Author: Hafiz Noor Shams

For more about me, please read this.

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Economics

[3007] Finance would be the Dutch disease in a 14-state Malaysia

It is August coming into September. It is a month of feverish nationalism across Indonesia, Malaysia and Singapore. For the latter two, history is so intertwined that it is almost impossible to celebrate each other national day (days in case of Malaysia) independently and without dishing out minor insults across the Causeway. Over BFM just the other day, the hosts and guests were talking out loud how grateful they were to be Malaysians because of the food… which is better than Singapore’s. Some Singaporeans regularly express how grateful that Singapore is no longer part of Malaysia.

Beyond these banters, there are discussions of what-if. What if Singapore were still the 14th state of Malaysia? Would Malaysia be more prosperous than it is now?

I am in the opinion that the separation is for the best. A what-if Malaysia with Singapore in it would likely be worse for both parties: both Malaysia and Singapore would not be as prosperous as they are now. Both would pull each other back.

From an economic standpoint, the what-if Malaysia would be a Malaysia suffering from a kind of Dutch disease. We are accustomed to the Dutch disease through by overreliance on petroleum. But the Dutch disease can really be generalized into a sector that gobbles up so much resources that it raises cost across the economy, which in turn causes other sectors—especially manufacturing—to be uncompetitive.

In our what-if scenario, that sector would be finance (on top of petroleum).[0]

A strong and big financial sector works in the usual Dutch disease way: higher-than-average wages, which sucks talent away from other sectors. It would also suck other resources and reallocate capital towards short-term profitability instead of enabling greater investment that things like manufacturing usually need.

The well-being of the financial sector does not necessarily align with that of the economy (and within the context of industrialization, manufacturing). In How Asia Works, author Joe Studwell suggests that the financial sector must be put on a short leash to make industrialization works. In clearer terms, that means forcing banks to lend cheaply to manufacturers and having the financial sector bears more risks that it is willing to shoulder. There are other ways to counterbalance the influence of finance but an influential financial sector will make that harder if not impossible to do.

Finance was and is a big part of the Singaporean economy. While it is difficult to obtain clear data from the mid-20th century, as far as reliable and comparable records are concerned, financial services as a share of GDP in Singapore has been higher than it is in Malaysia since 1980.

Some rights reserved. By Hafiz Noor Shams.

The trend possibly began much earlier if we consider Singapore’s role as the financial and trading hub of colonial Malaya: the 1960s Singapore was not the swampy kampong some would claim it to be. In 1905, Singapore already operated a network of electric trams, which is shown below (in fact, Singapore had had steam trams as early as the 1880s):[1]

Koh Seow Chuan Collection, courtesy of National Archives of Singapore

So, if Singapore was still a Malaysian state and the growing finance GDP share trend held up as it did in the 1980s and all the way to the 2020s, I would think other sectors would be competing in a losing battle for resources. This is also part of the reason (in the real world) why some Singaporean more industrial firms have been relocating to Johor: it is too expansive for more and more industries to operate on the island state.

Additionally, the difference in the make-up of the Singapore economy and that of the Peninsula, and even more of the Bornean states, means economic interest and policy would diverge in a world where Singapore remains as a member state. In 1966, Singapore’s GNI per capita was already almost twice as large than that of Malaysia’s.

A concrete example of diverging interest could be seen from 1963 until 1965, there was major disagreement between Kuala Lumpur and Singapore over developmental funding: KL wanted Singapore to contribute more to support development not just in the Peninsula but also in Sabah and Sarawak, while Singapore thought it was being bullied into doing so. In fact, financial disagreement and questions regarding customs union between the federal Finance Minister Tan Siew Sin and Singapore’s Finance Minister Goh Keng Swee over the financial arrangement between Singapore and the Federation had played a role in the separation.

The divergence in policy could also be rationalized through monetary policy. The different stages of development between the member states means each component would need different policy treatment. The Peninsula, Sabah and Sarawak in the 1960s would likely need looser monetary policy relative to Singapore. A monetary authority trying to juggle the needs of such diverse economies would have a headache. Imagine the European Central Bank during the European debt crisis, where they had to satisfy the inflation-phobic German authorities while trying to save the Greece and other southern European economies. European authorities in the end resorted to painful internal devaluation for the already troubled economies.

Similarly for a what-if Malaysia, the benchmark rate would likely be too low for Singapore but to high for everybody else. In this case, the what-if Malaysia would grow slower than real-life Malaysia (making industrialization process harder than it should be) while a Singapore in Malaysia would likely face greater financial stabilities than real-world Singapore.

The fact that Singapore’s monetary policy regime today is so different from Malaysia’s just shows how difficult to run monetary policy in the what-if Malaysia.

And so, as far as development is concerned, separation was likely the best outcome we could hope for.

Hafiz Noor Shams. Some rights reservedHafiz Noor Shams. Some rights reservedHafiz Noor Shams. Some rights reserved

[0] — On Dutch disease, it is impossible to not mention oil & gas in real-world Malaysia. But I think Malaysia did well in managing petroleum resources due to other strong sectors such as agriculture and also due to strong effort to diversify and industrialize (that is industrialization in spite of petroleum but there are signs of petroleum crowding out other sectors there in Terengganu, Sabah and Sarawak). This is evident from the falling oil & gas since it peaked in the mid-1980s, in contrast to the rising prominence of finance in Singapore today. But the relevant point is, imagine having to deal with two sectors that would suck resources away from manufacturing. Would that Malaysia able to deal with two cost-rising sectors all at once? 

[1] — Electric tram at Collyer Quay, Singapore. Following the failure of steam trams in Singapore, electric trams were introduced in 1905 but eventually phased out by trolley buses in 1925-1927. [COLLYER QUAY, SINGAPORE. Seow Chuan Koh. National Archives Singapore. Extracted August 30 2025]

Categories
Books & printed materials

[3006] Reading Shih-Li Kow’s The Sum of Our Follies and being transported to Kuala Kangsar

I am generally attracted to paragraphs describing places. These descriptors make me feels a little bit like taking a vacation mentally.

George Orwell’s Homage to Catalonia is primarily about the Spanish Civil War, but its pages are filled with place descriptors that I now would like to visit. Ernest Hemingway’s A Moveable Feast is set in Paris during the inter bellum period and that gives me an idea how the city looked like long ago, which I could compare to my own experience of visiting the city when I was younger.

I love Kaouther Adimi’s A Bookshop in Algiers and Alice Zeniter’s The Art of Losing incredibly for their depiction of Algiers specifically, and Algeria more generally. It has been some time since I have finished reading The Art of Losing, but a scene from the book where Algiers is observed by the protagonist from the sea still lingers in my head. I have never been to Algiers but that is now my primary idea of the city: a city of whitewashed buildings with a casbah on top of a hill, unmissable from the Mediterranean.

I think that (the feeling of taking a vacation) is the reason I enjoyed reading Shih-Li Kow’s The Sum of Our Follies. When the place Lubok Sayong first came up in the novel, I immediately searched for it online and on the map. Nothing came up, which immediately told me it is a fictional place.

Yet, some aspects of the place feel familiar. It could have been just the village of Sayong, across the Perak River from Kuala Kangsar. The suspicion only grew stronger as I went deeper into the story, which pulls in events of the 2000s into its narrative: the character YB Datuk Seri Minister most definitely satirizes Rafidah Aziz, who was a long-time Member of Parliament for Kuala Kangsar. The Sum of Our Follies was first published in 2014.

Kuala Kangsar itself plays a central role in setting the story’s background. Having lived in the town for a few years as a teenager and having visited the place several times after although not recently, the story’s progression sometimes was accompanied by vivid images in my head. It was almost as if the characters were living in a set projected out of my memory of the place. The vividness is almost as if I was watching TV.

Or it was as if I was there observing the characters personally. Away, somewhere, in Kuala Kangsar.

Categories
Books & printed materials Conflict & disaster History & heritage Politics & government

[3005] Reading Revolutionary Iran, or an appreciation for glossary

My readings could be driven by current affairs. That was the reason I picked up Rashid Khalidi’s The Hundred Years’ War on Palestine. And that was the reason I recently read Michael Axworthy’s Revolutionary Iran: the Twelve-Day War between Iran and Israel had just concluded. These books always remind us that there is almost always a long history behind contemporary events. Things very rarely just happened on a day.

Revolutionary Iran, first published in 2013, focuses on the 1979 Iranian Revolution. But it also covers a hundred years’ worth of history, starting from the early 20th century (with the fall of Qajar Iran and the rise of the Pahlavi dynasty) up to the controversial 2011 Iranian presidential election. The long sweep of history is written up all with the aim of setting the revolution in its proper context.

As with any kind of similar books (such as much thicker and expansive The End of Empire and the Making of Malaya), the breadth and depth of the discussion are a challenge to casual readers equipped with only general knowledge of the country: there are just too many names, too many years and too many events to remember and make relevant to the whole exercise. These names and events are all interrelated, making reading Revolutionary Iran complicated. One could get lost along the way. That could cause frustration and eventually DNF: ‘did not finish’. The phone is always ready to dumb us down with social media, ever jealous of any of us perusing long-form materials.

The complexity reminds me just how useful a glossary and an index could be. It kept the story in my head straight while going through the pages of Revolutionary Iran.

Referring the glossary and the index could be a pain. Flipping pages back and forth is disruptive to reading flow. It is almost like reading while consulting a dictionary or an encyclopedia at the same time. It almost feels like reading Wikipedia with all of its hyperlinks could have been a more enjoyable endeavor.

But reading Wikipedia has its own pitfalls. Those hyperlinks are rabbit holes to be explored. With an undisciplined mind, one could easily end up reading about Kurdish nationalism or the history of Azerbaijan all of which may have some relevance to the events of 1979, but does not assist us in understanding the nuances of the Iranian revolution any better. Wikipedia’s hyperlinks could provide context, but an overload of information could also drown out of the context. Some who wander are lost.

So, a book, unlike Wikipedia, is a guided tour. It keeps the fluff out by focusing and contextualising the essentials. It is the model-building tool. And the glossary and the index, often forgotten, are little manuals useful if the reader needs help along the way.

Categories
Economics Politics & government Society

[3004] Expanding the tax base requires rationalization, sequential approach and public buy-in

The ongoing exercise to expand Malaysia’s tax base (the most popular discussion is the expansion of the sales and services tax, but there are other taxes at play too) has got me revisiting several relevant issues. There are multiple factors to think about in making the policy a success: tax regimes, tax types, distributional effects, redistribution policy, subsidies, etc. These factors cannot be looked at in isolation. Yet, it is possible to talk of them individually as long as we do not lose sight of their interconnectedness.

In that spirit, the five items I have been pondering the most in recent days are:

  • the needs for base expansion
  • political constraints
  • rate of expansion (gradualist versus abruptic approach)
  • spending goals
  • policy sequencing and communication

The needs are clear. The expansion of the sales and services tax is a necessary step towards fulfilling the inevitable requirement for greater public expenditure in multiple fields. The areas are especially healthcare, education, infrastructure (for the purpose of energy transition, data, public transport and climate adaptation) and defense. I have a (partial) list of challenges that Malaysia faces that necessitate greater public spending.

Yet, nobody likes to pay taxes regardless of the legitimacy and benefits of the tax-funded spending. The time horizon mismatched between the benefits of greater public spending and the cost of higher taxation does not work well with voters who mostly more attuned to short-term concerns over long-term considerations (instant gratification factor), and private challenges over public objectives (the tragedy of the commons-like tension). Add concerns for corruption and leakage into the mix (reflecting a low-trust society), this makes any tax hike sensitive to the domestic political stability (or perhaps more accurately political longevity) of a government that functions within a working democratic framework.

Given these constraints (the political sensitivity of tax hikes and the need for greater tax-funded public spending), how fast could the government hike taxes?

The current government is choosing the gradualist approach and it is defensible in many ways: sudden large tax hike would be too disruptive to most people in the immediate terms with welfare-diminishing in the short-term. The last large tax hike was in 2014 when the GST was implemented without flawed tax return mechanism, although it came with cash transfers to mitigate the welfare-diminishing nature of the tax. That was absolutely unpopular and poisoned the otherwise tax regime that is better than the current SST. And Malaysia had taken the abruptic approach before during the Abdullah Ahmad Badawi administration (with Najib Razak as the Finance Minister) through the drastic liberalization of petrol subsidy. That too was massively unpopular.

But the drawback of a series of gradual tax hikes is the expectation-building among the voters, even if it makes the welfare-diminishing aspect more manageable. Surrounded by tax hikes, they would associate the party-in-power with continuous tax hikes (and possibly feeding into inflationary expectations). That is a tough association to live with in an electorally competitive democratic environment.

Most government would like to stay in power and in our democracy, such unpopular tax policy requires a buy-in from the population. Any buy-in must be preceded by a policy and messaging that explain the greater need for public spending and the subsequent taxation.

The sequence must be right: one does not put taxation above spending (and far too many politicians tend to confuse policy sequence too many times, which reflects incomprehension of the issues at hand and the need to take short-cuts for quick gains. Many challenges that Malaysia faces are of long-term in nature resembling a complex sequential puzzle: most of the times, the temptation to pick low-hanging fruits is a mistake in a world of quickly shortening attention span.

Those spending goals must be explained clearly to the electorate. The government must outline the goals (W% of GDP for health by certain year, X% of GDP for education, Y% for defense, Z% for social transfers, etc) in a simple and coherent manner. Explain the benefits and requirement the government seeks to fund. Just as important, these goals must be harmonized a single readable document. And then, the goals have to be sold to the public as seriously as trying to win a referendum (or better yet, an election).

Bit-size documents. Social media posts. Roadshows. Carnivals. Posters. Pamphleteers at shopping malls like how candidates gives out pamphlets at wet markets or food bazaars. These efforts must follow. It is a referendum after all: a referendum of a future of Malaysia that we might want.

At the moment, some of these goals exist but they exist disparately, set in silo buried and in thick unread policy documents. And most government documents are readable only by experts despite being public documents. Worse, sometimes these goals are delivered in arrogant, unsystematic and confusing ways, which wins no allies. That is no way to sell a tax hike necessary to address great challenges Malaysia faces in a fast-changing world.

Categories
Books & printed materials Society

[3003] Reading Gertrude Stein’s Paris France

I am conflicted about Gertrude Stein’s Paris France. There are some great observations in there but the writing style and most of all, the essentializing of a society are something that do not sit comfortably with me.

Stein typed up her stream of consciousness casually with little regards to punctuation. Stein appears not believing in commas no she does not believe in it although sometimes she does, and she does not believe in question mark or quotation marks or full stop as she goes on to stress the same point multiple times although there are times some points are unstressed but I could imagine easily a friend of hers would have asked but don’t you believe in structure to which she would reply but structure is structure is structure like how a rose is a rose is a rose is a rose.

When the back cover of the book claims Paris France is the perfect introduction to her work oh boy I said in my head what an introduction it is with long sentences where nobody is permitted to take a real or imaginary breath so much so that the readers run the risk of asphyxiation for focusing too long on a sentence that runs for what ought to be an impossible length measuring longer than the tail of a long cat or a long dog’s or a long cat’s or a long dog’s or am I suffering from dementia but I would not know but would I know but perhaps I am just frustrated with the writing style.

At times, the style of writing makes reading the book feels like reliving somebody’s fever dream as an anecdote flows into another anecdote before another anecdote takes over the narrative.

Style asides, the essentializing of the French especially of the 1900s-1930s (the book was published in 1940) offers too much generalization. Generalization of money, of luxuries, of logic, of family, of tradition and of fashion.

That got me thinking, how does one write about a society without a hint of essentialization? Maybe essentializing is a big word that I should avoid and that I should not equate it with term generalization with ease. But to write about a society without generalizing to some extent is a tall order. I thought that was something I struggled while writing The End of the Nineteen-Nineties: some form of generalization (if not essentializing) had to be made before any coherent critique could be offered in return.

Or am I too afflicted with apophenia?

Maybe. Yet a society is clearly different from one another and that differences point towards some form of way of life that is true for a particular society but not the other. What is to be written critically of a society when everything is atomized anarchically?