Category: Economics

Categories
Books, essays and others Economics Politics & government Society

[3010] Reviewing Abundance and thinking about the abundance agenda

One of the central themes of The End of the Nineteen-Nineties (by yours truly) is that a robust and widely shared economic growth is a prerequisite to Malaysia’s civic nationalism that comes in the form of Bangsa Malaysia. I argue that the loss of growth momentum caused by the late 1990s Asian Financial Crisis is the primary reason behind why civic nationalism is struggling to have itself centered in Malaysian politics. If you sympathize with the argument, then it is natural to buy into the overall abundance agenda.

Ezra Klein and Derek Thompson are two champions that have popularized the idea of abundance through their recent 2025 book Abundance.

However, Abundance is a US-centric work. Some parts of the book sound like a boosterism for the Biden agenda: build, build, build. The support for the CHIPS Act is apparent throughout the book.

If you are living and working in Asia, problems raised by Klein and Thompson such as reluctance to build more housing, slow renewable energy progress and the general weakness in infrastructure spending might sound like an alien concept. In this part of the world, infrastructure spending is something we have learned to take for granted. Oversupply and overcapacity are more the buzzwords than scarcity is.

Nothing highlights this more by the differing reactions to a recent clip of the US President convoy driving along a Malaysian highway during the recently concluded Asean Summit in Kuala Lumpur: some US audience were amazed by various aspects of the highway while the Malaysian reactions included pride (thank you for noticing!), indifference (what’s the so special about the stretch road?) and smugness (welcome to the first world…). And this is just Malaysia, not China with its ultramodern out-of-this-world infrastructure and industrial might that is just hitting the ball out of the park.

Yet, the implications of Abundance have relevance to this part of the world too.

For one, policy priorities do change but change does not come easy. In fact, policy momentum often come in the way of new challenges. The authors go some length to explain why it is hard to build in the US: there was a time during the 1960s-1980s when development went too far that other concerns such as pollution, health and road safety were ignored. Since then, public pressures and court cases have put in place various legislations and bureaucracies to address these issues. These restrictions were relevant then, but they are now in the way of addressing new challenges. Example includes laws that used to restrict pollutions and preserve the environment are now preventing progress towards clean energy deployment that is necessary to combat climate change.

This can be true for Malaysia too in multiple areas. One area I can think of is Malaysia’s set of incentives, which a majority of them are geared towards the industries of the 1990s but not of the 2020s. Many of these incentives are now irrelevant but continued to be given by the government for various reasons, which is now taking resources for emerging concerns. Another policy is simply the petrol subsidy: we would like to push the country towards greater electrification but the subsidy is clearly in the way.

Another important lesson is that scarcity, oftentimes, is a choice. Sure, the physical world can only serves us so much but policies in many cases are the cause behind scarcity. Bringing the idea closer to home in Malaysia, our collective reluctance to raise taxes is the reason behind capacity and quality challenges we face in the health and education sectors. We choose the scarcity, and then we fight among ourselves to win stupid prize in that stupid games we created.

The greatest lesson perhaps is this: growth is not the only thing that matters but do not take it for granted. In fact, to put it more strongly, degrowth is not the way. This should be obvious with the various social pressures caused by deindustrialization faced by not just the US, but especially Europe. In Malaysia, for those still holding on to the idea of Bangsa Malaysia, growth is a must.

Categories
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
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
Economics History & heritage Society

[3000] When history is blurry: reading Patricia Crone’s Meccan Trade and the Rise of Islam

Mecca has a long history. It is so long parts of its history is blurry and backed by uncertain sources. Pre-Islamic sources at best give imprecise descriptions of the city, if the city described is indeed Mecca. Meanwhile, traditional understanding of Mecca’s history before and during the coming of Islam was only developed much, much later.

The orthodox understanding takes the city as an important commercial and religious center prior to the coming of Islam. This much at least has been impressed upon the minds of many who grew up as a Muslim. The seige of Mecca during the Year 570 (the Year of the Elephant), the presence of the Kaaba and Qurasyhi caravaneers are proofs of Meccan commercial and religious prestige during pre-Islamic period.

In the 1987 book Meccan Trade and the Rise of Islam, Patricia Crone challenges the mainstream history of the city by juxtaposing non-Muslim sources with traditional Islamic ones.

The first half of the book goes with great length inspecting trade pattern of various goods that concerned Byzantium, Egypt and Syria in the north, Persia and India (including the Malay Archipelago) to the east, and Yemen and Ethiopia to the south. These chapters are really encyclopaedic entries more than anything else and reading them is a little more exciting than reading a high-level mathematical textbook.

But the conclusion is phenomenal in that all the major trade routes between these locations involving major commodities did not go through Mecca. For most goods by 400s and 500s, sea routes were preferred. The advent of sea trading meant Byzantium could now circumvent the Arabs. In limited cases where land travels were necessary, Mecca was miles off known routes. Meccan trade existed only in the sense that the city folks needed provisions and not in a way of an entrepôt or an emporium. Add to the fact that Mecca was too dry to support a large population with no special commodity of its own that others lacked, it is hard to reject Crone’s idea that Mecca was not a major trading center in pre-Islamic Arabia.

The second part of the book, I feel, stands on shakier grounds. Here, Crone argues Mecca was also not a major religious center. She states that there were three other pilgrimage locations nearby that were bigger than Mecca. This is an echo of her more controversial thesis written in a 1977 book, Hagarism: The Making of the Islamic World. But how does that negate the idea of Mecca as a major pre-Islamic religious center is something that I struggle to process and ultimately unconvinced. This is where other readings will come in handy.

The final part of the book explains two bigger themes that worked in the background: first it is about the state of Meccan (and the wider Arabian) society in the 500s and second, about the unreliability of sources of pre-Islamic Mecca history.

On the first subject, Crone understands Muhammad and Islam as a materialist instead of an idealist phenomenon. That is, the prophet and the religion were primarily a pan-Arabian proto-nationalist movement rising up against Byzantium and Persian influence (instead of the rise of a religion fighting the immorality and decadence of the Jahiliyah period).

On the second subject, these traditional Islamic sources were written long after the rise of Islam—the primary example being Ibn Ishaq—should be considered as an act of storytelling instead of history-writing. Crone argues many of these sources provide contradictory details of the same events. Crone goes on to claim that these Islamic sources place the need to tell ‘the moral of the story’ above the need to record history accurately. That is to say, outside proofs must be considered when (re)constructing the history of Islam.

Categories
Economics History & heritage Politics & government

[2999] The three shadows of the 2000s and an eulogy for Abdullah Ahmad Badawi

Malaysia has not had many Prime Ministers, despite what it may have felt like during the merry-go-round contest that took place from 2020 until 2022. In this age where the idea of modern state is taken for granted, it is easy to forget that the modern country is young.

Even with a short modern history—modern meaning post-colonial—it is easy to claim that Abdullah Ahmad Badawi is one of those Prime Ministers who history are looking back kindly. Kindly, because when he passed away earlier this week, most have only kind words for him. Some wept. Kindly, because of the subsequent Prime Ministers who had far worse controversies and were utterly divisive.

The contemporary kindness appears incongruent to the intense emotions and harsh condemnations many felt and said no more than twenty years ago. Living through Malaysia of the 2000s, it is difficult to ignore the dramatic loss of popular support his administration underwent. I suspect there is a recency bias at work here for a majority of people. We forget.

Or maybe we forgive and forget because Abdullah was a kind man, and people generally return kindness with kindness.

I further suspect that we forgive because we now understand that many of the things that happened in the 2000s making life difficult for Malaysians was beyond his control. Living in the shadows of the 1990s was not easy for many. And living in the shadows of Mahathir Mohamad was difficult for Abdullah. But I think most importantly, we were all living in the shadow of a rising China, which could only be understood by looking back from the future, which is today.

The rise of China was a competition Malaysia struggled to address back then. The result is obvious. In the 1990s, Malaysia had a far higher per capita GDP relative to China’s. Now, it is about the same with China slightly ahead.

The rapid industrialization of China caused some Malaysian deindustrialization in the 2000s. As a result, Malaysia’s income growth of the 2000s was slower than it was in the 1990s. Already used to rapid growth, the 2000s growth slowdown (as I wrote in The End of the Nineteen-Nineties) felt like an era of unmet expectations. The Abdullah government fell victim to that. The unmet expectations fueled various dissatisfaction that were amplified by a newly popular and evolving technology that was the internet. Everything else—including the strong rise of energy prices that eventually led to the massive subsidy liberalization shock—was a second-order effect caused by China’s rise.

Abdullah cannot be blamed for China’s success. The story of China was a long-coming world-history in the making. He tried his best but the fact is, it was a tough condition for Malaysia that many would-be leaders would struggle to address. That condition was only reversed by the quantitative easing of the late-2000s/early 2010s, yet again beyond Malaysia’s control, however Najib would later like to claim.

We understand this—explicitly by those who keep a close tab on the global economy, and implicit by those who do not—and thus we forgive.

And from what we know, he had forgiven us too. Such was a gentleman.