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Economics

[3020] Our surpluses are a bargaining chip we should use to address the energy supply crisis

The Malaysian government has stirred after a short period of complacency. While the charge of complacency is warranted (and the measures appear milder than it should have been in light of the severity of the problem we face), a slower-than-promptly approach does have its benefits. One of the benefits is the avoidance of knee-jerk reactions that generally arise during a panicky state. Yet another is that we get to learn from others’ successes and mistakes before carrying out our own measures.

Here, I am glad Malaysia has largely steered away from export-restrictive measures. Multiple economies have done so to prolong supply in the domestic economies. After all, shunning the export doors is a quick-and-easy solution. And looking at the domestic use chart below (produced earlier to highlight the crisis at hand), exporting might look unnecessary given the rising stress at home.

Yet, export ban is beggar-thy-neighbor policy that would make everybody worse off. This is especially so the most manufacturing products are complex involving inputs that could only be obtained through external trade. We could be a net exporter of oil and gas, but we would be a net importer of various chemicals. If we restrict our exports that other needs for their economies, it would be likely others would do the same too. This would result to a whole chain dying off in the short term (while investing takes years) and exacerbating the ongoing energy and chemical-based supply disruption.

Rather than resorting to restrictive trade measures, we should (and appear have) capitalized on our exports in return for guarantee for imported supply. Australia and Singapore have done exactly this recently where Australia promises to continue to supply Singapore with LNG and in return, the latter guarantees diesel supply for the former.[1] Malaysia appears to have the similar arrangement with Australia.

That is the way forward. Malaysia should use our surpluses in various industries as a bargaining tool to ensure our own supply security whenever possible: our surpluses are both the carrot and the stick we must use. The key is to strengthen our trade ties instead of cutting it.

[1] — In this context, we reaffirm our commitment to strengthen energy security, to support the flow of essential goods including petroleum oils, such as diesel, and liquefied natural gas between our two countries, and to notify and consult each other on any disruptions with ramifications on the trade of energy. [Joint Statement on Energy Security. Lawrence Wong. Anthony Albanese. March 23 2026.]

Categories
Conflict & disaster Economics Politics & government

[3019] Tracing the Middle East energy flows disruption throughout the Malaysian economy

I am worried at the way the Malaysian government is handling the supply crisis emanating from the latest war in the Middle East.

Complacency

While neighboring economies have quickly engaged in some kind of mitigating measures, Malaysia appears to be carrying on with business as usual. The latest business-as-usual approach the government has taken is to provide and finance highway toll discounts for the upcoming Eid holidays, which will work to raise petrol and diesel consumption above what it would have been without discount. The subsidy regime has also left unchanged, taking any possible adaptive saving measure out of the equation. Decision on work-from-home arrangement would only be taken after Eid.

It seems the government is complacent. After all, the official communication designed to comfort Malaysians is that Malaysia is a net energy exporter and that the country has two-month’s worth of supply of petroleum products at home. Adding to this is the fact that Malaysia is one of the better prepared economies to weather the supply disruption storm.

Negative effects are unavoidable

Yet, the negative effects are a matter of when, not if.

This is so because many of the industrial (indeed petroleum) products used within Malaysia are exposed to international trade. At the very least, domestic prices are affected by global prices, even if the country is self-sufficient in one specific sector or the other. That is one of the fundamental facts for a small open economy such as Malaysia. Within context of the latest supply disruption, it means domestic prices should go up tracking global prices. This has not taken into account the problem with smuggling, which is really a feature (and not a bug as some would think) of the way Malaysia set prices for its petroleum products.

Qualitatively tracing the disruption ripples with an IO table

To understand the seriousness of the supply disruption, the ripples throughout the domestic economy could be traced through the input-output table. The table links every sector with each other by accounting for all output for all sectors as well as its input from domestic and foreign sources. The latest IO table Malaysia has is from 2021, with the next one due to be published likely this year.

O&G disruption

The clearest channel to trace that disruption is to trace the industrial linkage between oil and gas to chemicals and from there on, to other downstream sectors that use energy and chemical inputs. The chart below is a graphical representation of that linkage within the context of domestic output use (with international trade taken into account).

Here, the output of oil and gas has been traced down by five levels, i.e. from oil and gas, to refined petroleum, to basic chemicals, to special chemicals and then to the next stream user sectors that among others include pharmaceuticals (as listed in the chart).[1]

While five levels may appear deep, it is possible to drill down deeper and trace all the IO table and hence, the whole economy. For instance, a sector located downstream of pharmaceuticals includes the healthcare sector and healthcare output would be used by other services, like banking or even electricity manufacturing. Or for electricity, it could go down to land transport and then to other activities dependent on land transport.

I do only five because these five levels to me appear to be the among the sectors likely to feel the heat early on, either by the consumers, the producers or the government that may subsidize either consumption or production of certain goods. The numbers even tracing it only 5 levels already suggest a huge portion of of the economy should be affected.

That is not at all comforting.

Fertilizer disruption

O&G and is not the only source of the disruption. Fertilizer manufacturing, which uses natural gas as input, is also a major point of trouble in its own right. The chart below traces fertilizer’s immediate users.

Quantitative tracing

These charts are drawn to scale. For laypersons, that means it is more than possible to trace the expected quantitative effects on all industries using the underlying data. How would one ringgit change in output price of oil and gas affect the change in prices of other downstream sectors? How would one unit of volume change in oil and gas affect change in other sectors?

That will be some further calculations I will do in private.

[1] — for crude oil & natural gas, coke & refined petroleum, basic chemicals and specialty chemicals, the corresponding rectangles represent total output and imports of the respective sectors. For the rest sitting at the end nodes (to the most right of the chart), they instead represent sum of input from the supplying upstream sectors. For instance, while basic chemicals node represents all of its output and imports, plastic products node only represents the sum of inputs used from basic chemicals and specialty chemicals. For the end node (right most), only sectors using at least 1% of its supplier output are listed. Anything below that is aggregated under the label others. This is done for simplicity’s sake

Categories
Books, essays and others Economics

[3018] Piketty and Sandel on creating a sense of belonging through progressive tax

During the GST debate in Malaysia, there was a strong push to cut personal and corporate income taxes. Indeed, the government of the day did cut income tax across multiple income band and lowered the rate for those in the top income tax bracket. There were at least four supporting reasons behind the proposal.

One was that it would soften the GST blows faced by households and companies. Second, related to the first, it would the GST more politically palatable. Third, there was a sense that it was fairer (and easier) to tax consumption instead of income. And finally, there was an idea that it was fairer to have flatter tax rates.

It is the fourth point that came across my mind as I read Equality: What It Means and Why It Matters recently. The book records a conversation on economic, political and social equalities between economist Thomas Piketty and philosopher Michael Sandel.

Within the context of flatter taxes, both parties highlight the importance of the middle class in forming any social compact. The middle class is important because in most settings if not all, it is the middle class who would fund the arrangements the most. Such compacts involve the financing of public institutions and infrastructure that in theory would introduce positive externalities that no private endeavor could bring. 

But the middle class needs to be to convinced to come on board and pay up. It is not enough for them to become the beneficiaries of any institution generating positive externalities. This is especially so when they know the poor would not be paying as much as they do, if at all. Jealousy and a perverse kind of envy when it comes to taxation (or lack of) are something that need to be kept in mind.

This could be addressed by having a progressive taxation regime, where members of the upper class are required to pay more through steeper tax rates.

As Piketty states it in the book:

It’s also what contributed to building a new social contract where the middle class would accept contributing to the social state. They knew that they would benefit from it, but also that people at the very top were going to pay a lot more than they would. Whereas today, of course, there’s a big suspicion by the middle class—more than suspicion—that people at the top are not paying their fair share. It makes them say, “Okay, then I’m not going to pay for people who are poorer than me.” [Page 17. Equality: What It Means and Why It Matters. Thomas Piketty. Michael Sandel]

Of course, the tax monies received by the authorities have to be put to good use and that means for the betterment of society. That betterment at the very least is the various effective functioning public institutions, which are central to the creation of sense of community and belonging, but also long-term public investment in a myriad of fields.

That sense of community and belonging achieved through some social compact financed by progressive taxation is a profound point at a time when far right extremists are championing identity politics and driving a plural society, like the one in Malaysia, apart.

From here, Piketty (and Sandel) are presenting progressive taxation is a tool to fight off the far right. It is a tool to create institutions that inculcate that sense of civic community and belonging to rival whatever the far right is offering.

Piketty and Sandel had the conversation (which has been edited into a book format) from the standpoint of the political left. I would not classify myself as a leftist. Yet, the ideas are useful for a person like me, who believes in civic nationalism with a dose of liberalism.

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Books, essays and others Politics & government Society

[3017] One day in Babel

As a member of the generation who grew up and still believes in the multicultural project under the aegis of liberal democratic order, the 2020s is a decade of constant disappointment at home and abroad. The disappointment stems from betrayal of various parties that used to express liberal sentiments but now has turned against it for whatever reason.

Criticisms of the current state of affairs are everywhere, including in contemporary literature. Two books from my recent readings rise to the top of my mind. Omar El Akkad’s non-fiction One Day Everybody Will Have Always Been Against This and RF Kuang’s fantasy-scifi-historical fiction Babel or The Necessity of Violence.

One of those betraying parties are many liberals in the West.

El Akkad’s thesis is clear from the book title itself, with ‘this’ being the genocide in Gaza and apartheid across occupied Palestine. He points out the hypocrisy of Western liberals, especially US liberals, where human rights are held up only for some but not others. That has been a constant criticism of the US and Western Europe (the centers of such liberalism) for a long time but the idea has gained its greater purchase in the past several years, especially with the wildly different approaches taken by then with respect to Ukraine and Palestine.

El Akkad’s criticism goes deeper than simply highlighting the hypocrisy. He believes many western liberals are really interested in messaging and virtue signalling all to make themselves look good. When push comes to shoves, they would create a caveat to wriggle their way through the issues while pretending there is no hypocrisy involved after all.

This, I believe, is one of several reasons why Western liberals no longer hold the prestige they once had in the eyes of many Asian liberals. I have summarized my thoughts on the matter on Kam Raslan’s A Bit of Culture over radio some weeks back. In the same show, I recommended El Akkad’s work as a book to be read.

That hypocrisy is one of several themes explored in Babel. But more than that is another relevant but more damning fatalist criticism developed from that hypocrisy. It is that people of different culture, or more specifically, minorities in a white world would never be considered as equal. Set during the European industrial revolution on the eve of the Opium War, the novel traces the life of the hero and his small cohort at Oxford, some who are radicalized over the injustices of British colonialism.

Babel is an excellent novel and I enjoy Kuang’s writings. In fact, Babel is my second Kuang’s work I have read, with the first being Yellowface. Even so, I won’t yet be as pessimistically fatalistic about multiculturalism as Babel is, even in this current decade of disappointment. Babel takes place during a time of severe power imbalance between the Western world and everything else, where the subscription to the idea of equality can easily be corrupted by hypocrisy that those in power.

With the ongoing multidecades-long rise of Asian economies, the gap representing power imbalance is shrinking and for some, has been reversed. This, I hope, would make that same hypocrisy harder to sustain and a more genuine inclusivity more achievable.

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Books, essays and others

[3016] Reading mechanically won’t do with Irene Sola’s When I Sing, Mountains Dance

Reading can be so mechanical for me that at times, I find myself reading without understanding the words written. It is not the oh-let-me-consult-a-dictionary/encyclopedia kind of understanding. It is the awareness kind of understanding: the eyes perceive but the mind refuses to work.

Sleepiness is a regular cause behind it but any kind of persistent distraction is enough a reason for it. It does not help when a novel plays around with plot sequence to the point of misdirection. To understand such kind of novel, the mind needs to be at attention. All-absorbing, all-aware, all-thinking. The moment the mind is caught undisciplined, the reader will go through the motion of reading mechanically without comprehending the meaning behind the words.

I found myself in exactly that situation multiple times while reading When I Sing, Mountains Dance by Irene Sola, which is originally written in Spanish and then translated into English by Mara Faye Lethem. I would read pages and pages before stopping and then realizing that I had no idea what I had just read.

When I Sing, Mountains Dance is a fiction set across several generations. There is one timeline but that timeline is observed by multiple characters within the same time period and then across multiple periods. It is the diversity of perspective and the numerous characters that threw me off track. But there is another factor that tripped me: the reader needs to finish almost each chapter before reaching full comprehension what it is all really about. It is like you have all puzzle pieces laid out but the final key that would make it all sensical is given only at the very end: the final paragraphs will make you to reassess earlier paragraphs that you read and thought you understood.

The novel has fewer than 200 pages but the naughty play on sequence forced me to take more time than usual to finish it. I ended up revisiting earlier pages to make sure I get the story straight.

That may sound discouraging. But that very plot device (is that the right term?) that challenges the reader’s attention span is also the very reason I find the novel memorable and enjoyable.

There is also a little bit of magical realism that makes the novel fantastical, coupled with just simply beautifully translated sentences peppered throughout the novel. That made me wished I could read the original in Spanish.