Category: Economics

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ASEAN Economics Liberty

[2651] Something is missing from the Asean integration

I have set a goal for myself. I want to travel more throughout Southeast Asia to learn about the region that I call home. So far, I have been to five Southeast Asian countries, including Malaysia.  I have travelled across Cambodia and Indonesia for roughly a month in total last year alone. Part of the reason why I do want to see more of Southeast Asia is because I believe in the importance of closer integration across the region. I want to know more about it before the actual integration begins.

At heart, I am an internationalist in the sense that I believe in free trade across countries. True global free trade is hard if not impossible to achieve, however. There are just too many competing interests for a true global agreement to come to being. The Doha Round, which aimed at reducing trade barriers across the world, has been going on for years now without much progress to show. Even if by some miracle there will be a global accord, the result will be a bastardized version of free trade, with a horn in the forehead.

With the global ideal stuck, many are left to the less than ideal bilateral free trade arrangement, or a regional one. I see the Southeast Asian grouping Asean as the second-best option which is realistic to a truly global trade accord that is now a phantasm.

With more than 500 million persons living across the region, the opportunity for economic growth and more is massive that no one country in Southeast Asia can achieve alone.

The integration is already underway and 2015 is set to be the year when the Asean Economic Community (AEC) will come into being, where the whole of Asean will be a single market. Each Asean member will effectively maintain an equal free trade agreement with one another. Such closer economic integration will inevitably will closer relationship between individuals across countries. One hopes the closer integration creates more goodwill than conflict.

Things do not look too good on the ground however and so, on that front Southeast Asia is probably off to not so great a start.

The challenge is when a majority in one society thinks the others are their inferiors. In Malaysia, many look down on Indonesians as most Indonesians in Malaysia are mostly low-skilled workers. The association by profession has been generalized to include all Indonesians everywhere. Burmese refugees suffer no less. Meanwhile in the Land Below the Wind, it is not uncommon for Sabahans to hold overtly racist views against Filipino who reside in the state illegally.

It is not just Malaysia and it is not just about a sense of superiority. The Thais and Cambodians have issues between them. Between them are hundreds of years of history. Some Cambodians, as I learned during my travels in Cambodia, distrust Vietnamese.

There is no silver bullet to the problem and it will take years to overcome the ill-will of ancient and modern origins. Nevertheless, equality of rights will have a role to play in creating a more harmonious and an integrated Southeast Asia. When everybody is granted equal rights and it is actually enforced where even foreign low-skilled workers are not discriminated against by domestic laws, then perhaps we can start to respect each other regardless of national origin.

Here is where the Asean Charter and the Asean Human Rights Declaration come to play. Yet, these two documents are crafted to disappoint. They are only paper tigers.

The Asean Charter is only important to the diplomats who drafted it. Its ratification was a process of rubber stamping, driven from the top down and appears to have no effect on the life of ordinary persons so far. It is so far detached from the ground that citizens of Southeast Asian countries do not feel any kind of ownership towards the Charter the way many do towards the constitution of their own country. After all, there was no referendum and the citizens themselves were not involved in the process.

As with the Asean Human Rights Declaration, too many Southeast Asian governments violate some of the typical fundamental rights so blatantly. The latest happened in Laos where an activist, Sombath Somphone, has been missing for about a month. His abduction was recorded by a CCTV. He was arrested by the police and has yet to be heard from since.  The Laotian government is widely suspected to be involved in the abduction, especially given his strong opposition to the construction of a dam in the northern part of Laos, which is backed by the government.

Despite the Human Rights Declaration celebrated by Asean diplomats, Asean governments have not even voiced their concern of the potential violation. It is the policy of non-interference that matters and that probably shows how useful the Declaration is at securing human rights in Asean.

So, we do not have an egalitarian mechanism to help with harmonious people-to-people integration.

Well, we do have a flawed one. Instead of a proper political structure to help with the integration, we have cultural shows with the accusation of culture-stealing to follow.

How sad.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in the Selangor Times on January 18 2013.

Categories
Economics Society

[2649] Malaysian demographics in 2040

Last week, the Department of Statistics released its projection of Malaysian population in 2040.[1] The Department projects that there will be 39 million persons living in Malaysia by 2040, of which 93% of them will be Malaysians. In 2010, there were 29 million persons living in the country with 92% of them being Malaysians. The median age is projected to be about 10 years older than what it is right now. In 2010, the median was 26 years old.

The projection has two population booms in it (possibly three; whether the third is part of the second or distinct by itself is up for debate). The first is the current generation either in universities or has just entered the labor market. The next boom is expected to happen between the next five and ten years or so as the earlier boomers start their own families and do what rabbits do (chart from the Department of Statistics):

Some rights reserved. Creative Commons 3.0. Hafiz Noor Shams

If the assumptions of the projection are taken to heart, Malaysia’s economic growth from now till 2040 might set to be strong if nothing disastrous like wars or institutional degradation happens. Growth may begin to slow down 20 years later in 2060 when the first Malaysian baby boomers enter retirement. The real demographic trouble may start in 2080 when the second boomers enter retirement.

The projection states that the Malaysian society will become an aging society by 2021 but this is merely definitional problem as the projected median age in 2021 is around 30 years old. That age is still well inside the productive age, and probably close to the optimal age/experience to productivity, wherever that point is.

It is possible that the second boomers may bring about a third boomers (there is a third local peak for 5-9 cohorts in 2040) but the fertility rate is projected to be pretty low by the time the second boomers reach their 20s, which is expected to happen in 2040s. Fertility rate in 2040 Malaysia is expected to match that of an advanced country.

The Malays and the other Bumiputras are expected to experience an annual population growth rate of less than one. The Chinese and Indians lose interest in making babies and only the mysterious “Others” will have an amazing rabbit-like rate of 2%.

So, it appears, 40 million to 50 million (or 60 million but anything above 60 million sounds like a very unlikely scenario) people may be the maximum number for Malaysia in this century.

The projection however may be conservative. The growth rate of non-citizens is low and given how ASEAN is set to integrate even further and on top of that, more globalization, one would expect more non-citizens.

But anyway, based on the population projection by the Department of Statistics, the population dividend Malaysia is enjoying is set to last for a very long time. It will probably outlast my generation, which is part of the first boom.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
[1] — [Population Projection, Malaysia 2010-2040. Department of Statistics. January 18 2013]

Categories
Economics

[2647] Sometimes, some inequality does not matter much

Wealth inequality does worry a lot of people. Malaysia’s Gini coefficient has been bandied around as a proof that something must be done to address the inequality that we see in the country. ”We are the 99%” is the favorite rhetoric to pound in the message that wealth inequality is a problem.

Yet not all kinds of wealth inequality deserve the indiscriminate worry that it receives. What defines inequality as an issue of importance is its cause and causes of inequality are aplenty and diverse.

Some causes may warrant serious attention and more importantly, action. A particularly worrisome kind of equality is the one caused by monopoly of power. Such power tends to concentrate wealth in the hands of the few at the expense of the rest. The monopolistic few can become so powerful that they begin to amass further wealth through unfair means to create an excessively unequal society not merely in terms of wealth, but also in terms of rights.

But wealth inequality can also be caused by factors that we should inculcate in our society. Those factors are so desirable that we should tolerate inequality caused by them. For instance, some level of inequality is preferable simply because inequality is a symptom of meritocracy. As long as we reward successes, there will be some level of inequality in our society.

In between lies inequality created by benign causes. It is a kind that nobody should go down to the streets shouting their lungs out in protest in the name of the people, whoever the people really are. In fact, so benign is the inequality that it should be discounted from any serious informed discourse on inequality.

One of these kinds of inequality is caused by demographics. Or probably in clearer language, it is inequality caused by age difference.

When the young enters the labor market, it is only expected they will not earn too much. But as they age and gain more experience, their income will grow and so too will their wealth. In the same line of reasoning, the older generations will likely be wealthier than their younger counterparts, controlling for other factors.

So when we place age profile and wealth side by side, it is reasonable to expect the existence of wealth inequality. Wealth will likely concentrate in the hands of the older generations than in the hands of the younger generation. It is an inequality between the young and the old. It does not explain everything about overall wealth inequality but it does contribute to overall wealth inequality.

This phenomenon is particularly important to a youthful society. In a society where the median age is low, wealth concentrates in the hands of the few members of the older generations. That fits the definition of wealth inequality: few rich old men (and women) and lots of not-so-rich young men (and women).

But as that society grows grayer — when there are fewer youth and more ”˜older persons’ around — wealth will be more well-distributed among members of the society: lots of well-off middle-aged or old men (and women) and few not-so-rich young men (and women). To put it more concisely, as the median age grows older, one expects to see a reduction in inequality.

Coincidentally, Malaysia has a young population. Based on the Department of Statistics’ Population and Housing Census published in 2010, the median age is approximately 26 years old. The median Malaysian just entered the labor market and still developing their career, if they have chosen one to start with. A consideration portion of the population is made up of young adults. One can expect to observe wealth inequality just because the demographics evolve just as such.

For Malaysia, that reduction inequality may happen in a decade or two when a significant fraction of the population enters their middle age and experience considerable income growth.

The Gini coefficient however takes everything into account, regardless of the causes of inequality. Demographic-driven inequality will correct itself sooner or later and there is not much we can do to address the root cause without resorting to population control.

These benign types of inequality should be discounted from a discourse of inequality. If somehow we can correct the Gini coefficient to reflect that, then perhaps the hard numbers would show us that the situation is not as bad as some make it out to be, that it is not really a case of the 99% versus the one percent.

Besides, in many case, it is poverty that mostly matters and not so much wealth inequality. Why would inequality matters when everybody is living comfortably and a few persons live rather lavishly but ultimately of no adverse effect on others? Jealousy is not strong enough a reason for us to ”˜correct’ wealth inequality in the society.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in the Selangor Times on December 28 2012.

Categories
Books, essays and others Economics Society

[2644] Albert Hirschman, and Exit, Voice and Loyalty

I just learned that Albert Otto Hirschman, the economist who wrote Exit, Voice and Loyalty, died in December 2012 as I was traveling across Java. Perhaps, this is an opportune time to review Exit, Voice and Loyalty which was published in 1970. I read the book some years back.

The idea presented in the book is pretty widely known now. So if one is to read about the book now, one would probably go, ”what is the big deal?” But you see, that idea came from this particular book. It is an influential book. At the very least, Hirschman was the one who formalized the very intuitive idea of dealing with disagreement in an organization.

The New York Times in its obituary of Hirschman told a story of William Safire and Albert Hirschman. William Safire was an amazing writer. I remember enjoying his sometimes hilarious column at The New York Times. Being an expert on language, he wanted to learn the origin of the term “exit strategy.” Safire traced it back to Hirschman.[1]

That is one proof how influential the book is.

Exit, Voice and Loyalty introduces a simple idea. A person in an organization has two options: exit and voice. The organization can be anything. It could be marriage, firm or even a state. It should be noted that the full title of the book is Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States.

A member of an organization is a member of an organization because he or she agrees with it to some extent. Depending on how tolerant the member is to the differences, he or she may decide to first voice out against the disagreement in hope to affect the position of the organization. The member does so because he or she cares about the organization.

If the divergence of position becomes too great, the member may decide to leave the organization altogether. The decision to leave may hurt the organization as the organization loses members.

The two options interact with each other. Some members have no opportunity to leave and so they employ the voice option to express their dissatisfaction. For Malaysia, the easiest example may involve Muslims where apostasy is hard if not impossible given all the restrictions imposed. This may explain why some Muslims are very critical of the religion, or at least the one sanctioned by the state in Malaysia. Of course, that is not the only reason for criticism. Many criticize the way Islam is practiced in Malaysia because they care about Islam. There’s loyalty in the religion. To them, leaving is impossible not because they are not allowed to leave, but because leaving is unimaginable.

So, loyalty is the glue that encourages the use of the voice option. Exit option is exercised if the glue fails.

The exit and voice option and its interplay which involves the notion of loyalty is probably best demonstrated in political settings. Application of the idea within political parties is probably the most widely known.

Another application involves immigration. I think I have written something about this as part of my degree requirement in what seems like a long time ago. It is easy to see how robust the model is. How many people have migrated out of Malaysia because they disagree with the prevailing policy?

What is interesting is that when a country has an authoritarian setting when the voice option can be deadly and exit is not really an option for one reason or another. I am unsure if this particular example is presented in the book itself but on Wikipedia:

Exit need not be physical, but can be mental or emotional. For example, under communism, many could not physically exit the country, but did not want to participate in the system either. In these cases, citizens could be said to exit from civic or political participation, as they were neither loyal to the party nor were they willing to voice their dissatisfaction (except for noted times of dissent, e.g., 1956 in Hungary, 1968 in Prague and the Revolutions of 1989) because doing so could lead to imprisonment, exile, or even death. Many thus mentally and emotionally exited their countries for the duration of a repressive regime they did not agree with but felt they could not fight or topple. The consequences of this exit can sometimes provide an explanation for why voter turnout is often low in countries where free elections are being held for the first time in years (or ever). [Exit, Voice and Loyalty. Wikipedia. Accessed on January 11 2013]

This obviously is not a comprehensive review. But what I can say is that it can be an enlightening reading, even if it is a common idea. It is not a thick book but there can multiple pow moments when you would go wow. You should read it as a tribute to a great economist.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
[1] — In 2003, William Safire, the columnist for The New York Times who also wrote the On Language column for The New York Times Magazine, led an informal search for the roots of the phrase ”exit strategy.” The search led to economists, who pointed to Mr. Hirschman, who denied culpability, sort of.

”Did he coin the phrase?” Mr. Safire wrote after interviewing Mr. Hirschman. ”No; it’s nowhere in his book. He used exit option. ”˜It was a somewhat new concept then,’ Hirschman recalls. ”˜I used exit to indicate a possibility, a strategy. When you are dissatisfied, you can use your voice option or your exit option. It is not so different from the political use today. Speak up or get out.’ ” [Nelson Benjamin Albert Hirschman, Optimistic Economist, Dies at 97. The New York Times. December 23 2012]

Categories
Economics

[2643] Price ceiling on foreigners’ purchase will be ineffective at controlling home prices

In the news recently, the state of Johor plans to raise the floor price at which foreigners are allowed to purchase a house. The floor is now set at half a million ringgit. The proposed new floor is RM1 million (The news report in The Star wrote ceiling but if you know your microeconomics, you will know that raising the ceiling instead of the floor does not make sense and in fact, will bring in a very different outcome inconsistent with the overall theme of the article).[1]

The state government wants to control home prices and by raising the floor, the idea is that there will be more homes for locals while foreigners are only allowed the more luxurious home to purchase. More specifically, it is to curb price increase through demand control.

I am unconvinced how this will help, especially if the policy is unaccompanied with supply-related policy. The government does grant home permits but I think that is pretty much given out without much restrictions (Not that I am advocating controls. I am just describing the situation).

The ceiling alone may apply in the short run and only for pre-existing homes. In a slightly longer time frame when new supply of homes are available in the market, the ceiling will be rendered ineffective as market agents adapt to the new rules and regulations. This could be in the time frame of several years and maybe, even less than two. It does not take that long to build homes.

Suppliers of home will adapt to rules and regulations so that their endeavor is a profitable one. It is quite possible that at the current floor, home suppliers are already taking domestic and foreign demand into account.

If you take foreign demand out, these suppliers of home may decide to reduce supply in the appropriate home segment and increase supply in others accordingly so that prices stabilize in the longer time frame.

As I have mentioned, in the short run, it may be effective because home suppliers may have trouble to adjust. It takes time to construct home.

Then again, if the new regulations give suppliers enough time to adapt, i.e. the suppliers are given a grace period, then there will be no short term effect. Suppliers will adapt in time and price trend remains as they are.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
[1] — NUSAJAYA: Johor is looking at raising the present RM500,000 ceiling to RM1mil for foreign house buyers to check the spiralling price of houses. Local Government, Housing, Arts, Culture and Heritage Committee chairman Datuk Ahmad Zahri Jamil said the state Economic Planning Unit (UPEN) was studying ways to tighten the rules on foreign ownership and a decision would be made this year. “If there is going to be an increase, then foreigners will only be able to purchase homes above RM1mil,” he told reporters here. [Nelson Benjamin Johor looking to raise foreign house ownership ceiling to RM1mil. The Star. January 10 2013]