Category: Politics & government

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Economics Politics & government Society

[2982] Insufficient law enforcement as a symptom of fiscal pressures

Rules and regulations would become non-credible if it is unenforced enough. Smoking ban at eateries. Running the red light. Private vehicles on bus lanes. Illegal parking by the roads. We all have seen these cases frequently that violations are expected to be the norm.

In frustration, a person recently publicly tweeted Health Minister Dzulkefly Ahmad to complain about zero enforcement of the smoking ban. The Minister replied that the Ministry indeed enforced the bans and shared some statistics of people caught violating the rules. He shared that more than 96,000 citations were given, and 42,000 alone were linked to violations at eateries. So, technically, the Minister is right. There has been a non-zero enforcement. Yet, a non-zero is not sufficient.[1]

After all, what is the percentage of 42,000 caught violators to total violations?

The actual answer might be difficult to get to without a proper survey. But we can run a guesstimate. One 2018 paper suggests there were 5 million smokers in Malaysia.[2] Let us assume several things:

  • The 2024 figure is the same as suggested by the paper.
  • 1% of the 5 million are regular violators.
  • These 1% visit a restaurant (mamak) at least once a month (12 times a year).
  • They violate the smoking ban during every visit.
  • There is no corruption.

If we agree these are reasonable assumptions (these assumptions all in all are very conservative, except maybe the no-corruption part), then the 42,000 citations (caught violations) would represent only 7% of total assumed violations (caught and uncaught). The 7% figure suggests a low rate of enforcement. The revealed preference suggests that if the 7% figure is right, then it is below the rate necessary to make the law credible.

But even if we reject these assumptions and reject that 7% guesstimate, there is also revealed preference at work here: the fact that violations keep happening suggests the actual ratio must be very low that many continue to ignore the regulation brazenly.

These smokers ignore the ban because they do not believe they would get caught. And if they do get caught at all, the cost they would suffer is low. This is true not for just the smoking violations, but other things as well.

The laws themselves are meaningless if people do not believe in it. It is the act of enforcing enough that make people believe certain laws are credible.

But enforcement is expensive. Enforcement has been funded and here is where there is a link between insufficient enforcement and the fiscal pressures the government faces. To put it differently, resources are scarce enough that funding has to be prioritized and not enough has been channeled to boost the ratio of citations/total violations.

I take this as yet another symptom of the government being underfunded, and a case of needing to raise taxation level in Malaysia from its current low levels.

Hafiz Noor Shams. Some rights reservedHafiz Noor Shams. Some rights reservedHafiz Noor Shams. Some rights reserved

[1] — Hi & Thanks Paul @paultantk Lest you missed these..lm attaching it here for you et al to peruse..for your ‘zero enforcement’ n ‘completely toothless’ law. [Dzulkefly Ahmad. X. Accessed March 31 2024]

[2] — Approximately 5 million Malaysian adults (22.8%), aged 15 years and over, were current smokers. The prevalence of current smokers was significantly higher in males (43.0, 95%CI: 42.0-44.6) compared to females (1.4%, 95%CI: 1.0-1.8), as a whole and across all socio-demographic groups. The Chinese (14.2%, 95%CI: 12.7-15.9) and Indians (16.5%, 95%CI: 13.9-19.4) had a significantly lower prevalence of smoking compared to other ethnic groups. Adults aged 25- 44 years (28.3%, 95%CI: 26.9-29.8) reported the highest prevalence of smoking, but those with tertiary educational attainment (14.9%, 95%CI: 13.5-16.3) and those with an income level at the lowest (16.5%, 95%CI: 14.6-18.6) or highest (19.3%, 95%CI: 17.7- 21.1) quintile had significantly lower prevalence of smokers. On the other hand, the smoking prevalence was significantly higher among the self-employed workers (35.4%, 95%CI: 33.2-37.6) and those who worked in the private sector (31.7%, 95%CI: 29.8-33.6), compared to government servants, retirees and homemakers [Prevalence and factors associated with smoking among adults in Malaysia: Findings from the National Health and Morbidity Survey (NHMS) 2015. National Center for Biotechnology Information. National Library of Medicine. Accessed March 31 2024]

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Politics & government Society

[2975] Do not blame Muda by too much

Ralph Nader was a popular figure in some of the progressive parts of America. He gave speeches in Ann Arbor several times when I lived there, and once ahead of the 2004 presidential election, he had to defend himself from vote-splitting accusation. In 2000, Al Gore lost the presidential election to George Bush with the narrowest of margin, with the Naders’ Greens won substantial votes as the third party candidate. Given that Nader and the Democrats’ bases overlapped, it was easy for bitter Democrats to claim that Nader took votes away from Al Gore, and paved the way for Bush’s presidency. Nader defended himself by saying that if he did not put himself on the ballot, those who had voted him would likely have not gone out to vote anyway.

I see Pakatan Harapan supporters blaming Muda for vote-splitting, and for easing Perikatan Nasional’s advances in Selangor. For a number of seats PH lost, the loss margin was smaller than the votes Muda won, even as Muda lost all of their deposits.

And it is easy to dislike Muda this time around. The episode in Bukit Gasing was Muda’s act of self-sabotage. Their asset declaration exercise was less than truthful, and so, to me, insulting. More than several candidates were nothing more than rich kids with little understanding of society or policy. Their campaign messages were jumbled up badly, confusing local, state and national policies all at once. I came out of the 2 weeks campaigning period from a position of neutral-to-mild skepticism near the beginning, to that of a dismissal by voting day. The latest set of candidates undid some good work earlier ones like Lim Wei Jiet have done.

Yes, it is easy to dislike Muda but Nader’s defense applies here.

The low turnout suggests PH bases were uninspired this time around. PH’s pandering to the deep conservatives on the far side is one possible reason for these people not to go out and vote. And there are people, who voted for PH the last round, openly said their would vote for a third choice as a sign of protest.

So, if there was no Muda, it is hard to say whether those Muda votes would have gone to PH or BN.

But more than that, for every vote Muda got, there were more PH voters who did not go out and vote. Blaming Muda is an excuse to ignore the much bigger point: PH base is dissatisfied. PH is committing the same mistake PH 2018-2020 did: trying to get the votes they could never get on the far side of the spectrum, at the expense of the middle voters and PH bases. And these voters protested and did not bother to go out.

This dissatisfaction has to be addressed.

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Politics & government

[2973] Harapan must not let Pakatan pussies speak for the coalition

We all understand why Pakatan Harapan needed to ally with Barisan Nasional. At the very end of the last political cycle, we were faced with stark choices: have an imperfect alliance between the reform-minded individuals and everything the grand old party presents, or live under an incompetent conservative regime that would rewrite what Malaysia would mean so completely. Given the world as it was at that particular point of that, the imperfect alliance was the preferred option.

Such imperfect alliance will always present Pakatan members and supporters with challenges. Compromises will have to be made and that is completely understandable and reasonable.

But not all things can be compromised, and compromises must involve both sides, not just one. If only one side compromises, and willing to compromise everything, then something is wrong.

That is where some Pakatan members and supporters are today.

Whenever new political appointments were made for the benefits of Umno, some Pakatan supporters would use the imperfect alliance as an excuse. “This is not a Pakatan government. It is a unity government.”

Now, there is movement to get Najib Razak, barely several months in prison, pardoned. Disappointingly, some Pakatan supporters now use the same template excuse without even thinking what it means. Too eager to defend the Pakatan government against any criticism, the template is used as get out of jail card for every single problem the government faces. They do not even bother to right the wrong. So fearful of any threat of instability to the government, they lose their backbone. They bend over without making any effort to push back.

Those are who I call Pakatan pussies. No backbone. No accountability.

These spineless pussies, when faced with difficult questions from Pakatan supporters, would go back to their list of lazy excuses and say “do you want a Pas government, or Pakatan? Choose.”

Betting chips down when they are not

The stark choices Malaysians collectively, and Pakatan supporters specifically, faced in November 2022 came to being when the chips were down. It was the nuclear option at the very end of the road.

We needed the nuclear option to sharpen the mind of many. “Pas or Pakatan” was a simple decision tree to let people discover for themselves the consequences of November choices. Veil of ignorance, so-to-speak. You present the many with the destinations, and make them work for themselves the roads towards the preferred destination. These allowed them to see the world as it was, and accept the decision made, however unpalatable the road was.

We are no longer in November 2022. The pressures are much less intense. The timeline is easier. In fact, attempts to get Najib Razak pardoned have not even started earnestly.

Yet, these Pakatan pussies are inappropriately using the nuclear option, betting the chips down too soon.

Red lines

Pardoning Najib Razak, in my mind, is a red line in any compromise between Pakatan and Barisan. I have at least three reasons why that is so.

One, he and his supporters have not expressed any remorse. In a society where corruption is still rampart, example must be set so we can begin to reset our morals. To free an unremorseful man is the wrong message to send in pursuit of a moral society.

Two, it opens Pakatan Harapan to partisan attacks from Pas and their allies. So far, Perikatan Nasional, Bersatu especially, appeared have been crippled. They are now in search of an issue to rejuvenate their political fortune. They have tried to make EPF withdrawals as a rallying point. They have not been successful there. Pakatan Harapan seemingly blessing the pardon—does not matter explicitly or implicitly—will be the one point Perikatan needs. Pas (and Umno) did that with ICERD and the death of  Muhammad Adib Mohd Kassim, and came back from the dead in 2019.

Three, the long run is not as static as many make it out to be. In November 2022 when decisions had to be made in a matter of days if not weeks, the decision tree in which the nuclear option was represented was static. This is especially so when election had been concluded. It is a mistake to think the same statics will work over longer time horizon. People… voters… adapt to situations. If you keep using the nuclear options too many times, then people will begin to dismiss it and become immune to any similar exhortation. Additionally, it is quite easy to imagine more and more parties entering the arena competing for Pakatan’s base as a sign of dissatisfaction. At the very least, non-voting will be an issue. This has happened before not too long ago. In other words, in the long term, there is a real risk of current Pakatan voters deserting the coalition.

The final point is not a mere theoretical musing. In 2009 until 2013 when Najib was busy promoting various liberalization that he appeared to be a liberal, his men and women dismissed concerns about Umno’s voting base. “They would have no where to go.” That was quickly proven untrue in 2013, which partially led Najib to turn around and embraced racist politics more rabidly.

Message: do not take your voting base for granted.

Get a backbone and push back

Compromises have to be made. But there have to be red lines. Pardoning Najib is one of those red lines. Pardoning Najib risks the long-term viability of Pakatan Harapan, and we need Pakatan Harapan to succeed in order to push back racist and fascist forces.

Pakatan needs to push back. We need to tell Umno we will not support any pardoning, and in fact, opposes it. We can make it difficult, and raise the cost of them doing so.

And please, no kop-out by saying it is a royal prerogative. In so many ways, the royals are accountable to the people too. Rakyat itu Raja.

At the end of the day, Pakatan Harapan will have our urban fortresses. Right now, it is Umno that faces annihilation with Bersatu and Pas outside having the grand old party for lunch. It is Umno that faces existential crisis, not Pakatan. Remember, that crisis is Najib’s own doing. Too many in Umno are too blind to see what outsiders already know. Here, Pakatan needs to advise Umno the folly they are committing.

If the stubbornness continues, Pakatan needs to be careful so we do not sink with Umno.

This is why we need to push back.

And this is why Pakatan Harapan cannot let these Pakatan pussies speak for Pakatan. Not only they are spineless, they are myopic too.

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Economics Politics & government

[2970] Politics of living costs and the inevitable language of austerity

Extraordinarily, the Economy Minister has been holding press conference for every consumer price index release in the past few months. Extraordinary, because in the past, CPI releases were treated with silence by the government, and from time to time, cited in largely unread government press statements. But the new Minister, Rafizi Ramli, is focused on cost of living issues. He sees CPI statistics as a way to regularly talk about it.

He is not alone in focusing on living costs. Information Minister, Fahmi Fadzil in an interview recently said:

“The people don’t really care about the slogan, they care about the cost of living, prices of goods and internet access. Therefore, it is essential for every minister and ministry to act immediately to resolve issues of concern to the people.” [Fahmi: ‘Govt to solve people’s issues through Malaysia Madani concept’. Bernama. New Straits Times. January 25 2023]

A very, very short history of living costs politics

Component parties of Pakatan Harapan (and previously Pakatan Rakyat) have a long history of stressing on living costs politics. When energy prices were high in the late 2000s, DAP, Pas and PKR were pressing on the cost-of-living buttons furiously, and that played well to popular anger at that time.

Furthermore, the focus on living costs is a way to shift attention away from race and religion, towards more welfare-based issues. That shift is something to be welcomed, definitely.

Regression in policy

But as I have written earlier, while living costs deserve attention, the the politics of living costs is counterproductive in many ways. Such politics is the reason why policy progress Malaysia made in the past 10-15 years with respect to welfare policy has been partially reversed. Specifically, I am referring to the shift from subsidies to cash transfers. Cash transfers in many ways superior to subsidies in terms of welfare enhancing. Therefore, blanket subsidies and cash transfers are meant to be competing policies.

Yet, now, we have both and the government for the past 5 years have taken the two as complementary. The confused policy mix is proving to be expansive. And it does not help that the government is scared of new taxes, and prefer hard-to-implement-but-low/unstable-revenue taxes to easier-and-high/stable-revenue ones, which causes a severe fiscal constraint.

Rafizi, who previously was a strong believer in blanket petrol subsidies, appears to have walked back, perhaps after realizing the state of government finance, He, along with Prime Minister-Finance Minister Anwar Ibrahim, are now talking about targeted subsidies instead, which has been discussed since at least 2019, not long after blanket subsidies were reintroduced. But having both targeted subsidies and cash transfers are still a confused policy mix. The ideal would be to move to cash transfers fully.

Politics of living costs almost always means large subsidies

The politics of living costs is counterproductive because, with its logical framework, the easiest way to address it is through subsidies and price controls. Other ways—wage hikes for one, or competition regulations—are much harder to implement and takes longer to be realized. The thing with subsidies is (in some ways cash transfers too, but at least cash transfers is much, much more efficient in enhancing welfare while it can always be clawed back via taxes if the wrong persons received it), it tends to take resources away from other things, like funding healthcare, investing and maintenance infrastructure or building defense capabilities in a region has been taking peace too much for granted.

You cannot solve these structural long-term things, if politics of living costs that is always in the now, is the ultimate priority.

The language of austerity

Since such politics takes resources away from many things, it sets the tone of belt-tightening: pay cuts, no pay, RM1.5 trillion government debt (and liabilities), etc. When there is so little left for anything else, usually, a lot of people would be scared and pull back what they could, except subsidies.

Anwar Ibrahim, at a forum in Jakarta, quipped that Malaysia was no longer the country of the 1990s in response to a request by an Indonesia luminary for more Malaysian scholarship for Indonesian students.

Rafizi, just this week, said:

“It is like an overweight person. You know your ideal weight and you constantly remind yourself that you are getting worse,” he said at a forum titled ‘Resetting the Malaysian economy’ organised by Parliament.

“The solution is simple. You need to eat less. If you want to eat a lot, you need to run more. Doctors, gyms will tell you that. Most struggle despite the diagnosis.

“That’s where we are as a country. With the current fiscal trajectory, things will get worse. It takes a lot of courage, political will and cohesion with all stakeholders (to carry out changes).”

[Fixing economy like fat person trying to lose weight, says Rafizi. Joel Shasitiran. FMT. January 27 2023]

Fat. Diet. Those are words one typically associates with austerity. We do not have austerity, but using this kind of language, it would impress many that there is one.

And the source of this language, and the wider fiscal problem the government faces is the politics of living costs.

This second Pakatan Harapan government appears to be repeating some of the mistakes of the first Pakatan Harapan government: too much focus on government financial burden that it was accused of running austerity policies, despite the fact, clearly, there was no austerity at play.

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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.