyone, and not just a select many - so that the whole society that progress and move forward and upward. I believe that the economic conditions in Malaysia has improved dramatically in the material sense - we are all consuming far more than is good for us; we are now worrying about our own happiness and don't know whether our happiness is endogenous or externally triggered. Nonetheless, I believe the whole society has progressed tremendously. We are now talking about relative sense of well being. I believe the poor today have more material thing when I was young living in what is now called a squatters' hut with gaps in the wooden panels for natural wind-flows, and newspaper for wallpaper to create some privacy.

Now, there are people who are stuck in towns because they have no land anywhere. They struggle to keep a shelter, and they eat so that they are not hungry. But education is the way forward. I believe very strongly that education must be for free, and free should not mean lousy. It is the bad education policy or poor staffing of the education department is kills good education.

People and communities live in the rural areas because they have land - probably mostly inherited. Inter-generational wealth is not very easy to transmit, as traditional culture and ways of living does not contain sufficient productivity gains (because expanding sideways rather than up) to bring about an improvement in the standard of living. Agriculture has this problem of the lowest productivity gain among the economic sectors, especially among family agriculture. To improve productivity, policy enter to introduce plantations and families are driven to towns with great unhappiness.

If people with the same skills are paid the same amount per hour (wage rate), labourers for example, those in the towns will earn more as they have to work more hours, while those in the country side work fewer hours because there is less requirement for their labour and hence earn less. This urban-rural divide in incomes is a technical factor that is hard to get rid of.

Of course, the urban poor has a very hard life because there is no leeway for them. There are no chicken coops for them to hide in, or banana trees to pluck from. There is the relentless rent to pay, the electricity bills to pay, and the petrol to buy to go to work. Unlike the country side where there may be territorial rights and natural endowments to benefit from, the town is an entirely artificial construction, built on the loans of banks and the circulation of money. The town is a matrix which is not real, unlike the country side where squarely grounded on mud and shit, literally.

The distribution of income and wealth is the result of our own mental makeup, how we envision life. The indigenous people are land-dependent whose shopping mall is the jungle. The immigrants have left their agro-based poverty and enter the towns to work hard and save and accumulate because they do not want to be poor anymore. These traits are passed on by their cultures and the stories they hear from their elders. The schools teach literacy while the homes teach values. The fundamental societal unit is the nuclear family where there is specialisation in domestic homemaking and saving and external income generating. I pity those from broken homes, for they are the lost ones. Will society provide the love for the unfortunate?

Tuesday, September 17, 2013

Distribution of Income and Wealth

This is probably the hardest subject in the entire field of economics - the distribution of income and wealth. (Unless of course you are studying the theory of uncertainty which is a deterministic system trying to describe the indescribable - you know what is uncertainty when you think about it - that's why you pray.)

For one thing, it is very easy to get tripped right from the first step the difference between income and wealth. In economic jargon, income is a flow and wealth is a stock. One does not lead to the other. A person can have a large income, but may not have any surplus at the end of the day - for he overspends, by buying a car, a house and a watch that are far more expensive than he is actually warranted (although he may have imagined to be of a superior grade). A person may have huge wealth - usually inherited - and he may have little or no income if he is poorly invested - many stories of this from actors and actresses and those who won lotteries. A windfall gain - another favourite economic jargon for "money from the sky" or "manna from heaven" - is a one-off and the theory says, if unexpected, will be quickly spent because more than imagined - and once frittered away will not have neutral impact but the creation of a spending lifestyle that is far exceeded the person's ability to generate future incomes.

There is a tendency for discussions of income distribution to be confused with wealth distribution - the classic economic example of wealth (natural resources) not being able to create high incomes (value-added activities). There should be no difficulties in seeing the difference. Wealth is god-given and therefore is made available without much effort or even expectation. Value-add is the explicit provision of a service that is needed by society and other people and it engenders a mental orientation of serving and be of use to other people and society. Wealth you can just consume one your own in silence; income you can only create by serving others - and there is an immediate positive social impact. We can juxtapose wealth and service by thinking about how a rich person or family treat their poor maids. There is a saying in some community that some unenlightened people can use their wealth to weigh down on a person.

If we look at the distribution of income, we will see that its distribution is the result of the return on some capital or wealth. For those who do not have rich grandparents - and to be fair, most Malaysians at the start of independent Malaya or Malaysia - have nothing in their pockets, except for the famous one dollar in the pockets of immigrant Chinese (I do not know the oral tradition of other communities). This is the start of entrepreneurship. It does not matter where you start. You start with blood, sweat and tears to earn the daily wage of the day, starve yourself and save to build up capital. With a little spit of working capital, you have dreams of being a towkay (the old version of a Bill Gates) and you begin to deal with others (network). You borrow, you lend, you buy, you sell - in other words, you trade. In the days of zero current accounts nor credit cards, if you are lucky, you can have trade credit - the big towkay who give you the goods on credit (30 days, 60 days) or the small community banks that lend you on some small credit (the early version of micro-credit). The only collateral of those who wear loose blue pants are their words - their honesty and integrity. It is the promise to deliver and the ability to deliver as promised that is source of profit and income of the entrepreneurs - those who rely on some equity or even non-financial assets. Like farmers, the small towkays try not to eat their seed capital away - the teochews are famous for being able to survive on one salted egg a week, with porridge (rice with water). If you are lucky, you may own a little shop which is also your house (hence, shophouse) and this may be all that the small towkay has at the end of his life; he may have educated his children in the interim (tales of severe rationing in education; for boys only, when daughters of towkays were of maid quality only) and probably a big debt with the bank. When telling stories, we must tell the story to the end - like the tales of the three kingdoms. After the old man dies, the poor children may be still poor and unable to repay the loan and have to sell that property to some wannabes who have dreams of owning properties as a sign of wealth. The lucky ones, who do not have to sell their inherited property, want just use it as a house, not as a shop because the business has grown tough or the trade has died or the children has got a job in the bank as a clerk. The whole family is stuck in this old rundown shophouse, quarreling over cashflow and inheritance.

There are of course who do very well by any standard - and they are not you and me. They get big contracts to build public works. They connect with the big suppliers in town, and they wine and dine to seal deals. This makes the more flamboyant part of life in the city. The big shots and their dolled up mistresses, their big cars and fancy talk. They are the ones with the big assets and the big debts, borrowed from the banks that take our deposits at low interest rates. If the bankers are good (meaning prudent), the town will grow slowly and steadily. If the town is going very quickly, it means that the bank is an employee who has no responsibility except to lose his job when things go back, by which time, he would have made big bucks (last time, no big bonuses) with the big contractors and probably the giver of contractors (we have to be careful here about smearing the reputations of important people). This is the real battle field of business, high finance and politics. Gangs are formed. You fight me, I fight you. Intrigues are played in corporate news. This is the battle for the distribution of wealth.

Now, if the party you are fighting against is the government, then you better be prepared to lose. The government takes the taxes of all the people in the nation and use it for the betterment of a section of the community. This is the real distribution of wealth - or, to put in fancifully, the inter-generational distribution of income. Those who lose out leave. As the winners grow in numbers, the endgame is that all wealth belongs to the majority - and this is when the real war of intra-racial battle starts. Because the nation has been built on one group cannabalising the other, there will be no peace in such a nation for many generations to come, no matter how justifying the intervention of the government may be. The government does it because the people want it. Be careful of what you wish for.

There is only one just intervention for any government - to help the poor to rise above the daily drudgery of life. Provide a solid platform for everybody to stand. When the government is just, people will help each other and the government will play a support role. The people must be given sound ground rules that everybody can play to clear goals. This is an ideal, one that can be liberating.

The Malaysia today is proudly 50 years old and many of the immigrant families are probably in the third or fourth generations - at least. Their families were born here and they have died here. In the natural distribution of talents and abilities, they too are poor as well as rich. It would be fair to say that most many of the Malaysia families are probably be of about the same lower middle class groups. The battle for wealth are among the politicians and the big elephants. The poor man and woman on the street struggle to make ends meet, and to have a vision of the future of their own. The values that are now attributable to jammed congested housing in urban setting - they are urban for an economic reason - must be very much higher than broad and sparse farm land in the countryside - they are broad and sparse for an economic reason as well. The supply and demand factors set in. It is well know that the terms of trade between the rural and urban centres are no good - and the natural consequence must be rural-urban migration to equalise value - (but the World Bank in its recent wisdom prefer big conurbations for high income as opposed to more geographically distributed spread out of wealth).

Talent is rare, and we need all the talent we can get to build this nation further. You cannot suppress talent. You can build capacity. When we are all brilliant, we should all have high incomes equally.

Bumiputera Economic Agenda

Note: This is a social service. I have merely cut and paste a few news reports in order to collate the few statements available. Many readers could be interested in this.

Shah Alam, Saturday, 14th September 2013. Two days before Malaysia Day, Najib launched the new Bumputera Economic Empowerment Council (BEEC), a transformation of an erstwhile entity called the Bumiputera Agenda Action Council (BAAC) presumably to carry out what used to be whispered as the Malay Agenda.

He said the government is the government responsible for all Malaysians of all levels regardless of background, whether they are Bumiputeras or non-Bumiputeras, Muslims or non-Muslims. But since the Bumiputera form the majority of the nation, the agenda to empower the Bumiputera (the Bumiputera Agenda) should be considered the national agenda (National Agenda?).

He announced that the strategy to enhance the Bumiputera economic power is through five areas: human capital, equity ownership, non-finance assets, entrepreneurship and delivery system.

1. Human Capital

A RM1 billion MARA Education Fund in the form of a "matching fund" to meet financial requirements for training programmes, education, entrepreneurship, research and development and innovation.

The government will increase skills upgrading programmes for youths with low academic and skills qualifications to offer them a second chance so that they would have more opportunities to get a job.

Re-skilling programmes for Bumiputera youths will also be increased. Additional allocation will be given to MARA Activity Centres to buy latest technology to conduct the taining programmes. 
The number of programmes conducted by the national youth skills training institutes will also be increased by adopting the two-shift training session approach.
The government has significantly increased the positions of Bumiputera students in local and foreign tertiary learning institutions."The next phase is to empower the Bumiputera human capital to match manpower and skills requirements to suit market needs." On jobless Bumiputera graduates, the government will intensify training programmes to address the employability problem so that training programmes were compatible to industrial needs.Programmes such as 1Malaysia Training Scheme, Graduate Employability Management Scheme and Skills Steering Programme will be expanded to increase the number of beneficiaries.
To increase the number of highly-qualified Bumiputeras, related agencies such as the Public Service Department and MARA will expand their post-graduate education programmes to meet market requirements particularly in critical and high technology disciplines. The Professional Steering Programme under the Bumiputera Education Steering Foundation and similar programmes will be intensified in efforts to create more Bumiputera professionals.This will help them gain recognition as qualified professionals especially in critical fields such as to become accountants, specialist doctors, architects, engineers and actuaries. The government plans to increase UiTM's student enrolment to 250,000 by 2020 from 180,000 currently. More UiTM branch campuses will be opened nationwide.

2. Equity Ownership

To enhance bumiputera equity ownership in the corporate sector, the Skim Amanah Saham Bumiputera 2 will be launched by Permodalan Nasional Bhd with 10 billion units, while Ekuiti Nasional Bhd will take over the role of steering the Skim Jejak Jaya Bumiputera to assist bumiputera-owned companies to be listed on Bursa Malaysia.

3. Entreprenuership

Targets for all chief executive officers of government-linked companies (GLCs), including for projects awarded to vendors. All ministries to create a Bumiputera Development Unit, responsible for formulating proposals and implementing bumiputera agenda initiatives.

4. Delivery System

To ensure the bumiputera socio-economic development agenda is effectively implemented, the delivery system will also be strengthened to create an efficient, comprehensive and constructive ecosystem.

5. Non-Financial Assets

Various measures have also been outlined to help bumiputeras, who still lag behind in the ownership of non-finance assets such as houses, industrial premises and commercial complexes. Syarikat Perumahan Rakyat 1Malaysia (PR1MA) and Syarikat Perumahan Negara bhd in cooperation with state governments will build more affordable houses for bumiputeras nationwide.

UDA Corporation will help to develop properties including houses, business complexes and spaces, as well as industrial and commercial buildings in urban areas, said Najib.

GLCs and government-linked investment companies involved in property will also give emphasis to bumiputera property development especially of housing, shophouses and commercial premises.

To optimise the value and benefit of non-finance assets such as property for Muslim bumiputeras, the Yayasan Wakaf Malaysia will be turned into a corporate wakaf entity.

Property institutions such as Pelaburan Hartanah Bhd, Majlis Amanah Rakyat and Perbadanan Usahawan Nasional Bhd will be strengthened in order to develop or acquire commercial and industrial properties, especially in strategic locations nationwide.

Friday, September 13, 2013

High Incomes, High Prices, Growth & Distribution

Studying how the economy works is unfortunately not an easy task, as many factors enter to influence it and its impacts surfaces in almost all aspects of human and non-human life.

Economists learn to think in terms of trade-offs, as a simplifying mental tool to assess impacts. The pivot is the limiting factor - there must surely be one resource that is limited. Some think the resource is the natural environment (fresh air, clean water, tall trees), or knowledge (know what and know how), or simply human mortality (time). The basic economic purpose of a human being on earth is to accumulate sufficient "value" for use during one's lifetime, and for "greedy" ones, the lifetimes of one's entire family or clan or even dynasty. It is the extent or ferocity in the accumulation of value or wealth that drives the underlying economy and its impact on the rest of society or social life.

Growth for the economy is therefore the accumulation of capital and wealth from profits. With traditionally, wealth is held in the form of metals (gold or silver pieces), in the modern world of paper and electronic money, wealth is held in equities and real estate. So, those with money play the stock market and the property market - the rest of us work.

The rest of us work because we do not have the surplus to accumulate. We earn enough to buy shelter and transportation and probably some distractions in remove the drudgery of life (erhu, camera, guitar). We may even save very hard to pay for our children's education - because we want them to have a proper foundation to earn high incomes. The path to high incomes is the ability to solve problems or anticipate them, so that we can reach our objective in life by overcoming the obstacles along the way - and that objective is to earn enough money not having to work for the rest of our lives.

How much we need depends on the level of prices that we will face in the near and distant future. If we think that prices tomorrow will be higher than today, then we will not let up in our work because we feel our savings are insufficient. In the face of uncertainty, we rather suffer type I error (make a mistake in saving too much) than type II error (make a mistake in not saving enough). We are on a treadmill.

In the world of high incomes for everyone, we must accept high prices. Everyone will be us, earning the same pay - or we will be like them, earning the same pay. It is relative. Our maid will earn as much as us, and we will not be able to afford them, by definition. Everybody will be well paid, or paid almost similarly - possibly with a few minor discrepancy just to show some differentiation in order to encourage the capable and hard working to work even harder - just like in the civil service (or is it the other way round - to create an illusion that the gap there can be closed).

This situation will happen when there is equal opportunity to education, and education is the same everywhere. Education does not mean cleverness. Education means the ability to communicate our ideas to others clearly, and to understand others well, so that we can live in peaceful coexistence. Education means that we know how to give and take, and we see each other as equal, as mortal human beings who will die and become nothing. Education means we can identify a common area of interest and work together to solve that problem. Education means we can think.

Of course, in any society, there are the underprivileged. Those with handicaps - physically or mentally. They should be given assistance in order to reduce their sufferings or to encourage them to overcome their shortcomings. There are also the able bodied who are poor and they need education and the discipline to work hard to achieve a result, without stealing. Stealing is a concept derived from property rights. Property rights is a concept that comes from the fact that property is normally acquired after years of hard work or success in playing the game in town, and not consuming the whole fruit of the effort. It is that part that is saved that is held as one's rightful property and society will protect that right. Only then will efforts be sustained in society to the accumulation of wealth and the growth of that society - mostly in terms of concrete structures in a cluster and ample display of things which are not fit to be eaten but enjoyed in other senses.

Wednesday, September 4, 2013

The Meaning of a Price Increase

A price increase is nothing less than a rationing device. You are likely to spend more if you consume the same quantity as before. Or, if you have a fixed budget (all budgets are limited in this sense), then you will consume less at a higher price. A higher price therefore means that there is a reallocation of resources - through the agency of money - from consumers to producers or the government.

In the current scenario of an increase in the fuel price, the objective is for the government to cut its subsidy by cutting the subsidy to those who are not intended to enjoy the subsidy. In other words, the government wants to give the subsidy to the poor (we can argue who is poor). By giving the subsidy across the board, the government also gives the subsidy to the unintended groups, as such the local rich (who can argue about who is rich) and all foreigners who drive their foreign cars here to fill up (what about foreigners driving local cars to fill up). The official argument goes on to say that the only way to give subsidy to a well-defined group is to give cash to this well-defined group.

But, of course, the price increases affects everybody even those who receive the  cash subsidy (the latter have to make sure that they do not spend on fuel more than the subsidy; the counter-argument is that, at least, you have got "some" subsidy). In an evolved supply chain with lots of linkages, there will be multiple impacts from a simple increase to the end of the line - the so-called "butterfly effect" where the flutter of the butterfly in the tropics eventually causes a typhoon in the ocean. The official solution to this butterfly effect is to disallow this effect to multiply - a 10.5% increase in the price of petrol by 20 sen from RM1.90 per litre is now allowed to have an impact of 0.1% on food prices nationwide.

Simple arithmetic tells you that fuel enters only as 0.01% of a supplier in the supply chain and if the supply chain has 20 linkages and each product has say another 20 inputs with price increases (think of the transportation), the net impact is 4% - by this very crude method of calculation.

It would be foolhardy to imagine that the price increase will have little or no impact on the welfare of the general population. This is rationing, as the price increase will reduce consumption - and probably domestici production (bad) or imports (good?). If not, then the price increase will force people to dissave or to borrow and get into debt - and this will be a transfer of the government deficit to the household deficit or the corporate deficit.

In any case, do not argue that the price increase will have no impact on the domestic economy or the domestic consumers except an arrest in the deterioration of the government balance sheet because we are only reducing our subsidy to (unwarranted) foreign beneficiaries. There will be collateral damage, all right, over and above the direct impact.

Thursday, August 29, 2013

Idealism: Adjustment & Assistance

In an ideal world, according to pure economic theory, the world should be left to operate on its own so that it will find its natural equilibrium - a condition under which it can continue to reflect its true self on a sustainable basis. Everybody is perfectly capable of looking after himself or herself, all within the natural abilities endowed by nature. There is no inadequacy in the person nor the environment, and everyone is perfectly happy to an exact duplicate of the other, with only the difference of preference and personal choice.

This is the world of pure democracy, where everybody has a say and everybody can come to an agreement that is consistent with the views and opinions of everybody. There will be no dissension because everybody is understanding and is willing to compromise; all strong views can be boiled down to the happy medium.

The happy medium of exchange is money which is a worthless piece of plastic or blip of light intricately linked and maintained that is hard to reproduce but of no intrinsic value in itself. When accumulated irrationally due to a coding error in the system, there will be an undue build-up in some particular corner or node, and when the world is overcrowded with plastics or the room is full of bright lights, everything can be zeroised. Money can vanish into thin air, in a strange act of self-destruct. The money system can be restarted when another defect is found with the system biased towards one particular element which everyone accepts to be money.

But in an ideal world of compassion, the strong helps the weak, the rich helps the poor, and all human beings hold nature to be sacred. There reality is now, and now is always sufficient. The senses are spent in peaceful balance, timed by the natural breathing process of being alive. All that is required is made available by providence, and the only effort required is in the stretching out of the limbs and the gesticulating of the jaws, one against the other. Everything is natural, including the evacuation of waste.

An ideal man struggles against himself, in his fight against the demons which is also himself so that the good will prevail. The stabilisation of the system is that there should be no flair ups, and the human being is allowed to wear its mechanical self out to its ultimate physical limit. It is accepted self-aware obsolescence without warranty.

The reality is of course far removed from this ideal, and real men and women arise to try to make good the defects of the natural environment. As ideal men and women arise to fight the harsh reality, they impute the source of the harshness on other men and women, and justice is therefore demanded of nature by inflicting injustice on others. As the good slays the bad, in doing so, the good is transformed into bad, and a do-loop is created. Ordinary men and women find solace in this nasty world by the hardening of their resolution to rid this world of its evils.

Everybody is clever, and everybody else is wrong. This identity of human beings may be the final reduction of us to be exactly to each other while at the same time thinking that we are different in everywhere from others except by the one or two distinguishing features which we choose to identify with each other in order to create a fellowship.

p/s: My apologies for this flight to idealism as I try to rationalise the disconcerting world.

Thursday, August 22, 2013

GST, Subsidy, Deficit & Inflation

Given the convolution that we are now seeing in public debate over policy, it may be appropriate for us to back track slightly and disentangle the knots in policy decision.

1. In the early 1990s with massive inflow sof FDIs as well as short-term foreign capital, the fear was that an increase the monetary base would be hugely inflationary situation. The call by economists was to maintain aggregate demand. The political response was to grow the economy at all costs, and suppressed the consumer price index through controlled prices of food items and subsidy. The thinking was, after all, the economic growth would be sufficient to pay for the subsidy.2. The financial crisis hit. All privatisation concessionairs were technically bankrupt. The government stepped in to bail out by printing money, by increasing its debt.
3. As the economy slowed down because of the loss of investment momentum through punitive measures against local investors, subsidy of foreign investments through generous tax holidays, the tax revenue of the government was found to be insufficient to pay for its increasing debt. More debts had to be issued.
4. The China impact hit. Instead of encouraging local economic activities through exports to China, China drew local investors from here. At the same time, commodity prices escalated in the world markets as speculators try to corner the China market for commodities. China, with its strong economic growth of 10% pa was undeterred, and inflation soared around the world.
5. Global inflation of commodity prices hit Malaysia. The price control of items in the CPI policy of Malaysia is found to be costly. As the Malaysia economy falters, the government finds it hard to maintain the artificial apparatus of the local economy of government-deficit funding of massive projects to prop up the economy while at the same time keeping the cost of living down for the general public. This is now the situation we now face in economic policy in Malaysia.

Proposed Policy Responses
1. There is a policy proposal to reduce the subsidy by letting retail petrol prices rise to market level. This will reduce the government burden as well as reduce private consumption.
2. There is a policy proposal to introduce a GST ostensibly to replace the SST. This will raise government revenue and reduce private consumption.
3. There is a policy proposal for the government to undertake massive projects funded by further debt. This may or may not raise the GDP growth nor create employment for the local people.

1. What is the policy to encourage private investments, other than the stock market and the property market? Where is the value-add in the whole new world of VAT, or will the VAT be just another round price fixing.
2. If inflation is a problem, why are deposit interest rates so low? Are depositors being forced to pay for the mistakes of bankers and borrowers?
3. If the economy is so great, why is the ringgit exchange rate so low? Is the exchange rate policy rationing the local consuming individuals in favour of rich exporting companies?
4. Is the politics killing the economy? Or, is the economy doldrums killing the political regime?
5. Is the degree of corruption an indication of the real cost of living?
6. Can we clean up the economic system painlessly? Or, must we go through political and social unrest.

Anybody, any ideas?

Tuesday, August 20, 2013

GST For Malaysia, Malaysia for GST?

The textbook case for the GST is clear - it is in lieu of the direct income taxes. (1) Would the implementation of the GST means a corresponding reduction in the income tax, both personal incomes and corporate incomes? If it is not, and if it is not tax neutral and if it is to increase tax revenue, then there will be a net withdrawal from the system. If consumption is going to be the growth driver as investment falters, then you ain't got an economic strategy for growth.

(2) The counter-argument is that the GST is a replacement for the current SST the Sales and Services Tax. GST is argued to be more efficient than the SST. The SST is imposed at the manufacturing stage and its cost impact escalated through the supply chain. We all know that. The SST was preferred because it is easier to implement, especially the sales tax. The services tax is a bit messy as businesses start charging customers the services tax even when they do not have to, which means they are pocketing the receipts. The simple services tax cannot be properly implemented. Now, the preference is for a wide-ranging tax net on goods and services at every level of the supply chain, with GST being collected and GST refunded. Every firm now needs an HR section to sieve through every bill and make sure they are properly accounted for and submitted. This army is also required for the customs which is responsible for implementing the GST. All these are fine, because they have to be done and other countries are doing it - although I now hate shopping in London and then have to queue up at Heathrow (in fact, the agency sent me a cheque and my banker says it'll cost me more to cash it!). All these may create a minor surge of economic activity. But my major concern is that surely this adds cost to firms and the argument is that GST is better than SST because the GST has no escalation costs in the supply chain. Concept without reality.

(3) To complicate the implementation, there is also zero-rated items and sectors which I am surely everybody will try to get into, with or without the approval of whoever is the approving authority. This will create the same problem with subsidy which the government trying to abolish in the midst of selective handouts. This is clearly selling to the general public. Now the problem is this: if the majority of the voters are poor, and the government is concerned about it, then the government is presiding over a failing economy. Are we seeing an economic strategy of how to fail an economy?

I think we are in great danger of mistaking management consultants for economists, and if they are so clever, they should all be taking a proper job rather than hopping from one to another the success of which cannot be traced. The reason for the dire of proper investments in this country is that there is a lack of clarity in economic policy, except for the consistency in punishing the locals who save, invest and work hard.

Wednesday, July 31, 2013

The Fire Of Democracy

Democracy is supposed to be a way to arrive at communal consensus, first, by everybody having his or her say, usually sitting around and having something intoxicating to soothe the nerves and the mood, and after hours of listening to everybody and each has said until there is no more to be said, a decision is made which may not necessarily be what one wants but something which everybody could agree to comply and obey.

This is the traditional way of how small villages make decisions such as in choosing a village chief, how to hunt, who to cultivate, what the ceremonies in the community will be.

In larger societies where inter-personal relationships are de-emphasised and where system-efficiency and accuracy become the real concern, the first thing that arises is a sense of mistrust.

This mistrust has overcome the sense of fairness that the idea of democracy is supposed to engendered that the practice of democracy is now an entire farce. No one agrees to be abide by the majority decision, as the majority failed to take care of societal concern. Descendents of the rough warring tribes, even if robed in the best suits and dresses, are unable to give the right of way to everybody who comes by, trying in their little narrow minds of how to take what little leeway the minority may enjoy in pursuit of their own way of life.

The tendency for the majority to induce social injustice which when pushed to the limit causes the minority to revolt or, in modern terms, to protest in huge numbers of which the modern telecommunication gadgets are just an aid.

That mass rallies leading to violence and oftentimes death is an unfortunate consequence of the modern pursuit of an old ideology of democracy. The Greek idea of democracy gave way to the Roman idea of republicanism, the latter of which was propelled by militancy and the dictates of the guy at the top on the whole world.

Democracy is not a sacred cow; individual rights are. No one system of government is right for everybody. The best system for any society is one that promotes peace and prosperity and freedom of all people in that society.

Democracy is closely linked to freedom of speech although both are not the same.

Freedom of speech is an individual right that must be defended until the freedom of speech of that person inhibits the freedom of another person.

In the modern world of social networking or mass inter-personal communications, there are many people who share the same or similar idea and there probably as many or even more who do not.

Politeness requires that we endorse a person's view to show social cohesion, and when we do not agree, we may keep our opinions to ourselves. Unless of course that view may jeopardise an entire section of society to live or to prosper.

Once again, social justice demands that we fight bad views and all politeness is thrown out of the window. But such fights can also be overboard when people start coercing others to share their particular views to fight so-called social injustice. This coercion, this use of force is repugnant. The proper way is persuasion, by force of reasoning.

Wednesday, July 24, 2013

What In the World Is Happening

Sorry for this rather long delayed write-up although I am not too sure that this post is going to redeem my negligence since I am utterly lost as to what is good to write about.

I suppose the last GE was emotionally draining for most of us. Everybody is so earnest in championing their own personal cause such that each whom like to convince the other to think likewise. I suppose such religious fervour is only elemental to us creatures who recreate, for without passion, life is tasteless. This rousing emotion that we have experienced at home, a bit of it now gone here, but can be seen spread around the world for different reasons but still among the blessed trinity - religion, race and politics - and I should add economics as I think about the fringe European countries.

So, we all reckon we can change the world by force, by crying for things we want and demand them to happened. Human beings used to appeal to the heavens, and I suppose many still do. Now, there is greater appeal to the politicians as if they are gods. Everybody is looking for a leader who they hope has the vision, the way and the willpower. We could be in a very dangerous frame of mind, when mob rules and moves in strange ways.

The only thing missing is a clarity of thought of what needs to be done, and how it can be done in a simple manner, without the great elaboration that is often thrust upon our society when some guy with no ideas pretends that he is Moses leading the people out to the promised land. I don't think we should all be sitting what for somebody else to do the things needed, so should somebody else things they can do good for us. While joining the crowds may not be the best way - although it may invigorating for the soul - I think it is the small little things we do every day to help ourselves and our neighbours that we can bring real change to our own backyards and our surrounding environments.

With such a chickening thought, I shall rest my case and write no more rubbish.