Category: History & heritage

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Economics History & heritage Politics & government

[2966] A short history of soft-budget constraint in Malaysia, and the challenge the Anwar administration faces

For the past few days, I have been thinking about the 2020-2022 roles reversal in the Malaysian version of soft-budget constraint, but ended up trying to trace the history of SBC in Malaysia.

First off, a short primer on SBC: soft-budget constraint is usually a problem between a government, and its state-owned enterprises. In Malaysian parlance, those enterprises are government-link companies. It is called soft-budget constraint because the budget of those enterprises is hard to be fixed; company revenue does not provide a hard limit on company expenditure. The government ends up financing those companies beyond what the latter’s revenue provides. That financing comes in the form of subsidies, loans, tax breaks and grants, and designed to meet various political, social or even economic objectives.

This problem is most prevalent in command economies, but it also exists elsewhere where the market is more open, like Malaysia.

Now, let us dive into the history of SBC in Malaysia.

From the 1970s until the 1990s: NEP and privatization

Malaysia had several influential state-owned enterprises prior to the 1980s and this made SBC a common problem, especially with the New Economic Policy running at full steam.

Luckily for Malaysia, raw material prices—petroleum, rubber, tin—were high at that time, making budget constraint problem manageable. These companies’ budget constraint was soft, but government revenue was bountiful.

Troubles came in the 1980s, when global recession depressed commodity prices. Budget constraint suddenly became very pressing, when government coffers could no longer support growing expenditure needs. Here, Mahathir Mohamad, addressed it through rapid and widespread privatization. Market discipline was instilled, and these companies found their budget constraints becoming stricter than in the past.

During the 1990s, through rapid modernization and super economic growth, along with privatization, SBC seemed like it had been consigned to history. SBC became a curiosity. The government enjoyed large growing surplus, and there were fewer companies requiring government support, save several instances where Mahathir insisted on import-substitution industrialization (Perwaja?).

When the Asian Financial Crisis hit Malaysia, all the bailouts meant the return of SBC.

SBC of the 2000s

The 2000s is significant in this telling because it was during this decade that off-budget spending took off earnestly. Government revenue did not grow fast enough to meet the country’s rising spending needs, especially so soon after the late-1990s recession. The government overcame its finance gap by devising clever methods to circumvent various accounting rules, and expand its spending capacity enormously. The methods are complex, and I will not go through it here except by sharing a post I wrote several years back, which explains various liabilities the government carried, but previously undisclosed.

Expanding off-budget obligations necessarily means growing SBC problem. Off-budget approach gave the government extra leverage, but it does not mean the government not having to fund them.

Off-budget approach, and SBC, came under intense scrutiny when 1MDB corruption came into the picture, and brought onto the government severe public demand for transparency. That demand, along with other concerns, led to collapse of the Barisan Nasional government, and the rise of Pakatan Harapan administration.

PH attempted to solve the problem by instituting greater transparency (this is part of the RM1 trillion debt and liabilities controversy), putting some off-budget spending back on budget (this partly raised the 2018 fiscal deficit ratio) and adopting accrual accounting, to make sure all financial obligations get recorded properly. But the SBC problem, intertwined with complex off-budget method, has become so big that it needs time to be addressed. And PH fell short of two years into office.

Reversal of roles during Covid-19 pandemic

The fall of PH coincided with the Covid-19 global pandemic. The new government needed to expand its spending fast to save lives and to preserve the economy’s productive capacity. But those in power were reluctant to boost government spending, possibly out of inexperience while facing a steep learning curve. With that reluctance, they looked to state-owned enterprises for solutions.

This caused a reversal of roles between the government and its companies. The government leaned on its GLCs to support its spending needs, instead of the other way round in the normal SBC problem. This made government budget to be softer than it was. GLC’s capacity became the government’s capacity.

Those financial supports from GLCs to the government come in the form of extremely long delayed payments. More specifically, the government throughout 2020, 2021 and 2022 engaged in massive subsidies and these subsidies were financed by the GLCs. The GLCs were supposed to be reimbursed immediately but that did not happen. To put it more plainly, these GLCs ended up financing the government.

For proofs, I would encourage everybody to inspect some of the largest utilities-GLCs out there. Check their growing receivables listed in their balance sheet (receivables refer to amount owned by buyers to suppliers).

There is another way to understand the roles reversal: these companies’ budget constraint becomes stricter than it was during normal times. Soft-budget constraint at the GLC level becomes really hard-budget constraint.

The problem became more complex in the post-Covid recovery, where subsidies ballooned tracking surging commodity prices.

2023 and into the future

Unlike the government, companies have troubles going over their budget constraint without outside support for too long. The cash crunch is coming.

The new Anwar Ibrahim administration will have the misfortune of having to address the roles reversal problem. It will be painful, involving large payments to be made/reimbursed by the government. Anwar Ibrahim the Finance Minister does not have much time: the cash crunch at several GLCs is coming.

That will add pressures for a broad tax hike, that Malaysia needs even before the pandemic.

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Economics History & heritage

[2910] Few lessons from post-war 1940s Malayan supply-side crisis

We are experiencing a supply-side crisis. The lockdown is inducing labor shortage, and it has the potential of exerting lasting damage on the economy if not handled properly.

It seems to me that the last time Malaysia or any of its components had a supply crisis was in the 1940s during World War II and during the immediate post-war period. Productions of various kinds were devastated, leaving many without jobs and forced into subsistence. The war not only destroyed productive capacity, but also suppressed demand.

The end of the war brought demand back up quickly. Unlike demand however, production took time to get back to speed. Wars had destroyed all the equipment, and killed off many that worked at the mines, plantations, factories and shops. Rebuilding those and reemploying the workers took time.

That meant massive unemployment in the meantime.

Massive unemployment also meant employers had great bargaining power: wage growth was weak if any. Faced with unemployment, weak wage growth and spiking prices, social discontent was prevalent. This was one of many reasons the communist movement gained sympathy among the masses: industrial sabotage became a norm which worsened efforts to restore production.

There are a few lessons to take from the economics of post-war 1940s. Disrupted supply chain in the form of business failures and labor shedding took time to recover, and could not move as fast as demand. When demand returned with supply failing to do the same, that demand went unfulfilled. This led to massive shortages and subsequently, massive inflation. Never mind the social issues and the complex 1940s political situation.

In this sense, the negative economic effects of the war lasted beyond the war.

Coming back to today, our mines, plantations, shops, offices and other facilities obviously do not suffer similar war devastation. And the social reality is different and undeniably more stable though racial tension that originated from the war continues to linger.

But our current supply-side crisis, now lengthened to 4 weeks, is heightening the risk of business failures and job loss. That means reduced potential and once the crisis is over and demand back up, that reduced potential means shortages and significantly higher inflation, and higher prolonged unemployment. Growth could be depressed for some time until the potential returns to its pre-crisis period. The negative economic effects of this supply-side crisis would last beyond the actual crisis.

This is why we need to protect the potential now. Prevent business failures. Protect jobs. This is so that once the crisis is done, we could press on the demand paddle right away without having to wait for some time to repair the supply transmission. We do not have to suffer a lasting effect of this crisis.

Categories
History & heritage Politics & government Society

[2898] Visual representation is history repeating itself

They say history repeats itself. Wikipedia in fact as a page calls historic recurrence describing the phenomenon.

I have been thinking how this is relevant to this age of hyperconnectedness with information overload that is increasingly becoming beyond the capacity of human beings to analyze and verify. We already have the too long don’t read culture that permeates everywhere. When I was working at a unit inside the Financial Times, we were told to write a piece no longer than a thousand words and ideally, 500. I found that a constant challenge, with all the nuances that needed to be explained to audience without the prerequisite backgrounder.

A majority of people simply do not have the stamina to read long, whatever the reason. And social media does not accommodate nuances very well, whatever the reason. This failure to provide room for context does not do justice to truth, and instead creates room for misunderstanding or disinformation.

This is a challenge for a libertarian like me who believes in free speech but at the same time finding myself exasperated seeing rampart disinformation spread not only directly by humans, but also bots.

In terms of communication, increasingly, there is a move towards graphics. In the past, at least I feel so, graphics were merely an assistive tool. Charts for instance enhance the experience of reading complex proses. It is never easy to read, for instance, the real gross domestic product rose 4.9% year-on-year in the second quarter of 2019 over whatever percent growtn in consumption and import, or the consumer price index increased by 1.1% from a year ago, which was an acceleration from 0.7% year-on-year inflation in the previous month. Each word is contextualized and requires preexisting knowledge. A person unfamiliar with the lingoes would be lost in the sea of letters: level versus flow, base versus base, the second derivative versus the third derivative all happening simultaneously that even the best of us will make mistakes. Math clarifies these things to some levels, but charts will clarify it all the way to the bottom for all through simplification.

Charts can be dumb too, But when it is dumb, it is easy to see quickly with the necessary basic skills, unlike complex verbose proses requiring additional brain power.

And charts are only a subset of graphics. Or infographics… whatever that redundant phrase means these days.

But graphics are becoming more than that now. Rather than an augmenting tool, I feel it is becoming the tool in disseminating information regardless of its truth. This is especially so on social media with respect to political messaging.

So, in the age of information overload that discourages reading and killing nuance, graphics are king.

This reminds me of the days of old when murals in Christian churches, friezes like bas-reliefs, and paintings were the main means of communication at a time when the population was largely illiterate. I remember clearly a famous scene from the Hindu story of the Churning of the Milky Ocean carved on the wall of one of Angkor Wat’s long corridors. The wall would show the Devas and the Asuras of pulling a long large snake acting as a rope wrapped around a mountain churning the Ocean of Milk. I could understand the bas-relief by just looking at it, though to have the full picture, I would have to read the story through text, or have someone taught me the legend.

Perhaps there is a parallel here if we contextualize illiteracy given itself time. In the modern era, illiteracy is turning into the lack of discipline to read textual nuance, while in the past illiteracy was the inability to read text.

The solution to both are graphics, or visual representation of an idea.

When I say history repeats itself, I mean we are down going back to visual representation as a means of popular communication. The then and now contexts of returning back to visual representation maybe different, but it is a repeat of past trend nonetheless.

I have a value judgment to make here on top of this. Perhaps the historic recurrence is damning in the sense that despite our massive advancement and improvement in mass education, we are becoming more stupid collectively. Technological progress in terms of information is becoming so advanced that we cannot cope with it. Relative to the frontier of information, we are being left behind so far as information becomes more massive and impossible to process by us individually without the aid of any machine.

In the past, we individually perhaps could catch up with the frontier of information even as the frontier was expanding. We could get darn close to it if we wanted. We could be polymaths.

However today, the frontier is expanding faster than we can ever hope to catch-up. We are made stupid by our own success. And visual representation is a tool to address our regression that we have to rely on it once again.

Categories
History & heritage Politics & government Pop culture

[2871] Kami junjung cita-cita luhur

Puji dan syukur pada Ilahi
Anugerahnya tiada terhingga
Kedamaian kemakmuran
Malaysiaku bahagia

Dengan tekad untuk berjaya
Berbakti pada nusa dan bangsa
Kami junjung cita-cita luhur
Perpaduan seluruh negeri

Seia sekata sehati sejiwa
Menghadapi cabaran
Kami sedia kami setia
Berkorban untuk negara

Bersemarak Malaysia tercinta
Kibarkan panji kebesarannya
Kami rela menjaga namamu
Sejahtera Malaysia

Categories
Books & printed materials History & heritage Politics & government

[2863] Reading The Malay Dilemma

Reading is a private experience that takes place within a personal bubble. It is one between you the reader and the author through his or her text. You can read in a group silently or aloud, but chances are most of the time it is a private experience.

During the time you spend reading, the text is your world and the author exercises an authoritarian control over your mind. He or she tries to convince you of something by explaining an idea, describing a scene real or otherwise, or even ambitiously trying to create another world to take your mind away from the real current life we all live in. You have no say for the bubble is not democratic. You can agree or disagree, politely or violently, but the author will always have the final say. Your immediate protestation would be heard by a deaf inanimate object.

Of course you are free to free yourself from the dictatorship, temporarily or for good. Temporarily because something else more urgent in nature is taking place like the likes on your Facebook, or for good because the author bores or disgusts you, or that you simply do not have the stamina to go through it. I have a book claiming to be a complete collection of Franz Kafka’s published work. Reading it mangled my mind so badly that I felt I was at risk of losing my mind. The private bubble of mine was beginning to detach itself from the real world and I was drowning at the shallow side of the river while watching someone, or something, trying to cross it in the most incomprehensible manner. I had to leave Kafka behind to preserve whatever left of my sanity. I would rather be left alone with Critique of Pure Reason instead of The Metamorphosis. Kant would help preserve your mind intact from rationalist assaults. Kafka would consume you whole.

But outside of the personal bubble, you are not free from the gaze of strangers. They may not know what exactly you are reading or thinking. You can create another bubble to exclude a third-party from observing you by reading at a private space, like in your room or at a carrel in a library. But reading can happen in public space too.

I read at various places to pass my time gainfully. These places include the trains during rush hour. While my mind would focus on the text, I sometimes do notice strangers peeking discreetly trying to identify the book I am reading. If our eyes accidentally met, they would pretend to look elsewhere. I sometimes can see judgment made.

I re-read The Malay Dilemma recently. Mahathir Mohamad the author in 1970 (and well, later the fourth prime minister of Malaysia, and if the stars align spectacularly, also the seventh) argued the Malays as a whole due to their feudal and rural background were too polite to fight for their rights and compete with others in the colonial industrial economy. More specifically, he wrote:

“…[W]hat is important, the Malays are told, is that Malaysia must prosper as a nation, and amateurs like them in business are not likely to contribute to this prosperity. All these arguments are completely true. If no impediment at all is placed in the way of total Chinese domination of the economy of Malaysia, the country would certainly be prosperous. The Malay dilemma is whether they should stop trying to help themselves in order that they should be proud to be the poor citizens of a prosperous country or whether they should try to get at some of the riches that this country boasts of, even if it blurs the economic picture of Malaysia a little. For the Malays it would appear there is not just an economic dilemma, but a Malay dilemma.”

The Malay Dilemma. 1981 edition

Mahathir had the book published when he was out in the political wilderness. Tunku Abdul Rahman kicked him out of Umno over policy differences: Mahathir was harshly critical of Tunku. The Malay Dilemma itself was first published just about year after the May 13 racial riots. Mahathir wrote it partly to explain why there were riots and partly to suggest ways to address the Malay discontent in the countryside.

It was a re-read because this time I felt I read it more critically, armed by other sources that better informed me of the 1920s-1960s conditions in Malaya and Malaysia, and also of the high colonial period. I read it with the relevant context in my mind. Books like The Malay Dilemma are always dangerous when read in isolation because its arguments are based on generalized racial stereotypes and if taken as unchallenged complete truth, it has the power to radicalize the mind towards the wrong side of the spectrum. Syed Husin Alatas in The Myth of the Lazy Native criticized many, including Mahathir, for accepting orientalist presumptions wholly and uncritically.

While Mahathir did accept and go far to justify the stereotypes, such as accepting the graceful Malays, to put it politely, as uncompetitive against the 19th-20th century migrants to Malaya, and the Chinese were greedy but intelligent, and the British efficient, the book is also more nuanced than that. It describes partially the economic picture of that time that fuelled Malay discontent. Sources like James Puthucheary’s 1960 The Ownership and Control in the Malayan Economy, perhaps Lim Teck Ghee’s 1971 PhD thesis Peasant Agriculture in Colonial Malaya or even the modern 2014 revisit on wealth by Muhammad Khalid’s The Color of Inequality, I think do corroborate with the picture of mass Malay poverty Mahathir painted. Kua Kia Soong meanwhile is more than happy to paint the whole of 1969 as a Malay peasant revolt, interpreted, perhaps, from communist (Marxist?) understanding of history. The then economic reality was a real contributor to Malay unhappiness that blew up in 1969 and which later gave rise to the 1971-1990 affirmative action policy, the New Economic Policy.

Indeed, deep in the book beyond generalization lies a Keynesian voice. Mahathir praised the free market system but pointed out what he considered laissez-faire market failings, which he believed, and still believes, necessitating state actions. The book not only has a Keynesian voice, but it has an egalitarian one as well spoken through a communal loudhailer. The Mahathir of 1970 showed himself as an integrationist. He almost achieved his dream in the 1990s with his Bangsa Malaysia, except that the means he used to achieve his integrationist dream were unlibertarian and at times felt contradictory.

Some of his solutions appeared reasonable. To pacify the Malay discontent and address the inequality between races, he wanted affirmative action mixed with meritocracy in education so that the Malays could join the modern economy faster. He wanted to urbanize the Malays so that ordinary Malay families would get exposed to the modern life rather than live isolated in the rural kampongs. He wanted to create Malay industry captains so that the Malays in the streets would have role models to look up to.

All three policy recommendations were carried out under his watch. Despite its failings, PTPTN and the mushrooming of tertiary institutions expanded education opportunities for the Malays. Wangsa Maju, Subang Jaya and many others were created as part of Malaysian urbanization that partly benefited the Malays. And then there were Halim Saad, Tajuddin Ramli, Yahaya Ahmad and many others who were Malaysia’s industry captains before the Asian Financial Crisis left the country in ruins.

His other suggestions were quite intrusive, based on extreme distrust of Chinese businesses and guilds. The suggestions included harsh price controls and frequent spot-checks. He went as specific as suggesting standardizing all weighing machines purely because he believed Chinese shopkeepers were cheating their customers.

Some fifty years on, some of his ideas are now obsolete. If I had the chance to sit with him, I would ask if he had changed his mind. Whatever the answers might be, this book is still crucial in understanding Mahathir’s mind.

And regardless of the validity of the stereotypes made by the Mahathir of the Malays and the Chinese, and also of the Europeans, these stereotypes did fuel discontent against the other among the Malays. These stereotypes cannot be dismissed as irrelevant. It had a real world impact on Malaysian politics, and it is true even today unfortunately. Timothy Harper in his 1999 book The End of Empire and the Making of Malaya, the book I am reading at the moment quotes The Malay Dilemma early: “those who say ‘forget race’ are either naive or knaves.”

But the book is mainly known for its stereotypes. Truly, The Malay Dilemma is like Romeo and Juliet. It is book that everybody has heard of, and everybody thinks he or she knows, but pretty much nobody has read it really.

It is not only the book that suffers such reputation. The reader reading it in the public too can suffer a stranger’s judgment. And I am a Malay, who read that book in the train where its passengers were of multiethnic composition

The occasional strangers’ gaze left me uncomfortable in the train. When I began the book, I noticed not the various ethnicities in the car. But while reading it, with those not sharing my skin color standing or sitting next to me, I felt uneasy. I should not feel so for I do not share Mahathir’s racialist worldview. Yet, I did feel uneasy.

That is the cost of reading in public space.

But such discomfort is perhaps less powerful than the political discomfort we live in now. So uncomfortable it is now that some plan not to vote at all in the upcoming general election, citing it as their rights to do so. The robots are so confused after being caught in a false equivalence fork, frozen to decisive inaction.