Category: Economics

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Economics Environment Politics & government

[2123] Of Abbott’s plan is suspiciously boilerplate-like

Climate change has been very much the heart of Australian politics at the federal level for the past few months. It is the source of intense debate between the Labour government and the Coalition opposition. Within the Liberal Party itself, the proposed cap and trade arrangement has divided the party. Tony Abbott successfully replaced Malcolm Turnbull as the new Liberal leader exactly because of this issue.

The Turnbull fraction is prepared to work with the Rudd government on the cap and trade proposal. Others, perhaps, now called the Abbott fraction, do not. With Turnbull out and Abbott in, the cap and trade proposal has been scuttled in the Australian Senate.

On the front page of The Australian yesterday, Abbott made known a curious position. He accepts the challenges climate change poses and he accepts emission targets that Turnbull agreed to. What he rejects is any introduction of tax, as direct as carbon tax or as indirect as cap and trade scheme. In his own words, “[t]he Coalition will not be going to the election with a new tax, whether it’s a stealth tax, the emissions trading scheme, whether it’s an upfront and straightforward tax like a carbon tax.” In its place, he proposes implementing “land management and energy efficiency measures.”[1]

This is a curious position because I am grappling to see how his plan could achieve the reduction target he agreed to. Land management and efficiency measures sound like a boilerplate idea that lacks substance.

Despite actual inferiority of cap and trade to carbon tax, if done properly, it could be as effective as the simpler carbon tax. Land management and efficiency measures on the other hand will demand maneuver more complex than cap and trade.

In fact, complexity of a scheme makes it more susceptible to higher probability of failure. That happened in Europe with its version of cap and trade. One major feature that is attributable to European failure is the granting of free permits. Free permits arrangement is present in Rudd government’s proposed cap and trade scheme.[2]

Furthermore, Abbott’s measures appear similar to the Bush administration’s proposal of encouraging development of technology to address the need to manage carbon emissions in form of the probably now forgotten Asia-Pacific Partnership for Clean Development and Climate.[3]

Technology is indeed the golden bullet. It can reduce emissions given a unit of activity. Of course, the technology is out there: carbon sequestering, micro mirror in space, the spraying of aerosol in the atmosphere, nuclear power, wind, solar, etc. But which one?

That is the weakness of Bush’s proposal.

Any proposal has to be concrete with implementable actions, Abbott’s measures are mere boilerplate. It lacks substance. It lacks actual implementable measures.

Boilerplate solution is sorely inadequate.

Perhaps it is unfair to criticize Abbott’s measures since it is still early days. After all, he is less than a week old as the new leader of the Liberal Party and as the Opposition Leader. It may be only fair to give him the opportunity to think and present his idea more thoroughly.

Unfortunately, time is running out. This is not a tired old green rhetoric. Election may loom and the Liberals risk further marginalization if there are no concrete alternative solutions, especially since the new Liberal leader accepts the need for action.

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

[1] — TONY Abbott plans to fight a climate change election using land management and energy efficiency measures to slash greenhouse emissions instead of an emissions trading scheme or a carbon tax.

[…]

Pressed for an alternative, he said the Opposition remained committed to an unconditional target of reducing emissions by 5 per cent by 2020 but would not embrace an ETS or a carbon tax. He said there were “lots of things” that could be done to reduce emissions through other means, many not involving significant costs.

These included more energy-efficient buildings, better land management and biosequestration. NSW Nationals Senator John Williams claimed Australia could offset 100 per cent of its carbon emissions for 100 years by lifting soil carbon by 3 per cent.

Mr Abbott also said he would welcome a debate on the use of nuclear energy, although he did not think it was a short-term option.

“The Coalition will not be going to the election with a new tax, whether it’s a stealth tax, the emissions trading scheme, whether it’s an upfront and straightforward tax like a carbon tax,” he said “We’ll have a strong and effective climate change policy, we’ll have it early in the new year,” he said. [Tony Abbott’s tax-free carbon plan. Matthew Franklin. The Australian. December 3 2009]

[2] — See Carbon Pollution Reduction Scheme at Wikipedia. Accessed December 4 2009.

[3] — The world’s four largest coal-consuming countries have announced a pact to share technology for limiting emissions of greenhouse gases. The US, China, India, Australia – plus Japan and South Korea – signed what is being seen as a rival to the Kyoto Protocol to curb climate change, which the US and Australia have refused to sign.

The new pact will be known as the Asia-Pacific Partnership for Clean Development and Climate. It allows the countries to set their own goals for emissions of greenhouse gases, with no enforcement measures. This is in contrast to the Kyoto Protocol, which requires industrial nations to accept legally binding emissions targets. [US-led emissions pact seen as Kyoto rival. Fred Pearce. Newscientist. July 28 2005]

Categories
Economics

[2122] Of the proper question is, is GST more burdensome than sales and service taxes?

The Malaysian government plans to introduce goods and services tax replacing the current sales tax as well as service tax in 2011. I generally prefer consumption tax to income tax because one, it somewhat accounts for externality related to consumption (making it a close cousin to my favorite tax, carbon tax) and two, it is a flat tax. Libertarians typically love flat tax. And probably, three, it is a middle finger to Keynesians and socialists out there.

My position with respect to GST in Malaysia is essentially one of agnosticism at the moment as I try to grasp its merit and demerit, despite my disposition to consumption tax (If there is an abolition of income tax alongside the introduction of GST, I would probably rush to the defense of GST immediately). I am therefore open to argument from both sides.

I do have problem rationalizing opposition to GST based on the argument that GST is regressive however. To the best of my knowledge, sales tax and service tax are flat taxes. That makes them regressive. They are consumption tax too (practically indistinguishable really) because they too can be passed to consumers (though a study of tax incidence suggests passing the tax to consumer is slightly more complicated due to dependency on elasticities).

Given that both types — GST and the current taxes GST is proposed to replace; for the sake of convenience I am lumping sales tax and service tax as ‘the other taxes’ — are regressive, the appropriate question to mount a proper opposition to GST is how more burdensome GST is compared the other taxes to the lower income groups, not whether GST is regressive or not by itself. In order words, what are the marginal effect?

I do not know the answer. Obviously a study has to be done to answer that but my first impression would be that it is less burdensome — less burdensome by meaning of less taxation — because the rate of GST proposed is much lower than the average rates of sales tax and service tax, at least for 2011.

The proposed GST rate is 4%.[1]

According to Malaysian Industrial Development Authority, services tax in Malaysia is 5% while sales tax is typically charged at 10% although there are goods charged as low as 5% to as high as 25%.[2][3][4] There are exemptions where no tax is charged but leave that aside for now.

Clearly, ignoring the anomaly of exemptions, GST is theoretically less burdensome than the other taxes of interest at the proposed and current rates.

Therefore, I am having problem with the basis of opposition to GST as expressed by several politicians from Pakatan Rakyat and possibly Khairy Jamaluddin. The latter spoke earlier in the Parliament, raising his concern about the regressive nature of GST.[5] Like I said, the proper concern should be how much more burdensome is GST against the other taxes, not that GST is regressive.

For Tony Pua’s assertion that the government should postpone the implementation of GST until average citizens earn higher income[6], which I assume GDP per capita is a convenient proxy for that, this is not convincing.

Assuming that rate of GST is the same as the average of rates for the other taxes — ignoring the effect of changing quantity demanded and quantity supplied as well as elasticities that eventually lead to change of tax revenue; those changes would probably bring down aggregate demand given the efficiency of GST but no matter because that is an entirely different issue — tax collection for both should be the same theoretically.

Theoretically because the other taxes are susceptible to tax evasion. Tax evasion is less of a problem to GST because value-adding activities are recorded more diligently across value-chains. That makes it more efficient in terms of tax collection. This advantage that GST has against the other taxes should enhance the appeal of GST, not less, if one is interested in having better taxation system. The opportunity for tax evasion is not a good point to base one’s opposition to GST, again, if one is interested in having better taxation system.

Note however, again, the proposed rate of GST is lower than the current average rates of the other taxes. Any net gain from the switch to GST is likely due to efficiency of GST rather than increase in theoretical taxes.

Nevertheless, Pakatan Rakyat or rather DAP does sound good criticism that weeding out corruption and addressing mismanagement of country’s resources would probably enhance the government’s bottom line compared to expected increase of tax collection of RM1 billion due to GST.[7]

Yet, I think Rajan Rishyakaran makes a good point when he writes, “the need for the GST goes beyond plugging budgetary holes — it serves the need to flatten the tax base.”[8]

I would add further that the function of GST is to diversify sources of revenue for the government rather than raising revenue. Unless all Malaysians suddenly convert to minarchism, which I do not mind of course, given the well-known fact that Malaysia has narrow taxpayer base,[9] diversifying the source and indeed widening the base is a good idea.

It is a good idea because, like the Pulitzer Prize winner Thomas Friedman puts it in his article entitled The First Law of Petropolitics, if he is right, government dependency on tax as revenue encourages accountability. That can further develop democratic culture in Malaysia. Dependency on oil revenue does not do that.[10] Add to that the fact that oil is a finite resources, diversification is a a way forward.

If the rate of GST gets higher than the average of the other taxes, then opposition to it is very proper. That however is an opposition to the rate, not GST per se.

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

p/s — I realized that I have not defined the meaning of regressive. Consumption tax like GST is a flat tax. By regressive, it does not refer to actual rate increases the lower one’s income is where progressive means the opposite. Rather, it refers to the fact that those with lower disposal income will spend greater fraction of their income on basic items. Since flat tax increases that fraction on the, if I may use the term, poor, it is arguably regressive. The difference between the two ‘regressive’, should be differentiated, even if the effect maybe the same.

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

[1] — KUALA LUMPUR: The government plans to impose goods and services tax (GST) at 4%, said Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah.

”We are replacing the current sales and services tax, which is currently at 5% to 10%,” he told reporters at the Culture, Ideas and Values Workshop organised by Foundation For the Future at Country Heights Resorts in Kajang. [Govt may impose GST at 4%, says Husni. The Star. November 26 2009]

[2] — See Service Tax. Accessed December 3 2009.

[3] — See Sales Tax. Accessed December 3 2009.

[4] — See Taxation. Accessed December 3 2009.

[5] — The first parliamentarian to raise concern about the introduction of GST is Khairy Jamaludin. When he spoke on this matter, there was hardly any response to it. As usual the mainstream newspapers shied away from this heavy stuff. [Further thoughts on VAT/GST. Mohd Ariff Sabri Abdul Aziz. December 2 2009]

[6] — Today, out of a population of 27 million, there are in effect only 1.8 million tax-payers who pays any income tax, or only 6.7% of the population. Even if we were to take into account only the 12 million working population, it is only 15% of them who have pay any taxes. The 85% who don’t pay are those who actually don’t qualify to pay any taxes because their income is too low. However, with the implementation of GST, every single one of them whether they are earning RM500 a month or RM1,500 a month or even RM2,500 a month, who don’t current pay any taxes, will be forced to bear the heavy burden of the GST.

Therefore, it is only fair that the income levels of the average Malaysian is raised to a level where the overwhelming majority of working Malaysians are already taxable before the switch is made to a GST or indirect taxation system. [GST: First blood. Tony Pua. December 1 2009]

[7] — IPOH, Nov 29 — DAP has urged the Federal Government to reconsider the proposed 4 per cent Goods and Services Tax (GST), claiming it would do nothing to narrow the nation’s current deficit budget and would only further burden the poor and the middle class.

Party secretary-general Lim Guan Eng said that the Government should, instead, concentrate on fighting corruption and realising savings of at least RM28bil annually instead of a mere RM1bil in additional revenue from GST. [DAP: No sense gaining RM1b from GST to lose RM28b to graft. Clara Clooi. The Malaysian Insider. November 29 2009]

[8] — Tony Pua did point out several other ways to raise revenue (auctioning import quotas, for example) and save money. Nevertheless, the need for the GST goes beyond plugging budgetary holes — it serves the need to flatten the tax base. [GST for high-income economies. Only.. Rajan Rishyakaran. December 1 2009]

[9] — International agencies such as the International Monetary Fund (IMF) and World Bank have long pointed to Malaysia’s narrow tax base as being unviable in the longer term, given that only a tenth (or an estimated one million-odd workers) pay income tax and the nation’s overdependence on oil earnings, which contribute more than 40 per cent of federal revenue. [Najib plumps for GST to fill revenue hole. Business Times via The Malaysian Insider. November 25 2009]

[10] — [The First Law of Petropolitics. Thomas Friedman. Foreign Policy. May 2006]

Categories
Economics Politics & government Society

[2118] Of less variance for democratic states versus autocracies

Just weeks ago, former Prime Minister Mahathir Mohamad contrasted the development of China and India. As reported, he praised the single-mindedness of the Chinese government in developing the country and ridiculed the Indian government for being far too democratic and not focusing enough on development. He went on to state that freedom hurts the economy.[1]

Art Harun, a columnist at The Malaysian Insider replied to this in his column[2] stating examples where democracies have been successful, contrary to the former Prime Minister’s assertion.[3] Zaidel Baharuddin, yet another The Malaysian Insider columnist jumped into the debate at his blog by defending the former Prime Minister, stating that “starving hard working farmers in India who has to fight drought and fertilizer prices don’t give a damn about freedom of speech or expression.”[4] Art Harun took the chance to reply to the point and various other comments too diverse to cite here[5] by arguing that economic prosperity does not have to be mutually exclusive with respect to freedom as well as adding that they are other factors that need to be considered in the determination of economic development, like leadership.[6]

Indeed but all those discussions are gradually veering off course from the point the former Prime Minister made, about how democracies perform poorly against less democratic states in terms of economic development.

This point is not necessarily true. If one wants to make that point, one cannot choose two data points and make a conclusion out of it. That is the logical fallacy of hasty generalization. A better way is to take all of democracies and all of authoritarian states and compare them.

There are prominent studies on this. One important study states that while the existence of democracy or dictatorship does not affect the mean growth rate of economic development, it does affect its variance. That means there are less consistency in economic growth under authoritarian regime compared to democracies. Adam Przeworski wrote an important paper on the issue:

Political regimes have no impact on the growth of total income when countries are observed across the entire spectrum of conditions. Contrary to widespread concerns, democracies do not reduce the rate of investment even in poor countries. It appears that when countries are poor there is little governments can do, so that it makes little difference for economic growth whether rulers are elected or hold power by force. In wealthier countries, patterns of growth are no longer the same. Dictatorships rely on the growth of labor force and on keeping wages low, while democracies pay higher wages, use labor more effectively, and benefit more from technical progress. But while growth under wealthier dictatorships is more labor-extensive and labor-exploitative than under wealthier democracies, so that functional distributions of income are different, the average rates of growth of total income are about the same.

Thus, we did not find a shred of evidence that democracy need be sacrificed on the altar of development. The few countries that developed spectacularly during the past fifty years were as likely to achieve this feat under democracy as under dictatorship. On the average, total incomes grew at almost identical rates under the two regimes. Moreover, per capita incomes grow faster in democracies. The reason is that democracies have lower rates of population growth. In spite of rapid diffusion of medical advances, death rates remain somewhat higher under dictatorship and life expectancies are much shorter. Population grows faster under dictatorships because they have higher birth rates, and the difference in birth rates is due to higher fertility, not to age structures of the population. [Democracy and Economic Development. Adam Przeworski. New York University. Retrieved on November 30 2009]

Almeida and Ferreira in 2002 probably made a more direct case:

Less-democratic countries do seem to have variable growth rates and policies than more democratic ones. This corroborates the conjecture of Sah (1991). Possible explanatoins for this fact can be found in Rodrik (1999a) and in Sah and Stiglitz (1991).

The evidence presented in this paper strongly supports Sah’s conjecture. The empirical results are unaffected by many robustness and specification checks. The results are not sensitive to specific time periods, to different democracy indicies, to different econometric procedures, or to model specification. The results hold even after controlling for many plausible determinants of growth rates and democracy indicies, including the usual variables from the empirical growth literature, time dummies and country-fixed effects, GDP, natural resource dependence, and OECD membership.

The greater stability of growth rates and policy measures among democratic countries adds to the existing list of desirable features of democracies, such as the positive correlations between democracy and per capita GDP levels, between democracy and primary schooling (Barro, 1999) and between wages and democracy indices (Rodrik, 1999b). Our evidence also corroborates the common view that some autocratic countries have had the most impressive growth experiences. However, since the worst experiences are also associated with autocratic countries, in an ex-ante sense, autocracy is no prescription for growth. [Democracy and the variability of economic performance. Heictor Almeida. Daniel Ferreira. Economics and Politics. Volume 14. November 2002]

Of note is the relationship between wages and democracy indices as reported by Rodrik. People in the Najib administration may well take that into account.

Anyway, at the Library of Economic and Liberty, economist Byran Caplan, who introduces Almeida and Ferreira, reproduces the following diagram to drive the point home:[7]

Some right reserved.

Autocracies are represented on the left side and democracies on the right side. Note the variances and the means.

Bottom line is, there is more risk to having an authoritarian regime than a democratic one, in terms of economic development. If one wants to be more certain about achieving success, democracy is one of the ingredients one must consider.

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

[1] — Dr Mahathir singled out India as an Asian country that “made the mistake of being too democratic” and compared it unfavourably with China’s authoritarian regime.

“India, of course, will grow, but more slowly than China. It has the numbers but is not making use of them well.”

He expanded on the theme at a press conference later, saying that people “don’t understand the limits of democracy”.

“Democracy can be a hindrance to progress because you spend so much time politicking that you don’t have time to develop your country.

“In China, there’s not much politics. So, they can spend more time developing their country.

“In a democracy, everybody has a voice, everybody has a vote. But, in Malaysia, they sell their votes, which is not good at all.” [Dr M: A lot to learn from China. New Straits Times. November 17 2009]

[2] —[Enemies of the State. Art Harun. The Malaysian Insider. November 19 2009]

[3] — Yes. According to DrM, the Westerners are wrong for making democracy and freedom the cornerstone of progress. The British are so free they go on strike every other day. Well, who sent people to the moon in 1969? Which part of the world had an industrial revolution? Why have Russia, East Germany, Romania et al embraced democracy and freedom? From whom did we buy our Scorpene? Why Glasnost and Perestroika? So the people know the limits of freedom and how to behave themselves properly and in accordance with the Government’s code of behavioural acceptance?

And finally, according to Dr M, apart from China, Japan, South Korea and Taiwan will lead the Asian charge.

Which made me thinking, were Japan, South Korea and Taiwan governed by a benevolent absolutist government? Do the people in these countries know the limits of democracy? If so, to what extent? And who impose and define these limits on them? [Enemies of the State. Art Harun. November 19 2009]

[4] — I’m pretty sure, those starving hard working farmers in India who has to fight drought and fertilizer prices don’t give a damn about freedom of speech or expression. It is those comfortably well paid lawyers with some extra time on their hands who are more concerned about these things and write about it.

Meaning, [b]efore you talk about democracy perhaps it is wise to first elevate the people’s (rakyat) quality of living, because like the maslow’s hierarchy of needs there are more important things to fulfill before they get to the self actualization level. [Sinatra_Z – An Answer. Zaidel Baharuddin. November 20 2009]

[5] — Ahiruddin Attan for instance compared the more democratic Malaysia, which is behind the economic development curve with the less democratic Singapore, which is ahead:

I don’t think the Malaysian Insider would publish such a piece. Good try, though, Z. I do agree with you (and Dr M). We don’t need to look so far, just across the Causeway. We are way more democratic than Singapore, and look at how many of us idolize the Republic for its progress and wealth. Given the choice, however, I’d stay put here, Z. [Art Harun vs The Lipas Man. Ahiruddin Attan. November 20 2009]

[6] — My question is, why can’t we have them all? Especially in a democracy, where we elect our so called leaders to look after our well being as members of a State?

I think in this day and age, it is downright insulting — and not to mention, pathetic — for any leader to say to the people that I will give you food on your table in abundance but you would have to shut up, toe the line and do as I say, all the time and under all circumstances.

For a leader to lay the blame on the people which he or she ruled — for not understanding the limits of democracy — as a reason for his or her failure to achieve development and progress does not speak much of his or her leadership.

A comparison was made with Singapore in one of the comments. It was pointed out Singapore did not have much of a democracy and they progress well. But that does not prove that Singapore progressed well because it was less democratic.

 

Hasn’t it occurred to any of us that Singapore progressed because of the mentality and work ethics of its leaders? [Freedom lifts us up to where we belong. Art Harun. The Malaysian Insider. November 24 2009]

[7] —[Democracy, Dictatorship, and the Variance of Growth. Byran Caplan. Library of Economics and Liberty. October 2 2009]

Categories
Economics

[2117] Of contrasting elementary consumer welfare effect of income tax and GST

Since the latest fad in Malaysia is the goods and services tax, I thought I should share my limited knowledge on the matter. I am not an tax expert but I know my microeconomics and welfare analysis sufficiently enough to have an informed opinion on the matter.

Those that have done basic microeconomics will appreciate the tools of preference curve and budget constraint. These two tools are easy to work with and are crucial in understanding the effect of income tax and GST on consumer welfare.

To make the contrast clear, we would have to make two assumptions in the spirit of comparative statics.

First, we would have to assume a situation where there is one tax and not the other. To have both at the same time and not mutually exclusive will necessarily make effort at observing the differences between the two harder than it should. Further, no other tax exists. In reality, of course, both could happen at the same time.

There is also the assumption that both taxes produce the same amount of revenue for the government. Again, in reality, that does not have to be. In fact, in reality, even if both types of tax theoretically produce the same amount of revenue for the tax man, issues like tax evasion are not accounted for. In this specific area, GST is better than income tax.

Before we begin, it is essential to note that any kind of taxation reduces welfare. But taxation exists for a variety of reasons that to go into it will necessarily veer off the topic we are interested in.

First off, the effect of income tax for consumer is reduced income. Say a consumer has a certain amount of income, a portion of it will be taxed. As a whole, the consumer could buy less quantity of an item — that is any item — the larger the tax size.

The effect of GST, which is a type of quantity tax (specifically, consumption tax but I prefer the term quantity tax because it is more general), is exactly the same as income tax if the GST is applied equally across all goods. By applied equally, I am referring to a situation where the opportunity cost of one item in terms of other items remain the same. An example involving a barter system is probably appropriate: y amount of butter could buy x amount of cheese, before and after tax. To put it in simpler terms but less precise, all items are taxed at the same rate.

The addendum is that the tax will only be paid if a purchase is made. The only way of not being taxed is by not spending. Whether that improves welfare depends on preference of consumer. If a consumer is really a large saver, he or she would probably be better off under GST than under income tax. However, for the majority of us, I would imagine not spending would make our welfare worse off.

If GST is not applied equally, it is possible for the consumer to be better off under GST scenario than under income tax scenario. Consumers could simply consume untaxed goods. With no income tax, quantity of untaxed goods consumers could purchase in terms of the taxed goods would likely increase. The consumers however would really have to love the untaxed goods for that to happen. If — still under unequal GST scenario — consumers prefer the taxed goods to untaxed goods, then consumers will be worse off under GST than under income tax. In microeconomics jargon, these refer to corner solutions.

Typical analysis offers this result however: income tax grants higher welfare to consumer compared to GST, in a situation when GST is applied unequally across goods. Reason is that income tax does not affect opportunity of goods purchased. Unequal GST does and that may force the consumer to move away from his or her optimum consumption under taxed scenario.

Categories
Economics

[2111] Of no robot, just manual labor

Sitting outside of a library trying to finish up my sandwich under a bright sunny sky, I smirked.

Two reasons.

One — less important than number two and not quite the reason why I am posting this up — is an action that reminds me of fiscal stimulus mentality.

At the university, which is a public school, a small army of workers was redoing the pavement. Before the work began, I could find nothing wrong with it. It was built quite well and pleasing to the eyes too. Yet, there went the works. Although I can never be certain if that effort was funded by Australian stimulus money without further information, I am inclined to believe it was related.

And now, the new pavement awaits me, which splendidly looks and functions exactly that it was before.

It has to be related with stimulus program. It simply has to be. Nonsensical project, public works, the recipe of stimulus project is all there.

Of more interesting is that no robot was involved in the process of redoing the pavement. You might think that I am joking but I assure you that I am only half joking. No robot. No fancy machine. Just plain manual laborers working under the sun.

Where am I getting at?

If you have been visiting this blog for a very long time, you will notice that I am particularly peeved with some groups of Malaysians who rile up against the country’s so-called addiction to cheap labor. They blame general low wages in Malaysia is caused by the availability of cheap labor from abroad. Furthermore, due to availability of cheap labor, companies in the countries continue to not move up the value chain or not employ better technology. If only there is no cheap labor, Malaysia would be supremely technologically advanced and Malaysians would be better paid, or so they argue.

Well, here in Australia, one of countries with the highest GDP per capita in the world, no robot still. Just manual labor.

I could imagine those anti-cheap labor people saying “construction is but one industry and there are other industries that will employ better technology if only the cost of labor is greater than the cost of capital.”

Maybe, but I smirked still. And I am smirking now too.