The government is getting a lot of flak for its decision to adopt the dirty float mechanism in determining petrol and diesel prices. Pakatan Rakyat, Rafizi Ramli especially, is attacking the government by highlighting the fact that the government is not passing the full saving from the falling crude oil prices to the consumers and pointing out that consumers are effectively being taxed for consuming petrol and diesel.

Politically, I am enjoying the show because Barisan Nasional politicians and their supporters are so fond of asking others to be thankful to the BN-led government for providing subsidies. Now that the government is actually taxing fuel consumption, the politicians and their supporters are trapped by their own rhetoric and suffocating logic. There are people like Tan Keng Liang who is trying to defend the government but his messages are incoherent and uninformed. So, he is not doing the government much favor and I dare say he is hurting the government instead.

But beyond the politics, I prefer that we tax both petrol and diesel and then completely float it. That would leave retailers to set the prices, and hopefully compete with one another rather than having the government sets the prices from above. So, in some ways, I do approve of Rafizi’s action because I see his campaign ending up pressuring the government towards a better floating system, regardless whether that is his intention.

But I think it must be said that the current dirty float system is better than the old one. It is still inefficient, but it is more efficient than before. There has been significant policy progress in the past year or two and I think we have to be fair to the government for having the political will to do so.

On to the dirty float system itself, while the current mechanism has its weaknesses, it also has its strengths. In fact, its weaknesses are its strengths depending on the direction of the price change, from consumer perspective. Its lagged nature does provides some kind of stability to consumers.

I will not describe the current system in full, but in summary, it uses the average market prices from the last period as the reference retail price for the current month. The information that the system uses is lagged by a month.

I have drawn a chart to illustrate this:

Dirty float

From the consumer perspective, in time of falling crude oil prices (I label as actual market prices), the dirty float is not ideal. This is because saving from the current difference between market and retail prices goes to the government. The government would pass some saving to the consumers eventually but as you can see, the saving passed is only a fraction of total saving the consumers would have gained under a pure floating mechanism. The area colored red is actually the taxes paid by consumers.

But in time of rising prices, consumers would prefer to have this lagged pricing exactly because the situation is reversed. Consumers will also pay less, essentially enjoying a subsidy, as represented by the blue area. Of course, right now, this scenario is a hypothetical. When prices rise, you can bet the rhetoric will be different and wanting this kind of system instead.

But this also highlights that the dirty float mechanism does not really do away with the subsidy regime despite all the hoo-ha that Malaysia has finally abolished petrol and diesel subsidies. The truth is that the government has changed its system from that which always subsidizes consumption to that which would subsidize it only when prices are rising (and taxing it when prices are falling).

I would like to see the abolition of subsidy. That means a complete floating system where retail prices correlate almost completely with market prices, with a slight tax on it. That imposition of tax should be considered alongside the cash transfer policy.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
p/s — I have additional thoughts on the matter.

Apart from free-floating the prices to keep retail prices closely following the market prices with the view of passing the saving to the consumers, another way of improving the dirty float mechanism is to shorten the lag period.

Right now, the retail prices are dependent on the average prices of the previous month. What we could do is that make it dependent on average prices of the last two weeks, or the last week. The shorter lag would ensure the effective tax and subsidy be smaller than what it is right now. Here is another chart to show what I mean:

20141217DirtyFloatMalaysiaShorterLag

Here, I have added a new dirty float retail price with a shorter lag, superimposed on the first chart. You can see the amount taxed or subsidized is smaller compared to the original case. For clarity, area A+B is the total tax enjoyed by the government with the original month-long lag. With shorter lag, the total tax is just the area B.

It is also worth noting that if market prices are completely random, the total tax and subsidy would cancel out each other.

I also want to take this chance to clarify my ideal policy, i.e. free float with a slight tax on it. I figure the next chart will deliver my message crystal clear:

Free float taxed

I am showing a fixed tax version. There are other ways to do this, like through ad valorem, which is how the GST would do.

I think Malaysia needs Jokowi. When I write so, I do not mean Malaysia needs Joko Widodo the man per se as our prime minister. Instead, I am thinking about the idea of him the outsider. It is about having a Malaysian prime minister who comes from outside of the feudal circle.

Most of our national leaders over the years have come from mostly the same pool of elites with close ties to the old Malay feudal structure. Malaysia’s first prime minister Tunku Abdul Rahman was a prince from Kedah. His successor Tun Razak came from a noble Pahang family. The third prime minister, Tun Hussein Onn, came from a family of Mentri Besars from Johore at the time when democracy was unheard of in matters of state administration.

Mahathir Mohamad and Abdullah Ahmad Badawi are the only prime ministers that we have had who come from more modest backgrounds. But with Abdullah’s grandfather formerly the state mufti for Penang and with the father being a prominent ulama himself, I would think it is arguable that the fifth prime minister belongs to the same feudalist system.

Penang does not have a sultan but religion and the Malay monarchy are so intertwined: both play a large role in creating the old Malay feudal society and sustaining its vestiges in this modern Malaysia. Today, while the Malays of Malacca and Penang as well as those in the Federal Territories and Borneo have no sultan, they have their Agong, who incidentally is the head of Islam for the whole of Malaysia. So, it is hard to think the mufti office as separate and independent from the feudalist circle. It is part of it.

As for the current prime minister Najib Razak, he is son of the second prime minister and he inherits his father’s nobility.

To strengthen the idea that our prime ministers have come mostly from the feudalist pool, one of the next prime ministerial candidates is the current office bearer’s cousin, Hishammuddin Hussein, who is also the son of the third PM. So not only does our leadership mostly come from the same feudalist pool, we risk turning a democratically-elected office ― the highest in the land no less ― effectively into a dynasty.

As far as I can remember and I am happy to be corrected, only Mahathir has the courage to challenge the past by confronting the men at the top of the feudalist pyramid. In 1993, his government removed legal immunity formerly granted to all of the royal Malay houses. The move eroded the feudalist power in our society and more importantly, it set the tone that the monarchy needed to change. It set the way for a more equal society. Mahathir of course damaged other Malaysian institutions like the judiciary and the press while trying to preserve his power. I am under no illusion that he is an angel but as far as bringing modernity to Malaysia by beating feudalism into the background, he deserves credit.

The rest of the office bearers did little to keep the old feudalists in check. I think that was so because they were and are part of the old feudalist elites. They have little interest to fight it because they benefit from it. After all, notwithstanding the Mahathir era, Umno itself clings to a feudalist heritage to give the grand old party its purpose: Malays must have their sultan (and his religion) and without it, it would be the end of the Malays, or so they argue. Already in the current political climate, any criticism against the sultan is taken as seditious by the state and that sets the stage for the further rise of feudalist forces. Whatever progress Mahathir made, I feel it is being undone.

I fear that if we continue to have the same pool of elites running our country, our democracy would be weakened ― and it is already imperfect ― to enhance the feudalist aspect of our society.

My ideal Malaysia is one where we strive towards equality for all. The feudalist structure does exactly the opposite by elevating certain groups.

Jokowi, to me, represents a break from Indonesia’s past. The break is not as clean as it should be with former President Megawati Sukarnoputri standing behind the curtains ― I am sure other vestiges of the old regime would challenge him soon enough ― but Indonesia has made significant progress in the last 10-15 years, rising up from a dictatorship to becoming a beacon of democracy in the region. Each step Indonesia takes is yet another break from the chain of history, leaving it freer to move ahead without too much baggage.

I am envious of Indonesia because of that.

It is in that sense that I think Malaysia needs a Jokowi. The Indonesian Jokowi breaks our southern neighbor from its ugly military past. We need a Malaysian Jokowi to break our excessive link to our feudal past.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malay Mail on November 21 2014.

With only about 200 pages , finishing The Colour of Inequality was easy. Written by Muhammad Abdul Khalid, the book is priced at MYR40, which is much more affordable and easier to read than the thick Capital in the 21st Century by Thomas Piketty. Just for the fun of it, I calculated that the Gini coefficient between the two is 30.7. For books discussing inequality, they are off to a good start. Capital, by the way, cost MYR167.

But more seriously, The Colour of Inequality has attracted the eyes of both sides of the political divide in Malaysia quite positively. Both Anwar Ibrahim in the Parliament and perhaps more ominously by Muhyiddin Yasin during the recent UMNO general assembly as a slow poke against Najib, gave the book a mention. I think in some ways this book will provide the ammunition to force Najib to make a u-turn from his more open policy in the past. Pemandu, which I take as the symbol of that openness drive despite whatever its flaws are, is already taking a backseat in local politics. I do hear less and less of Pemandu these days and furthermore, it is already branching outside of Malaysia to Tanzania, South Africa and India, in what appears to me a search for relevance and independence.

Coming back to the book, the extremely good part is the data shared especially those pertaining income and wealth ownership during colonial and early post-independence period in Malaya and Malaysia. The stress on the difference between income and wealth inequality is gold because whenever there is public discussion on inequality, not too many understand the difference and then mix the two up. As the book goes the mass market, hopefully it will help address the confusion that exists.

I would guess from the relatively heavy footnotes, these data are those you can find only by reading local academic papers, which can be tedious. The first chapters are full of these and the first half acts an overview or a summary of early labor, income and wealth studies in pre-1970s Malaya/Malaysia. There is a heavy focus on Malay ownership and so, I should really put it Malaya/Peninsular Malaysia instead. Sabah and Sarawak are largely, if ever, on the periphery of the author’s concerns.

Khalid puts a lot of blames on the British colonialists for creating inequality in Malaya. He zeroes in on the importation of foreign labors from China and India who worked on the most productive sectors in the economy while the Malays was left focused on the least productive ones, mostly agriculture.

He also blames the colonial government for focusing on developing urban areas populated mostly by non-Malays while ignoring the rural areas where the Malays (and Bumiputras) were. With all the facilities built in the cities, the infrastructure facilitated income and wealth growth, rocketing the well being of urban populations above their rural counterparts.

While the two factors (productive sectors and urban development) did contribute to the Malay/non-Malay gap, I am unprepared to blame the British for focusing on urban development. Even today, agglomeration remains a powerful drive for development. It is far more economical to build an MRT line in a city of more than 5 million than in a town of 100,000, for instance. The logic should hold 100 or 200 years ago while the British were developing Ipoh, Kuala Lumpur, Penang or Singapore instead of Pekan or Rantau Panjang, as it holds now.

From time to time, the thesis of The Myth of the Lazy Natives by Syed Hussein Al-Alatas appears, just to give you how strongly the author thinks of colonialism as the cause of inequality then. The thesis was the Malays refused to be manipulated by the colonial capitalist machines and thus remained rural, and largely outside the development of the modern Malayan economy. Regardless of the truth of Syed Hussein’s thesis, with the Malays remaining a rural society with a still agrarian economy that is less productive compared to other sectors (mining and cash crop like rubber) as Khalid mentioned, it contributed to the gap. Khalid also showed that the British prevented the Malays from participating in cash crop sector to protect the colonialists’ monopoly. There is a hint of Syed Hussein’s argument that the colonialists came and destroyed the Malay capitalist class by force and thus contributing to the Malays’ inability to compete in highly productive sectors.

For those who have never heard of The Myth of the Lazy Natives by Syed Hussein Alatas, it is one of those books you have to read if you want to understand Malaysian politics, Malay politics especially, better. I would think that particular Syed Hussein’s book is the Malaysian version of Edward Said’s Orientalism. I even think you should read Orientalism and The Myth side by side. That would make Syed Hussein’s criticism much sharper than you would realize rather than reading it alone. One particular idea I gathered reading The Myth and Orientalism together was that UMNO under Mahathir times (The Malay Dilemma and Revolusi Mental come to mind) imported various Orientalist caricature of the Orientals and specifically the Malays – laziness is one – and then used that generalization as the basis of UMNO’s policy to “modernize” the Malays. I do not necessarily agree with all written in The Myth and sometimes, it does appear Syed Hussein was just making capitalism a scapegoat for far too many things beyond reasons, but he did make powerful criticism against colonialism and bringing in context into modern Malaysian politics.

Now, back to The Colour, the chapter on pre-independent Malaya-early Malaysia sets the stage for the New Economic Policy era. After a largely uncontroversial overview of history, the next chapters have a few to offer.

The author clearly sees the NEP as a success. He criticizes several works critical of the NEP along the way. Some criticisms make sense. By the end of it, the author laments what essentially the end of the NEP and advocates for a new one, in some fashion.

In supporting the NEP, Khalid makes a few points which I find hard to swallow.

One is how NEP has no negative impact on growth. This is a big assertion because he refuses to admit there is a trade-off between redistribution policy and economic growth. He argues despite the redistributive NEP, Malaysia continued to registered high growth together with its neighbors among others right up to the 1990s (if you have the book by your side, this happens on page 107). But the fact that Malaysia grew as fast as its neighbors says nothing about the efficacy of the NEP. In fact, it raises the question on the commonality between Southeast Asian countries and you can bet that not too many countries have their own NEP.

The no negative impact on growth story is also problematic because it does not consider the counter-factual. The counter-factual is that without the NEP, Malaysia could have grown faster and that the NEP caused Malaysia to grow only as fast as experienced. This counter-factual is as valid as his conclusion without further investigation. What Khalid did here is merely arguing by assertion. So, I do not think Khalid can write when he wrote with too much confidence. It requires more investigation at the very least.

His point about NEP has no negative impact on growth is complicated by his criticism against Tony Pua’s belief that the NEP discouraged foreign direct investment into Malaysia. Khalid replies on page 105 by highlighting that in the manufacturing sector, the government does not impose any Bumiputra equity requirement and allows 100% foreign ownership. This does blunts Tony’s point and the FDI did come in but it complicates Khalid’s own point on how the NEP does not impact growth. If he believes that the redistributive policy does not have any impact on growth, I would think it is unnecessary to raise this point. If there is no trade-off, there would have been no need for the exemption. The exemption did encourage manufacturing investment in Malaysia. It contributed immensely to Malaysian industrialization, which, was quite successful.

Perhaps I misunderstood his point, with his point being that the NEP is not as expansive as a lot of people thought it was and there were exemptions that avoided the NEP from becoming too much a barrier. If this is the case, then, yes, that would be a fair point. But he does not spend enough time and space in exploring these issues.

The point on manufacturing is relevant in other part of the book, which I think works against one of Khalid. And that point is about NEP’s success in cutting poverty down. I do believe the NEP did cut poverty down but my issue is that the author attributes the entire drop in Malaysia’s poverty rate to the NEP (page 92 and others) while ignoring other factors that might be as big as the NEP: the industrialization of Malaysia (remember the exemption of Bumiputra equity ownership in manufacturing) and Southeast Asia (this returns to my point that cross-sectional comparison of Southeast Asian national growth says nothing about the efficacy of NEP by itself).

Since manufacturing was exempted from the NEP, I am interested to know how much of the drop was due to the NEP and how much from industrialization that has little to do with the NEP since it was exempted. The industrialization aspect is particularly important because there were at least two events in Asia that contributed to Malaysian growth. One was China’s disastrous Great Leap Forward and Cultural Revolution that pushed capital and people out of China to Southeast Asia (and elsewhere), along with the appreciation of the Japanese yen in the 1980s that encouraged Japanese corporations to go out and establish bases in Southeast Asia, especially in Malaysia and Thailand, to cut cost and become more competitive. As a side point, Singapore gained tremendously from the events in China and that contributed to the rise of Singapore; it is not all about Lee Kuan Yew (or Mahathir). There was great transformation in Asia at that time yet, I think the book is giving the NEP all the credit for poverty reduction and essentially implicitly leading lay readers to believe that the Malaysian economy worked in vacuum when clearly, Malaysia has been a beneficiary of globalization.

Talking about poverty, there is also room for counter-factual which the author does not address. On page 111 and 112 among others, Khalid showed that the economic growth for the Bumiputras, Chinese and Indian communities were high and used that as an argument that the NEP does not hurt growth for other communities. But like how the NEP affected GDP growth, how did he know that the NEP did not lower non-Bumiputra growth to its recorded level? If there was no NEP then, what the growth would be? He cannot make his conclusion without answering those questions.

As you can see, I am quite skeptical of his argument that redistributive policy has no impact on growth. I think Malaysia can afford to commit to some redistributive policy but there is always some cost. The Colour is written in a way redistributive policy – the NEP – was cost-free and will be cost-free.

Because of these points, I feel the middle part of the book is an apologist work for the NEP rather than a critical evaluation. This of course does not negate the value of the first and the last parts of the book. The first part raises the value of history to provide context to the current situation and the latter about wealth gap and Khalid’s proposals to address it.

What I think the book does more convincingly is explaining the current wealth gap in Malaysia. The roles of inheritance, labor market discrimination, failure in the education system and the tax structure are pretty much uncontroversial and deserve the attention of the government. There is an econometric model at the end which results are in line with my expectations and other models that I have seen before. The model gives a sense of each factor contribution to income and wealth of a person and becomes the concrete basis of various proposals that the book has.

I have my own thoughts about the proposals but I figure I will write about that later.

I do have complaints about various government policies but I do see improvement on this front at the federal level in the past few years. Two policies I am largely in agreement with and am advocating are the subsidy cuts and in its place, the cash transfer program.

After all the progress made however, my fear is that the government is losing its focus and it is taking a step backward. I will take such reversal as a betrayal to the earlier promise of economic reforms.

I write so because the government plans to introduce a complicated quota system for subsidized petrol and diesel in place of the current blanket subsidy regime, which given the current global crude oil prices, is at the brink of elimination. The prospect of elimination is good news but now the government wants to maintain the subsidy instead. It just cannot make up its mind.

Under the new convoluted system, each person would get some quota of subsidized fuel based on his or her income in the name of targeted policy: the higher your income, the fewer quotas you would get. Any consumption above the quota would be charged at market price. Full details have not been released yet but during the tabling of the federal government’s budget, the Prime Minister said he would announce the mechanism soon.

What makes the situation worse is that the government also plans to limit the cash transfer program we all know as Bantuan Rakyat 1Malaysia (BR1M) by restricting items that can be purchased by the program’s beneficiaries. The government is supposedly concerned that the recipients would abuse the cash from the program by buying luxury goods, like an iPhone 6 that a certain Minister is using now. After all the speech about the-days-of-government-knows-best-is-over by the Prime Minister when he first took power, here, the minister Ahmad Maslan is showing the government’s paternalistic side by attempting to dictate a person’s consumption pattern right up to the minute details.

I disagree with both proposals because they are bad policy. I would prefer the government to stick with a superior pure subsidy cut-cash transfer mix instead.

Quotas and coupons are inferior policies

The only way I can think of to make such consumption control as preferred by the minister possible is by converting the cash under BR1M into some kind of coupons. I am struggling to think of any other way to make such paternalistic policy possible. Maybe that is my imagination failure, but I would think any other way would be unnecessarily more complicated than the coupon setup, which is already complicated, risking abuse.

Why? The recipients can sell the coupons at a discounted price to get cash instead of buying items meant to be bought by the coupons. And what prevents them from using that cash to buy luxury goods? As you can see, it is a complicated system that reduces the potential amount received by the targeted person through leakage and does nothing to address the minister’s paternalism, assuming his paternalism is right in the first place.

By leakage, I mean the benefits meant for specific groups get leaked to the unqualified others through the discount. The coupon purchasers who are not meant to get the coupons get to enjoy the benefits of the coupons. How about a concrete example? It has happened with the 1Malaysia Book Voucher program where students did exactly that: they sold their vouchers at a discount for cash to a third party.

The same argument is also applicable to the quota system for subsidized fuel. What prevents a quota holder for selling his or her fuel to others at some price higher than the subsidized price but lower than market price? There is nothing “targeted” about it.

Monitoring might be the key to the success of such system but with the government trying to balance its budget, does it make sense to create a whole new bureaucracy to police the effectiveness of the complicated regime?

Furthermore, the coupon system would require distributors. Just who will distribute the coupons, one might ask? The government would likely outsource it to someone else in private sector given that there are millions of households already benefiting from the cash transfer program BR1M. And with all the complicated supply chain of vouchers, who knows what would happen. Something can go wrong. Why creates an opportunity for corruption in the first place?

If  you want a clean targeted policy, then you would only need to wire in the necessary cash directly into the recipient’s account. It is precise, easy and clean. If the person has no account, establish one for him or her. This way, no third party gets to handle the cash, leaving little room for abuse. And we already have that system in place. Why change things that work?

A regression of policy

Subsidy cut and cash transfer work charmingly and that is enough. The proposed quota-coupon policy will instead undo the successes of the subsidy cut-cash transfer policy by complicating everything.

If indeed the quota-coupon policy mix will be implemented, then I would see it as a regression. It is a policy U-turn. The maintenance of the subsidy system will preserve the very inefficient system that the government wanted to get rid in the first place while the introduction of a coupon system introduces other kinds of new inefficiency.

We are already on the path to a superior policy mix compared to the one we had before. I would go further by arguing that the logical end of the current mix is the best one given the objectives of creating a more efficient market, lowering the fiscal deficit and at least preserving – it can even be enhancing – the welfare of Malaysian most affected by the cuts and elimination of subsidies.

Remember the cash transfer rationale

It must be remembered that both subsidy cuts and cash transfer should be seen side by side. They are not independent of each other. The cash transfer is meant to address the negative impacts of subsidy cuts, making the cuts more palatable to the low-income households. The cuts meanwhile finance the cash transfer.

If the government reduces the efficacy of the cash transfer by taking the cash element away, then whatever remains of it will be unable to play its role as a cushion at its greatest potential for the financially weakest households. At the same time, if the subsidy is being maintained, then we should not increase the cash transfer. I would even say that the maintenance of subsidies calls into question the existence of the cash transfer program in the first place.

The Prime Minister during the budget suggested that the revenue raised from the goods and services tax will finance BR1M in 2015. That is a really a dangerous statement that upends the ties between the subsidy cuts and the cash transfer. Maybe this is a sign that the government is getting itself confused about the rationale for the cash transfer, which can explain why we are starting to see economic reforms losing steam as various inferior policies proposed at the expense of superior ones.

Don’t fix it if it ain’t broken

My advice to the government is to press on with its earlier promised economic reforms. Ditch the inferior quota-coupon mix. Maintain the current policy. Press on by floating all fuel prices. We can move on to LPG subsidies once the business with petrol and diesel is done. Maintain and improve the cash transfer program. Do not change the cash nature of the program. Increase it whenever subsidy cuts save more.

Just no to quota. No to coupon. And no to Ahmad Maslan’s paternalism.

The government has all the political capital it needs to press on with the reforms. The general election is still so far away. All the political criticism against BR1M can easily be dismissed. And BR1M is a cheaper and better kind of populism backed by good economics compared to the old subsidies and all those complicated policies. What is not to like?

It would be a great shame if by 2017-2018, all the political capital the government has now is wasted on half-measures.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malay Mail on October 21 2014.

There are a lot of discussions about federal-state relations, especially with respect to Sabah and Sarawak. But I find those discussions and the points stressed are really hard to pin down in terms of numbers. So, I am putting the following chart up, mostly for my own purpose, and perhaps, also for the make benefit for glorious people of the benefit of others interested in the debate.

Here is a chart presenting all the federal grants paid by the federal government to all the 13 states in Malaysia:


20141017FederalGrantToStates

I obtained them from the federal government’s Anggaran Perbelanjaan Persekutuan 2015 document that was released on Budget Day last week. If you are interested in it, the figures can be found in Annex E of the document.

I apologize for the colors.

I have to highlight that this chart contains only grants. Things like petroleum royalties are not included because those are paid by Petronas, not the federal government.

And this of course presents only one side of the story. It would be interesting to collate all of government spending as well as income that went to/came from each state. Then we can calculate the balance. By doing so, we can know which state is the net recipient or contributor in this federation of ours. That perhaps could back any argument with some kind of data rather than merely strong beliefs. The exercise may sound simple, as if it involves just going through the government accounts. But federal spending can be so distributed among ministries and various bodies that essentially are linked back to the government that tracking them can be a real challenge.

That said, the relationship we maintain in this federation goes beyond fiscal matters. Just do not be too fixed on the economics. I think it is safe to say that economics is not nearly everything there is in life.

I am sure you have seen this before but just in case…

20141013MalaysiaDeficitNGDP

And the surplus was not because of Anwar Ibrahim. It was something bigger than him. It was the Roaring 90s.

Just a short remark: the recession of the late 1990s was the worst Malaysia has ever experienced, but it is interesting that in terms of government finance, it was the recession of the early 1980s.

I love plays.

I am struggling to explain why but I think it is because in a stage play, nobody gets a chance for a cut. After all the practice sessions, there are still rooms for mistakes. So, I appreciate the courage needed for stage plays. There is also a direct connection between live play and the audience. You could hear the voices of the actors and actresses without any manipulation. Stage play is an exercise in exaggeration, but it feels more natural than those you watch on the TV, on the computer or in the cinema.

I have not watched a play for a long time and so when several friends suggested we spend our Friday night watching one, I said, “yes, let’s go.” This was a week ago, on the opening night of P. Ramlee the Musical.

First off, I think I want to say that I love the play.

But there were several issues that irked me.

I think the play started awkwardly, stressing to the audience that the play was our story and our identity. But I felt it should be about P. Ramlee, not our culture. Perhaps, that is just my libertarian sentiment battling society appropriating someone’s personal successes and failures (in many cases, just successes).

The opening song which stressed on “our culture” was particularly weird with the lyrics noticeably struggling to rhyme everything with the word identity. Notwithstanding the forgettable song, and that what-on-earth-is-up-with-the-blind-man intro scene that could easily be cut, the group performance was entertaining. The song was awkward, but scene opened up rather well. I especially like the props but more on that later.

A bigger problem with the play was the uneven pacing. One example happened in the second half when P. Ramlee, played by Tony Eusoff (I love the accent, though it was maybe overdone to sound like P. Ramlee), was separating from his second wife Norizan. The argument and the divorce scenes were powerful. As Norizan – the awesome Tiara Jacquelina – exited the stage and accosted by paparazzi, she said “I give P. Ramlee back to the world.” That is a great line and it summarizes a huge part of the plot quite snappily. Most importantly, it was a great climax to build on the next part of the play. Disappointingly however, what followed next was an anti-climactic, sad, slow song about regrets that I found utterly unnecessary and wasting the momentum built. There were other scenes with the same problem and it did feel like those scenes were just there filling up time that needed to be filled for whatever reasons. So, I thought, those scenes could easily be cut off without affecting the play at all, making the play much punchier.

One big storyline that I found very distracting and irrelevant was the one where the play explored the fate of FMP employees, the Singaporean production studio which P. Ramlee made his name. The studio had to close down for financial reasons and people lost their jobs, including P. Ramlee. Maybe the director wanted to highlight the suffering of those behind P. Ramlee’s success, that P. Ramlee was not the only one who suffered. Maybe the director was trying to put in some kind of political-sociological nuance into the play, and to some extent, saying that it was disaster to the Malay film industry. But this play should be about P. Ramlee, not some academic papers about the film industry. So, I definitely think the play was biting more than it could chew and ended up with dissatisfying, digressing treatment of FMP employees as well as on P. Ramlee’s abrupt fall from fame. It would have been better if time was spent exploring P. Ramlee’s fall instead of the whole industry.

Moving on, I like the props. When the curtains, or really in this modern utilitarian world, the screens, were lifted up in the beginning, I felt impressed. The props were wonderful. The facade of colonial shophouses was done well enough that it immediately gave me a sense of the era the play was set in. Other props I thought deserve a mention were the train sets, which appeared in my best liked scenes.

But I dislike animation used in the play. There were scenes where the paparazzi/reporter characters were utilized to hasten the pace of the play. The animation projected on the screen was too distracting. It was overly flashy, changed rapidly but repetitively. It took my attention off the characters to the screen that was showing fluffy information that, for instance, you would get from reading newspaper columns where the author likes to use big words or ideas or some feel good slogan/cliche but ultimately fail to get to specifics and saying nothing new. I think it was better if the animation was less flashy, or probably replaced by a static picture instead.

I do not want to appear critical or hating the play. I do sincerely like the play except I do have issues with it, as I have made clear above, with the biggest ones involve the pacing, the FMP scene and the use of animation.

Other scenes that I like are the part when P. Ramlee was separating from Junaidah (or was it Junainah? I am confused). It was emotionally strong, although, like a friend of mine remarked, it was hard to hear what Lisa Surihani, who played the character, was saying amid all the sobbing. I do like how the crowd pulled P. Ramlee away from Lisa Surihani in that particular scene. I like the train scene from Penang to Singapore. I am not a theater man and I am not exposed to the “engineering” of props, but I was quite impressed with the movement of the train. There are a few others but I will not list all of them. I think I have forgotten some details a week after.

And that is the thing. When I came out of the play, I had trouble remembering the indigenous songs. I remembered the dollar for a dollar song. That was funny but almost nothing else. Given that this is a musical, I think the songs have to be memorable. Still, I think the audience loved it when they heard a hint of songs actually sang by the real P. Ramlee, like Gelora and Azizah.

At least I do. At home later that night, I went on Youtube and listened to old P. Ramlee songs before going to bed. Those songs are timeless that the play should have used more

When the economy grew 6.4% from a year ago, does it really mean it grew exactly at that rate?

Those kinds of statistics are supposed to give us the hard figures that we all can fall back as the one and only truth. Like the physical ones where a meter ruler is a meter long. But those with statistical learning would understand these macro numbers, from the GDP to industrial production to prices are not free from errors (even the ruler has an error but I would think that error here would be considerably smaller compared to that suffered by macro numbers, unless, it is an astonishingly bad ruler). The GDP for instance is not exactly an account of a small company that has in it all of the company’s expenditure. That macro figure is at best an estimation of what is happening in the economy. The fact that we keep restating (not rebasing) the GDP figures every now and then tells you that just as much.

Yet, after working in the financial sector, I am quite surprised to learn at how standard error/standard deviation plays a minuscule role in most analyses. I think this is a problem because without reference to errors, data providers in various government agencies as well as analysts and economists in the financial market give the illusion that their data and their analyses (strictly non-normative commentary of the data) come with absolute confidence (academic economists have better record at this). When the economy grew at 6.4% in a period, it is 6.4%.

But that confidence is overblown. It is not really 6.4% exactly. The truth is that it is possible the GDP had grown around that figure. What exactly, nobody knows. Maybe that is a technological question that would be solved some time in the future. In the meantime, there are some errors in the data.

Before we go on further, for the benefits of those without basic statistical training, I want to emphasize that these errors are not mistakes. They are simply uncertainty that comes along with the data. Uncertainties are there because we cannot know everything about the world. But we can know enough to know about the general situation. Hence the usefulness of these inexact macro figures. I call it inexact, because the true figures fall within a range and it is a stretch to suggest a point figure is the true figure with certainty.

I have no doubt that these economists, analysts and statisticians understand the meaning of errors and its importance. I am not overly worried about this group who work revolves around data. They know there are revisions and they know the numbers can change. They know there are errors. They know these macro numbers provide a useful guide to the happenings in the economy and these figures are not exact numbers. It is more of a sample – a good sample to generalize the population – rather than the actual universe. Whenever they refer to a number, they have the statistical caveat at the back of their mind.

I worry about the non-expert consumers of these data and analyses. These users do not understand this and they take the figures put down as the truth. Consider for example the discontent against the inflation rate in Malaysia, where there are critics who claim it is too low. I think the publication of standard errors of consumer prices would partly help address their concerns by telling them that there is uncertainty in the recorded prices. Still, this will not address the criticism against the CPI too much because the critics also appear fail to understand that the weight of the final CPI number is in such a way that it measures the middle Malaysians. But we have enough microdata that those weights can be reconstructed to fit more than the middle Malaysian. But I think this is a different issue which I have addressed in the past.

I am bringing up the non-reporting of standard error/standard deviation issue because I am bit peeved when I see news reports that goes something like “Malaysian industrial production growth grew slower at 4.3% from 4.4% last month.” Or the GDP grew faster at 6.4% in 2Q versus 6.2% in 1Q. I mean really, is it truly a deceleration/acceleration? Are we not just sensationalizing it? I am particularly annoyed when economic-illiterate politicians start to sensationalize these figures, spreading uninformed views to the wider public.

(Another example is the idea that China is the largest economy in the world in PPP terms. But how about including the standard error inside too before making that pronouncement? I bet Chinese GDP has an outrageously big interval.)

Is it not enough just to say, “hey, the economy is doing okay”?

When I see that kind of changes, I am more inclined to say it is stable. In fact, we can get more scientific about it. Calculate the index’s standard deviation and do hypothesis testing to see if the change is significant or not. It is very easy to do such testing these days.

I admit, it is less sexy and mouthful to say “there is X% probability that the economy grew faster compared to the rate in previous period”, than to say “the economy grew faster today versus yesterday.” But are we sacrificing truth for sexy, short, punchy, headlines?

I think yes.

I am guilty of not providing the standard deviation too, but I think we (can I use the pronoun we?) need to change our ways. Yes, I think we mainly write for each other, but we have to realize, these writings go out to the public as well. Our statistical caveat might not exist in others’ mind. We need to put those caveats explicitly in the open.

By sharing the standard deviation, I also think it shows others that we are being humble about our data. It says, “these are my best bets” instead of “this is it and there is no other way about it.”

Ideologically, from libertarian point of view, the humbleness is important. Libertarians believe in the superiority of the market over state actions. My belief (before I get banged up for being a blind market apostle, there are instances of market failure where the government needs to come in) in the superiority comes partly from the fact that we do not know everything about the world. I think the idea of standard error is part of that philosophy: the idea that we do not know everything. Again, there might be a time when technology will solve that and bring about a libertarian nightmare, but right now, there are enough cases out there to tell us to be humble.

Ten months into 2014, I have now resigned to the fact that my projection for the annual inflation rate in Malaysia is too high, with the actual rate being relatively benign. The reason I had put it so high — it was in the region of 3.5%-4.0% compared to what it would likely be, which is 3.0%-3.5% — was that I had expected a drastic subsidy cut early on. It did not happen until yesterday. Even yesterday’s cut is not enough to salvage my projection. I have of heard drastic, crazily complicated plans to revamp the subsidy system that would definitely help me be right, but that has either been postponed, or canceled. While I like to be right, I hope the convoluted system will be canceled. I hope the government would just stick with subsidy cut-cash transfer policy.

Politically, subsidy cuts are always a hot potato. It attracts criticisms from a whole lot of people.

Me? While I have criticized certain cuts from time to time, I am generally supportive of it for various reasons. I have been a long-time supporter of transforming subsidies into cash transfer. This time around, I do not have much reason to oppose the cut. Government influence, at least from the GDP perspective, is coming down, suggesting less government spending with the wider economy in mind.

So, I think I would like to engage on two criticisms directed at the recent cut. One questions the cut on the basis that crude oil prices are coming down. Another goes, subsidy cannot be cut until there is a viable public transportation system in place first.

On oil falling prices, I have said it in the past and one person has brought it up on Twitter (where I spend most of my time these days neglecting this blog, my column, my book project … and work… maybe by just a bit), that the best time to eliminate fuel subsidies is when prices are low, like right now. Acting when prices are low is acting from a position of strength and not out of desperation. If the argument that says we should not cut subsidy when prices are falling down is a good one, then when exactly should we cut it?

Is it never?

If the answer is not never, consider the counterfactual. If prices are higher, would that be the best time to cut subsidy then? Under the scenario of the rising prices, the effect of subsidy cuts on consumers and the economy at large would likely be greater than when cutting it when prices are low, because at that time, the situation would have been more desperate and would probably demand steeper cuts. There would likely result more shocks to the consumers that make the pain of higher cost more acute than it should be. As I have written on Twitter in a snappier way, “[you] criticize the cuts because oil prices are coming down. If prices were going up, would you be happy with bigger, more desperate cuts?”

From government finance perspective, I think cutting it earlier makes more sense. It means more saving for the government to finance other stuff earlier. If we are to wait for the government to cut subsidy only when prices are rising some time in the future, then the saving would probably be lower. The saving can finance the cash transfer program, among others.

Besides, a responsible policymaker wants a countercyclical policy. You do stuff that are painful but necessary during the good times, not during when times are bad. Look at the effect of austerity. The criticism of European austerity is exactly because of the poor timing of its austerity program.

On the point that we should wait until the public transportation system is good, I think this is a costly wait-and-see game. It is also partly a chicken-and-egg issue.

I label it as a wait-and-see game because the last MRT line is scheduled to only be completed by 2020. Keep in mind that construction on the two other lines has not started yet. Even then, I am unsure the public transport system would be reliable with comprehensive coverage. Do we want to keep the subsidy regime running until we are completely sure the transportation system is completely up and running in donkey-years’ time? That is a lot of money, never mind who knows what will happen with crude oil prices until then.

I also box this particular criticism against the cut as a chicken-and-egg problem. I would even argue it is a case of Catch-22. We need the money to invest in public transportation, but we do not have the money to do so if we keep up with the subsidy regime. We need to break the loop and not engage in such mind-numbing logic. At the very least, the cut in the subsidy bill and in the deficit ratio could help bring yields on government debt down, allowing the government or the relevant government-linked bodies to borrow at a cheaper rate to fund infrastructure project.

“But,” you say, “we are going to have the GST!” Yes, but I think every saving helps. “But,” you go on, “what about corruption-wastage-leakage in government spending? Sure, I share your concerns there but I think that requires some political changes but that requires some effort. In the meantime, until that happens, it should not prevent us from doing other stuff. It is not a mutually exclusive problem and it is not a sequencing problem either.

Ultimately, I see the argument on public transportation as one that prefers to do nothing.

Until AirAsia and the liberalization of the airline sector in the past decade or so, Malaysia Airlines was the only real option for most of us when it came to flying. It is easy to argue that for us Malaysians, flying meant Malaysia Airlines.

My first flight was with them. The feeling of sitting by the window floating among the clouds for the first time is unforgettable. The carrier was part of my growing up story as I found myself crossing the Pacific and back around the other side of the world, travelling to places that as a kid I thought would be impossible.

So, Malaysia Airlines does mean something to me. I feel there is a personal connection between me and the brand.

When disasters struck the airline, part of me felt lost. I was not alone in feeling so. I looked around and I saw an outpouring sympathy for the airline from many. On the internet, on television, over the radio and even at bus stops and shopping malls for weeks after the Ukraine crash, there were signs and images imploring us to keep Flight MH17 in mind.

But now that the rituals are mostly done and the intense emotional reactions have subsided, I think this is the best time to write what I have been thinking for some time: We are taking the sentimentality too far.

I feel so because I see people equating the well-being of Malaysia Airlines to Malaysia the country and expressing it so strongly. While this may suit the narrow intention of those who want to save the carrier, I think it demotes the idea of Malaysia the country to that of a petty commercial entity.

The equation sets a limit by necessarily defining Malaysia as a business, instead of an ideal society, whatever that may be. After a while, I no longer know what we Malaysians collectively want the country to be with all of our competing dreams and contradictions.

But I am certain the country would be a depressingly sad, meaningless place if the idea of Malaysia is confined to us measuring our worth with the profits we make, gauging our performance with self-limiting unimaginative indexes. Such culture would turn us into drones, ever chasing benchmarks which are meaningless outside of business. “1 Malaysia” might be that, but Malaysia is more than that. There is much more to life than business.

An example of equating the airline to Malaysia comes from the prime minister himself when he delivered the Merdeka Day address. He used patriotism to justify the need to financially aid the troubled commercial airline, yet again. The platform he used is enough to prove the exploitation of patriotism as a persuasion device. He tried to build up a case to save the carrier. He said there was no other choice.

But he did not need to try very hard. On the ground, I feel the idea presents itself more blatantly and organically, implying that the carrier is a national icon, that it is Malaysia itself.

The crashes made it politically easy for the government to bail the airline out. There is little political opposition to the corporate exercise since to oppose meant irreverence to the victims of the crashes. Nobody with a heart wanted to be seen to be that insensitive. Those who did were shouted down.

So, Khazanah Nasional as the government’s agent gets all the support it needs to privatize Malaysia Airlines. The public is chattering about the details but the idea of saving the carrier itself is taken as necessary without much question. The majority seems to agree with the prime minister that there is no other choice.

Here is the other impact of the unfortunate equation. The idea that Malaysia Airlines is Malaysia automatically kills off the other choice: It is unthinkable not to save Malaysia Airlines, it is unthinkable not to save Malaysia. It limits the grasp of the mind. The loss of our faculties is the cost of the equation.

The equation is also an example of the merging of government and commercial interests. There have been other examples in the past but I find this one particularly disappointing because just several years ago, the prime minister promised to let the private sector drive the economy and reduce the government’s stake in various Malaysian corporations.

This is not the only broken promise around judging from the government’s recent enthusiastic use of the old Sedition Act.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malay Mail on September 5 2014.

276 pages