Category: Economics

Categories
Economics

[2624] The government dominates the skyline of Kuala Lumpur

Felda has a new building in downtown Kuala Lumpur. It is a pretty slick building. Whatever that says about the construction industry, I do not think it says anything too good enough private sector-led economy. Unscientific yes but the skyline of Kuala Lumpur says a lot about how supposedly private sector-led economy Malaysia is, given that Kuala Lumpur is the economic center of the country.

Take a look at the skyline of Kuala Lumpur from a far. Apart from Felda, there are PNB, Tabung Haji and the Petronas Twin Towers. From where I live, these four buildings dominate the skyline. And then you can have CIMB and Maybank too. How about Telekom Malaysia? KL Tower? These do not include non-business related buildings like City Hall, BNM and EPF (while non-business, the EPF does influence the Malaysian equity market in a big way). How about the most political of it all, the UMNO building?  Not government, but for better or for worse, UMNO has a hand in it.

Warisan Merdeka will take it place in some years to come, yet another building to dominate the skyline like how the Petronas Twin Towers do.

These buildings symbolize what the Malaysia economy really is: government-driven.

One might argue that there are many more private buildings that government and government-linked companies buildings around. True that but that does not mean the buildings of the latter do not dominate still.

The sense of a government-led economy would have been more profound if the federal government had not move to Putrajaya more than a decade ago. But that is all symbolism. It does not change the fact that the government has a considerable say in the economy. Too big a say.

Categories
Economics Politics & government

[2623] The death of politics of development

I was Sarawak for two weeks in early 2011. It was election time and the campaigning period was well underway.

From my observation, I think I can conclude that the politics of development is very much alive in Sarawak. It is not hard to understand why.

While the standard of living in Kuching, the state capital, was respectable, a number of communities just outside of the city limits still did not have access to the local electricity grid. They wanted electricity. On the road to Bau, the residents complained how dark it was at night along the road. They wanted streetlights. The journey to Sri Aman meanwhile felt like a mild rollercoaster ride. Users wanted a smoother and wider road.

The politics of development there is very much about physical infrastructure. It is about promises and execution of development. Incumbents make lavish promises for more and better infrastructures. Challengers harp on unfulfilled promises.

While there were other concerns lingering in the mind of Sarawakian voters I am sure (indeed, it would be a remiss if I did not mention that the Chief Minister of Sarawak, a popular brand of lightning rod among urban voters), the way the campaigns were sometimes framed was as if the primary concern was development. It was a matter of whether the electorates should reward the incumbents for a job well done, or punish them for not bringing in sufficient development.

To be sure, the politics of development is relevant not only to Sarawak, but also to other places throughout the country. Else, the authority would not have paved the roads just before a critical election.

In other places where road connections are respectable, with clean water supply and electricity taken for granted, the same brand of politics is less appealing to the electorates.

Voters in these places—likely urbanites—have expectations too sophisticated than anything the politics of development can cater to. Educated urbanites are no longer mostly concerned about physical infrastructure. They will shrug it off and they will probably return to say that mere development is no longer enough. There are other concerns.

That comes close to what economist Amartya Sen has articulated in one of his books, Freedom as Development. He argued that development should be understood in its widest sense. Economic development is not merely about paved road, tall buildings and everything that is concrete but it is also about the soft aspect of individual freedom. It is about individual empowerment. Institutions should be created and improved so that individual freedom is guaranteed.

With such freedom, individuals can take upon themselves to promote their own welfare. After all, the end of development is enhancement of individual welfare.

So, freedom is one of the necessary means of development and the focus on physical development alone is not enough.

And if one subscribes to something similar to Maslow’s hierarchy of needs where individuals prioritize economic well-being and other basic needs over political rights, then perhaps, for many Malaysians, the basic needs for brick and mortar development have been fulfilled. Any more of that kind of development returns less satisfaction than it did before. Now, the same Malaysians may want to fulfill other needs down the list that they have ignored previously.

So, faced with the widened definition of development, the old way of doing things becomes inadequate.

There are at least two major cases illustrating how the traditional development argument alone is insufficient and sometimes rejected altogether because it clashes so nakedly against other concerns. One will bring us to Pahang, where Lynas is building a rare earth processing plant. The other will bring us to Johor, where Petronas is investing in a massive petrochemical complex.

The proponents of the projects have highlighted the projects’ merits: foreign investment, jobs creation, technology transfer, tax revenue, etc. In a society that hungers for more old development, the projects would have gained popular support.

Yet the projects face popular opposition for a variety of reasons, the most notable perhaps being environmental and health concerns. In the past, not too many would oppose such development. Many needed it. Today, the acceptance of development comes with conditions. The conditionality is a sign of the end of the old politics of development.

The politics of development itself suffers from fatalism. Its appeals will end because development, whether the narrow definition or the more holistic one, is not an end by itself. It is a mean to an end. What is the appeal of the promises of more development, when we are nearing the very end that any development aimed for? What is the appeal, when we are at the end? We already have it.

The politics of development only lasts as long as development has not reached its stated end. The death of development politics is the natural ending for any successful development.

Only failure prolongs the life of old-style development politics.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in Selangor Times on October 26 2012.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
nb — I am disatifised with this particular essay. I initially had wanted to make the connection about how politicians who have engaged or engaging on the politics of development can no longer expect gratitute from voters because of the death of the politics of development. I also wanted to highlight that there are pockets where politics of development still work but I was running out of time and space to expand on the idea. I also suffered from writer’s block. Those are the reasons why the final part of the essay seems rushed. Verbosity is the death of me.

Categories
Economics

[2622] A large open economy is pretty close to a closed economy

The United States Federal Reserve has come under criticism for its third round of quantitative easing – or QE3 – from many countries, especially emerging ones, who are concerned it will lead to the creation of asset bubbles that will cause problems within their economies.

What will be the effect of this QE3 on Singapore’s economy and how is it likely to affect its people in general?

In QE3, the buying of mortgage-backed securities by the Fed will increase the money supply in the US economy and, given the Fed’s policy of low interest rates, the additional money is intended to spur spending by individuals.

The idea is that this increased spending will improve the housing market as well as other industries, which are then likely to employ more workers, thus reducing unemployment. Unfortunately, this scenario is likely to happen only when an economy is a closed one – that is, there are restrictions on trade and capital flow across countries. [Sundaram Janakiramanan. QE3 and the S’pore economy. Today. November 1 2012]

But, but, but… is it not that a large open economy that the US is is pretty much close to a closed economy, professor?

Categories
Economics Science & technology

[2619] Why are critical values always at 1%, 5% and 10%?

I was running some regressions at work just now and I realized my overdependence on computers had made me forgotten how to calculate certain statistics manually. Modern regression softwares automatically calculate various statistics less than a second and I hardly think of what happens in that virtual blackbox.

But just now, I was following up on a technical economic debate which revolved around some statistics where the report reported its t-stats but not its probability. I was curious about its probability and so, I had to translate the t-stats into probability manually by reading the t-stats distribution table. I struggled at first. I found myself embarrassed at my inability to read the table after 6 years worth of education in economics, and another 3 or 4 years in econometrics. But I managed. I guess, it is like riding a bicycle. Once you learned it, you know it. It may take some stimulus to remember if you have not been riding, but you can really do it.

One thought came to my mind after I was done with that.

I know there is a criticism about whether the critical values—the 10%, the 5%, etc—means anything. Indeed, the critical values are rules arbitarily made up out of convenience. It is highly possible that if the calculated value breaks a particular critical value, a hypothesis can still be true despite rejection. It is all a matter of probability and probability does not work so discretely as the typical critical value rejection rule suggests. If there is a 99% possibility of a hypothesis is untrue, that 1% can still pan out to be true however unlikely. (Let us not get into the Error I and II debate)

Too many people like yes and no answer. The rejection-rule gives them that, rightly or wrongly.

But I am thinking, why, throughout the economics and econometrics world, are the critical values always the same numbers? It either 1%, 5% or 10% (I have seen 25% but… ehem). Why not 4.7%, or 7.1%?

I think I found an answer to that after looking at the t-stats table for the first time in at least 2 years.

Powerful and cheap computers were only available in the last decade of the 20th century. Because of this, many students in the olden days relied on tables for their rejection rules. Tables being tables on pieces of papers, space was at a premium. So, publishers of tables could only print sexy numbers and obviously not too many numbers over the natural number space, never mind real numbers. Either you use the tables, or calculate the critical values yourself, which is a pain.

So, that convention sticks after awhile. From early econometricians to students of econometrics, the same tables get used over and over again. It becomes a tradition.

Maybe?

Categories
Economics Politics & government

[2617] Is the Selangor state government being a hypocrite by owning a stake in IPPs and highways?

Member of Parliament for Rembau, Khairy Jamaluddin yesterday repeated the accusation he made at a forum organized by Chevening alumni association last week. He said that Pakatan Rakyat is being hypocritical about its criticism of government policy regarding highways and independent power producers. As he pointed out, PR opposes these policies to the point that they want to nationalize those highways and power plants but at the same time, the Selangor state government holds shares in those private companies which operate the assets in Selangor. So, the state government enjoys dividend from the investment.

First off, I oppose government involvement in these matters and I balk at nationalization. At the same time, I dislike monopoly. These two concerns force me to adopt a gray area because while these highways and power plants are now operated by private companies (the definition private is increasingly blurry these days with state funds owning significant shares of these private companies), they were granted excessive monopoly power or overly generous concession at the expense of consumers, especially in terms of electricity generation in the past.

So, I do not want the government, state or federal, to nationalize highways or power plants, and I do want to see those monopoly power granted by the government curb. So, I am stuck. On these matters, I will bark at both both Barisan Nasional and Pakatan Rakyat’s policy. The former is responsible for granting the monopolies and perpetuating the status quo with limited improvement possibly because of political entanglement with the business community and the latter trying to do too much to overcome those monopolies with too much state power.

And I do not really trust BN in fighting PR because BN has proven to oppose PR’s proposal only in words but in action, they would do what PR proposes anyway. Proof: the Eastern Disperal Link in Johor which the government took over and abolished the toll. The EDL has another disturbing dimension to it: it is really a bailout of MRCB by the government. MRCB was in trouble because the government did not have the political will stick to its words. This by far is not the only example.

But, on the issue at hand, I am unsure if it is hypocritical of the Selangor state government to hold a stake in companies operating the same highways and power plants that PR proposes for the government to take over, as Khairy accused.

Would it not be wise for the Selangor state government under Pakatan to own interest in these power plants and highways in Selangor so that the state has a say in the respective companies’ board of directors?

One has to remember that the reason PR proposes to take over these assets is that PR claims that the companies or rather the arrangements which allowed these companies to profit in the first place are burdensome to Malaysians. PR claims that nationalization is a cheaper option to the status quo. As far as I understand it, it is not really about some socialist dream. It is really a matter of which is cheaper, which I think is a technocratic approach. Technocratic in the sense that it is number driven.

I actually am swayed by that technocratic argument but not to the point of nationalizing those private assets. I say so because nationalization is not the only conclusion to that technocratic argument. I am sure if we sit down and think about it, there are multiple ways which any party can achieve so.

One way is to have a say in the Board of Directors of those companies. The state government can voice its discontent over any possible revision to prices charged to consumer. This has its own conflict of interest issue—if one is profit-driven, then the state itself may want to optimize its returns; in this sense, Khairy is right—but like I wrote, it is also a way to influence companies’ decision from within towards the objective of reducing burden to Malaysian consumers.

Is that hypocritical?

On the net, maybe yes, maybe not.

Now, I do not know whether the Selangor state government has a seat in the Board of Directors or if the state does, then whether that rep’s voice is in line with PR’s rhetoric. If Khairy’s accusation is to be credible, I think he has to go one layer deeper to the dynamics of the Board of Directors.