Category: Economics

Categories
Economics

[1160] Of why the Chinese economy will not be Malaysia’s savior in 2007

For those that read this blog, perhaps you have taken notice that I expect the Malaysian economy to take a dent this year. This is based on expectations that the US economy might experience an economy slowdown later in this year. With a slowdown in the US, demand for Malaysian goods in the US should go down. With worrying data on sub-prime mortgages, I do think the probability is little bit higher than otherwise. There are those that disagree with that prediction. One of the reasons cited to rebuke my prediction is the booming Chinese economy. I would like to prove how the Chinese economy, while important to the Malaysian export sector, is not as nearly as important as the US market.

Firstly, in 2006, the worth of Malaysian export to the US was approximately RM111 billion (roughly, USD32 billion). At the same time, export to the People’s Republic of China was less than half of that to the US. It stood at RM43 billion (roughly, USD12 billion). While the amount going to the Chinese market could increase — it increased by about 21% from 2005 — I do not think it is rational to expect the Chinese economy to be as important as the US market in 2007. Further, the given the size of the US economy, if a slowdown does occur, I do not think the Chinese economy will be able to cushion the entire fall in US demands for Malaysian goods. If the Chinese would to become our savior, each dollar fall in export to the US market needs to be compensated by a dollar worth of export to China or more, with all else being equal, of course.

Secondly, the argument that booming Chinese economy will prevent a slowdown in Malaysia ignores the fact that China is a major exporter to the US. The China exports USD288 billion. It has been estimated that 21% of Chinese export goes to the US in 2006; in the same year, about 19% of Malaysian export goes to the US. Needless to say, a US slowdown will affect China. Therefore, I doubt the Chinese would be our savior.

There are of course many other economies in this world and the US is just one of them. Yet, we would be digging our own grave if we underestimate the importance of the US economy to Malaysia. So, I hope that would put the booming Chinese economy argument to rest.

Categories
Economics

[1159] Of how to increase productivity of the civil service?

Talk, talk, talk…

PUTRAJAYA: Civil servants should reframe or condition their minds to work harder and longer to increase the country’s productivity and realise the National Mission.

Deputy Prime Minister Datuk Seri Najib Tun Razak said: “There is no substitution for hard work and it should become our goal and culture.”

“Work is a virtue and not a punishment,” he said while addressing the monthly gathering of staff and officials of the Prime Minister’s Department here on Monday.[DPM: Civil servants should work harder to increase productivity. The Star. April 2 2007]

There is no substitution for hard work. Empty words are no substitutes for real incentives either. Words, even if it comes from a supreme being, means nothing without incentives. Unless, the supreme being is the Invisible Hand. Yes, hang me for blasphemy but economics is the all-powerful being. And I could hear the supreme being laughing at the Deputy Prime Minister’s words.

Despite that, I concur with the Deputy Prime Minister; the civil service needs to increase its productivity. I asked the almighty, “What kind of incentive could back up the Deputy Prime Minister’s word and realize the dream of higher productivity?”

The supreme being, as merciful as he is wise, brought light to darkness. And the Lord God said, “Behold! Increase thy civil servants’ salary up to competitive market level and cut down thy gluttonous workforce. Once wages are at par or even surpass that of the private sector, thy would have every reason to expect the best of men and women on this earth to flock in volume to join the realm of public service. Lo! Higher productive. Have faith in me and we shall make fruitful of your faith. Disbelieve in me and we shall leave you at the mercy thy own foolishness.”

Listen to the all powerful being. For he has spoken; before that is done, words are just words!

Categories
Economics

[1158] Of keen Koreans and myopic Malaysians

In Malay, there is a saying that roughly goes “hendak seribu daya, tidak hendak seribu dalih“. It means where there is a will, there is a way. The proverb aptly describes the just recently agreed upon free trade deal between South Korea and the United States of America. The deal is agreed upon despite the fact that both parties missed the first two deadlines twice. As such, while “hendak seribu daya” belongs to the Korean, “tidak hendak seribu dalih” truly belongs to the Malaysian.

As reported by AP earlier:

The United States and South Korea successfully concluded a free trade agreement after almost 10 months of contentious negotiations, a U.S. official said Monday.

The deal, which requires legislative approval in both countries, is the biggest for the United States since the North American Free Trade Agreement signed in 1992 and ratified in 1993. It is the biggest ever for South Korea. [South Korea, U.S. Reach Free Trade Deal. AP via Forbes. April 2 2007.

With the deal, the South Koreans are probably going to move farther up the economic ladder, leaving behind Malaysia which is too scare to face the reality out there in the world. So far behind that we would, as our leaders ever so proudly declare, be first among third world nations.

We, unfortunately, seem to prefer to sit in the dark inside a box, ignoring the wave of changes outside the box. While South Korea will continue to roar, there we are, sleeping with policies crafted nearly half a century ago, thinking such outdated policies are our savior.

Between the world of wonders in one hand and world of stagnation in the other, Malaysia chooses the latter, thinking it is not worth it to be better tomorrow than what we are today. We would rather defend an outdated policy that has failed instead of creating new one that promises greater prosperity.

All is not lost though. Malaysia and the US plan to get back to the negotiation table in mid-April:

WASHINGTON, April 1 (Bernama) — Malaysia and the United States Saturday missed their deadline to submit a bilateral Free Trade Agreement (FTA) to the US Congress that would have secured fast-track approval from Capitol Hill.

US Ambassador to Malaysia Christopher LaFleur said here Friday “although the two countries won’t make the deadline, what’s important is not the timing but the substance of the agreement.”

The goal of the two countries was “to reach a high quality FTA that would benefit both countries,” he said when addressing the Malaysian-American Society at the American University here.

[…]

Meanwhile, US-Malaysia trade talks which stalled in Sabah will be revived in Washington in mid-April. [Malaysia And US Miss FTA Deadline. Bernama. April 2007]

The ambassador is right in every sense. Nevertheless, with the Democrats in control of Congress, it will be harder to get a free trade agreement that comes close to the the spirit of free trade. Further, previously, Malaysia had great advantage over the US negotiators. Time was the leverage and time was on our side.

Alas, that window had come and passed. With the end of the TPA, Malaysia now truly stands alone against a giant, unless we jumpstart the Doha round.

Categories
Economics Environment

[1155] Of a solution to climate change

There is a template in economics that deals with tragedy of the commons: permits.

And this is how it looks like when applied to replenishable commodity like fishes, graphically:

Some rights reserved. By Mohd Hafiz Noor Shams

This is exactly the case in the rationale behind the proposed legalization of turtle eggs collection.

I myself learned about the model at Michigan to solve scarcity issue faced by the fishing industry in northwestern US; the Pacific. In fact, the graph is a reproduction of the original diagram I learned during a cold fall day in Ann Arbor.

For water scarcity faced by the states along the Colorado River, the same idea of introducing tradable permits to combat tragedy of the commons is used. In the NYT a few days ago, the fishery model was cited as a solution to combat another tragedy of the commons; the climate:

Later today, Mr. Festa is going to release a fascinating study about the fishing business that on its face has nothing to do with global warming, and yet has everything to do with a solution. At dozens of the nation’s fisheries, the fish population is in danger because fishermen have no incentive not to take everything out of the water that they can. But 10 fisheries, stretching from the halibut fishery off Alaska to the surf clam industry in New England, have tried a different route. [Earth’s Climate Needs the Help of Incentives. NYT. March 28 2007.]

Tradable carbon credits, which is essentially tradable permits, is part of the Kyoto Protocol.

Categories
Economics

[1154] Of in the name of the few, at the expense of many

With one more day to catch the window granted to the US Trade Promotion Authority by the US Congress to fast track trade negotiations, it becomes increasingly clear that both the Malaysian and the US negotiators are going to miss it. As stated earlier, with the Democrats in control of the Congress, it would be hard to carve out a free trade agreement between the two countries without the TPA. The same scenario is applicable to the South Korea-US FTA:

SEOUL, South Korea — As the deadline looms for the potentially historic free-trade talks between the U.S. and South Korea, the biggest obstacles are turning out to involve the same thing as in most trade discussions: food.

The two countries aim to finish a comprehensive trade agreement Friday, the biggest such deal ever for Korea and since 1993 for the U.S., and one that is being closely watched by other countries. They still need to reach major compromises in areas such as automotive trade and investment protections, according to people close to the discussions.

But those aren’t areas that might cause the deal to fall apart, these people say. Instead, it is two commodities that are closer to the hearts of both sides-beef for the U.S. and rice for South Korea. [Food is biggest obstacle in Seoul-U.S. trade talks. WSJ Asia. March 30 2007]

Also, observe how the interest of many is held hostage by the few:

South Korean is afraid that boosting imports of beef and rice will hurt business for its farmers, though it would reduce food prices for a far greater number of its consumers. [Food is biggest obstacle in Seoul-U.S. trade talks. WSJ Asia. March 30 2007]

The same event is being played out in Malaysia, as in many other country, at the expense of many, in the name of the few.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

p/s — One last try by the South Korean and the American:

March 31 (Bloomberg) — The U.S. and South Korea agreed to extend talks toward a free-trade agreement by 48 hours, said Kim Jong Hoon, the chief South Korean negotiator for the agreement.

“Both sides formed a consensus that additional negotiations would be helpful and necessary, and therefore the U.S. delegation discussed this closely with its government and the Congress overnight, and decided to extend the talks by 48 hours, to April 2, 1 a.m. Korea time,” Kim said. [U.S., South Korea Extend Their Free-Trade Talks. Bloomberg. March 31 2007.

For Malaysia, the deadline has officially passed, because we as Malaysians are too afraid to grasp for prosperity, in spite of our rich history as trading civilizations.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

pp/s — It is 1 A.M. in Seoul and no news has come out yet. I am assuming that the negotiation has officially failed.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

ppp/s — Wow. These people are serious. The deadline for the negotiation has been extended yet again:

SEOUL, April 2 (Yonhap) — Top-level officials from South Korea and the United States struggled Monday to come up with major compromises in their final stage of negotiations on a proposed free trade agreement (FTA), with the deadline for the talks extended for the second time in two days. [South Korea-U.S. FTA talks go past extended deadline to salvage deal. Yonhap News. April 2 2007]

Damn. I wish that was Malaysia.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

ppp/s — The second deadlines has come to pass but optimism is running high:

SEOUL, April 2 (Yonhap) — Top South Korean and U.S. negotiators worked through the night past a second deadline on Monday to try to forge a bilateral free trade agreement (FTA) amid growing indications that a deal was imminent.

A South Korean government official close to the talks said his government was waiting for a rely from the United States after delivering its final proposal for the terms of an agreement.

“The ball is now in the U.S. court,” the official said, asking that he not be identified. [Deal imminent in South Korea-U.S. FTA talks: sources. Yonhap News. April 2 2007]