Categories
Economics

[1099] Of food sovereignty and comparative advantage

As a graduate of economics, I unreasonably assume that everybody knows basic economic ideas like supply and demand and comparative advantage. Perhaps, it is time for me to throw away that assumption and assume the opposite. Explanation on comparative advantage is crucial in effort to discredit the idea of food sovereignty; food sovereignty is merely another name for protectionism.

The idea of food sovereignty is well-stated in the Ninth Malaysia Plan. See Chapter 3 of the Plan if you prefer not to take my words for it. Given that the current administration is stressing on agriculture, perhaps it is not too astounding to see food sovereignty being part of the administration’s economic game plan.

The idea of food sovereignty basically states that a nation should be able to produce enough food for its population and not dependent on others. It should be self-sufficient in food production.

In order to do that, resources would need to be allocated in a way that prioritizes the food production sector. Such prioritization if done as rigidly as possible would deprive other sectors of resources. And indeed, the idea of food sovereignty might contradict the concept of comparative advantage and ignore the possibility of trade.

Comparative advantage is a basic economic principle first proposed by David Ricardo approximately two centuries ago. It states that an entity, be it a whole economy or a person, should concentrate on what it does best. In order word, the entity should specialize in what it could produce most efficiently. From there on, trade away in order to obtain other goods that the entity does not produce. Whenever trade is impossible, the idea does not apply for the obvious reason. There is more to gain from trade than autarky, nonetheless.

When it comes down to the issue of food sovereignty, the question that needs to be answered is this: does Malaysia have a comparative advantage in food production?

Even if Malaysia has comparative advantage in food production — which I think it does to some extent due to favorable climate — the concept of food sovereignty is not as helpful as comparative advantage in creating a more prosperous society.

Categories
Economics Politics & government

[1093] Of RM46 billion vote of confidence? I have questions instead…

In the NST today:

KUALA LUMPUR: Malaysia is back on the global investment map. A record RM46 billion was invested in 1,077 approved manufacturing projects last year by local and foreign investors, a 48 per cent jump from the RM31 billion invested in 2005.

The keyword is “approved“. A more important question is, how much was actually committed?

The article is comparing approved investment in 2006 against actual investment in 2005. Why the article does not compare approved investment in 2006 with approved in 2005? Or, why the article does not compare actual investment in 2006 with actual investment in 2005?

Further, it is more likely that the figures are nominal figures. An honest analysis would use real figures for comparison purpose.

Let us compare oranges to oranges, apples to apples.

More from the article:

Domestic investments amounted to RM25.8 billion, making up 56.1 per cent of the total approved investments, compared with RM13.1 billion or 42.2 per cent in 2005.

I wonder, how much of the RM25.8 approved domestic investment are actually approved investment related to the government?

The answer should be compared against the outcome of Mundell-Fleming model.

Another question is, how does Malaysia perform against our neighbors? Regionally?

Finally, from Reuters (via):

KUALA LUMPUR (Reuters) – Malaysia’s media has been trumpeting good news about the economy, and that is stoking speculation of an early election this year.

Hmm….

Categories
Conflict & disaster Economics History & heritage Politics & government

[1089] Of the Scramble for Africa II

During the era of imperialism, European powers as well as a few others scoured the face of the Earth for territories. In Central Asia in the 19th century, the scour was called The Great Game. On the continent which the Nile flows, where the wildebeests roam the Serengeti, the Game had another name: the Scramble for Africa. Two centuries later, history is repeating itself in Africa as well as in Central Asia. Though the race does not come in the form it once took or with players that once played the game, it is a race nonetheless. Africa in particular has been the center of attention by both the United States of America and the People’s Republic of China.

For China, its economic growth requires so much fuel that it is embarking on a massive global search for precious resources to quench its thirst. In quest to secure sustainable growth, realizing that Africa is rich in natural resources, China is buying influence there by promising no-interest loan worth billion of dollar to improvised but resources-rich African nations:

Before arriving, he announced soft loans worth another $3 billion and a doubling of aid to Africa over the next three years.

[…]

This, probably more than anything else, is what makes Mr Hu popular with African governments. His largesse comes with no strings attached, unlike pesky Westerners who insist on anti-corruption drives or improving human-rights records in exchange for money. China’s hand-outs come without the tang of neo-colonial interference so disliked by many Africans.

This is on top various investments made by the Chinese across the continent. It is suffice to say that to Africa at the moment, China is Santa Claus.

In a way, Africa is the perfect target for China. The competition for natural resources might not be as fierce at it is in the Middle East and Central Asia. In the Mideast, there are United States as well as other powerful corporations that in some ways monopolize the world’s supply of fuel. With Iraq in shamble and Iran rattling saber with the US, risk is high.

In Central Asia, there is the ever-jealous Russia trying to reassert its influence on the former states of the Soviet Union. And of course, the United States is everywhere, worthy of the label superpower it claims to. In these two regions, I would use the word crowded to describe the situation. Africa on the contrary has so many places remain unexplored. So far, it is a free for all and China is leading the pack.

The spotlight on Chinese interest on Africa has attracted the world to both. I trust the US is especially suspicious of the Chinese activities in Africa. Further, the US is not new in Africa. Earlier, there was rumor that the US was indirectly involved in the recent conflict in Somalia:

The officials said the C.I.A. effort, run from the agency’s station in Nairobi, Kenya, had channeled hundreds of thousands of dollars over the past year to secular warlords inside Somalia with the aim, among other things, of capturing or killing a handful of suspected members of Al Qaeda believed to be hiding there.

And then, who could forget of CNOOC’s failed bid for Unocal back in August 2005?

To be fair, the US interest in Africa is not mainly due to Chinese presence. The US fears Islamist influence and indirectly, anti-US groups. This is in line with the US alleged role in Somalia. The issue on security has led the United States to establishing a new command center in Africa:

WASHINGTON: The Pentagon will establish a new military command to oversee its operations in Africa, President George W. Bush and Defense Secretary Robert Gates announced.

Creation of the U.S. Africa Command, which had been expected, will “strengthen our security cooperation with Africa and create new opportunities to bolster the capabilities of our partners in Africa,” Bush said Tuesday.

And of course, China and the US are not the only players of the race. Other countries, including Malaysia have already created substantial presence in Africa:

American sanctions have kept many companies from Europe and the United States out of Sudan, but firms from China, Malaysia, India, Kuwait and the United Arab Emirates are racing in. Direct foreign investment has shot up to $2.3 billion this year, from $128 million in 2000, all while the American government has tried to tighten the screws.

Competition will be fierce. In fact, Malaysian national oil and gas company has been kicked out of Chad. Suspiciously, that episode has proven to be profitable for the Chinese.

Nevertheless, while the last scramble brought most of Africa to its knees, I have a feeling that this race will be different. With all the investment coming in and increasing trade, something good is bound to happen. I am optimistic that Africa is looking forward to a better future. I am optimistic that the second scramble is the precursor to the prosperity globalization promises. There will be obstacles of course but this scramble is too precious to squander that I do not think the obstacles would stop Africa from gaining respect from the rest of the world.

Categories
Economics Environment

[1086] Of water shortage, ineffective threat and effective policy

I cannot help but let go a huge sigh when I read a headline entitled “Conserve or face rationing, public told” in The Star on February 8:

PETALING JAYA: Malaysians have been told to start conserving water now or brace themselves for water rationing if the expected hot and dry weather hits the country next month.

Selangor water concessionaire Syarikat Bekalan Air Selangor (Syabas) has sounded out to the state government that rationing was among the steps that would have to be taken if the situation takes a turn for the worse.

Right. Like people are going to listen; I doubt such warning could encourage people to conserve.

When I heard rationing as a possible solution, I rolled my eyes.

I have offered a better plan to survive water shortage, be it caused by El Niño or simple drought, long ago — prices should reflect water scarcity and be allowed to float according to water quantity. In short, with the anticipated water shortage, price must go up throughout the duration of the shortage. In a free market with no state intervention, price would have gone up by now, signally the possibility of shortage.

People will only conserve if something hits them in the head. A mere warning does not cut it but a price increase will do the trick.

I do not know about you but I prefer to pay more rather than not have water at all. Further, rationing is such a drag. Besides, for goodness’ sake, we are living in the 21st century and we are not in a war or something.

Categories
Economics

[1085] Of the US is no match for the NEP

Under pressure to secure a free trade deal with Malaysia, the US is bowing to Malaysian demands:

MALAYSIA and the US have agreed to take contentious issues “off the table” in their ongoing (free trade agreement) FTA negotiations, International Trade and Industry Minister Datuk Seri Rafidah Aziz said.

What are those contentious issues?

“On areas like government procurement, New Economic Policy and our policies on restructuring, it is no go and they understand that.

I have blogged earlier on how Malaysia has time as a leverage. I do think Malaysia is utilizing that leverage to the fullest. Standing on higher ground while the US negotiators are running out of time, I could imagine Malaysia dictating the terms in a room somewhere in Sabah.

Nevertheless, I wish both sides would be more transparent and forthcoming to public questions. While I have an idea what the US is looking for, I could only speculate what Malaysia is demanding from the US without a way to verify it.

Even in the report, the US list is clear:

The Karambunai discussions had included elimination of tariffs, equity conditions in education and telecommunications and distributive trade.

The Malaysian list, on the other hand:

Rafidah said Malaysia made requests to the US in terms of market opening which would benefit the private sector.

It is so vague that it could mean anything under the sun.

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

p/s — perhaps, I have underestimated the leverage Malaysia has. On Saturday, February 10 at The Star:

KOTA KINABALU: The March deadline is likely to pass without Malaysia and the United States striking a deal for a Free Trade Agreement (FTA).

US Assistant Trade Representative Barbara Weisel said it would be “very difficult” to conclude the talks within the deadline that the United States had set.

I hope we could get the FTA signed before it is too late. It is going to be tough to get an FTA after the expiry of Trade Promotion Authority because the Democrats are expressing economic nationalism stance.