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.