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.


walla said...

Planters have rued that the Indonesians are at least transparent upfront on exactly where and when they will gobble gains through gate fees.

It seems that over here, the situation is non-transparent and everything is subject to individual interpretation which changes every now and then without any coherent rationale so that it is hard to plan for tax and other exposures.

Maybe that would explain how the 65 percent tax rate keeps coming up in the plantation sector so things are not as rosy as it seems, especially for those who know the other critical limiting factors of that sector. That rate is cost of business which doesn't translate to future growth. For small minds, something easy to ignore.

That aside, the very fact we are now trying to implement RPGT must mean not enough was done earlier on to stay focused on making homes affordable for a growing young population which will be future income-earners.

Since they are not appropriately skilled for a competitive global economy, they can't make enough from a local non-progressive job market to pay for their own roof that will provide secondary savings from not having to pay rent when they will be too old to work later on or when times take a tumble.

Take a pew, dipple, whatever. Your unspoken conclusion will be painfully plain. The situation cannot be solved using present holders. The result remains kaput for all.

So coddling all those graphical data points will not provide real balm. They only diffuse and uncouple all from the hard challenges of making this country work towards real progress crafted from good software of brains and ideas, spirit and cooperation. Not the hardware of another white elephant here, another agency there.

walla said...

We have to kick corruption out. It runs into billions every year for the last umpteen years. The present administration is not serious about solving it because it is run by the biggest fishes in the same murky pool that is to be cleaned. Would they ever break their own rice plate?

Those annual billions would have paid for home ownership for millions for at least the next four generations, wouldn't it?

Instead we talk about the merit of returning a tax to cool the market.

Instead we talk about pocket money for rice and sugar and hand-phone charges and bus fares and toll fees and electricity bills and the specter of GST already arrived in the upgraded prices of everything that needs to be purchased everyday in ordinary humdrum lives coasting to the sunset of a nation stillborn.

Why try to protect the unprotectable? Why defend the indefensible? Why mollycoddle the idiots, crooks and hypocrites who have brought the citizens of this country to their knees and sucked their potential out of the very last fiber of their noble roots?

walla said...

Back to software. That's education. But that's also software.

There is one which has potential for remote learning. With it, you send a message to someone else. Then you type something on your own computer. Then you sit back and watch your cursor move as if by itself. And the other person is typing his or her text on the page of your file in your machine. Because everything on your machine s/he can see and move from his/hers. Doesn't that point to a peer-to-community remote e-tuition application?

And why is this important? You can get a real expert, say on mechatronics. And he can skype with you while at the same time correcting your circuit diagram that is opened in a file on your machine.

And why is that important? To bypass the educational system crap that has been stunting the brain growth of our population pool.

And you know it has been stunted. How else can you explain a political member triumphantly saying his race controls the economy while his other members lose no haste to lambast the other races for not sharing their control of the economy. So if everyone is controlling the economy, where's the race problem?

In the same vein, there's the other idiot who says he forgives the other races for not voting for his cause. Will he still have a black heart in addition to a thick face if they answer back that they didn't do anything wrong to him for they only did what was right for his cause in the hope it would become a bit more honest, fair and upright?

And here we aspire to the middle path so as to walk the tightrope between rightists and leftists. How?

walla said...

Next year all the factors will confluence. These are factors which will raise prices and bring on a major inflationary cycle. Exactly at a time when the ringgit will weaken, productivity tool imports crimped, and mortgage and loan payments raised while overhead costs of production and business rise and scale savings from stocks reduced.

Endpoint: lower income relative to higher costs, especially in the areas needed to increase incomes. Sitting ducks, no?

They never thought the multiplier effects can work the other way as well.

They never used their brains. If in the first place they had any.

When jokers run a place, you can only get a circus of clowns bringing down the house.

But not in mirth.