Tag: The Malaysian Insider

Categories
Economics Fiction

[2226] Of the road to hell…

It begins with a good intention. Everybody deserves to consume fantastical juice. After all, everything is made out of it. It would be a grave injustice to limit its consumption only to those who can afford it.

Invested with executive power, a group of individuals with only the interest of the public at heart intends to make the fantastical juice available to everyone. They — the do-gooders —decide to introduce a policy to subsidize the production of the fantastical juice.

What follows is a production boom that lowers the prices of the fantastical juice to affordable levels. In fact, the fantastical juice sold here is the cheapest in the region.

On the breakfast, lunch, brunch, tea, dinner and supper menus, the fantastical juice is a star. Consumers are happy. The policy becomes popular. The do-gooders are popular.

All is fine and dandy until one little problem pops up: scarcity. They realize the subsidy policy demands a whole lot of resources. The policy is depriving resources from other programs. They begin to realize that good intention is expensive.

It is all the more expensive when the producers are guaranteed payment through the subsidy scheme. Producers of the fantastical juice just keep on producing even when there is no need for more fantastical juice. After all, who does not want free money?

The do-gooders complain, ”Oh those pesky producers. How dare they take advantage of this noble effort to make the fantastical juice available everywhere to everybody at affordable prices? Never trust them. They are only in it for themselves. They leave us no option. We must regulate them.”

And so, the do-gooders decide to have producers of the fantastical juice licensed. Quota is imposed on production.

The producers protest but not too hard. After all, the policymakers still pay them money. ”At least, we are still making profits.” Without the government and the subsidy program, they would have been left at the mercy of the market. ”We might make a loss if there was no subsidy!” They figure, better work with the government than be at the mercy of the greedy consumers.

That stops the cost of the policy from ballooning further. It solves one problem but it creates another: the fantastical juice mysteriously begins to disappear from shelves of grocery stores.

Consumers are infuriated. Consumers demand action.

The do-gooders panic. They need a scapegoat fast. No, they do not need a scapegoat. One cannot make scapegoats out of smugglers. It must be those greedy smugglers abusing a system designed to benefit all. ”We will double officers at the borders and we will triple the penalty.”

They catch those smugglers but fantastical juice still disappears into thin air. At some point, they realize that they cannot continue to blame the smugglers. If they still do so even after greater enforcement, they would send out a message of failure that there is something wrong with the good policy, and that it is not the smugglers after all. That would undo all good work they have done. Support for their policy would plummet with the slightest hint of admittance of failure.

”We need to identify the problem,” demand the do-gooders.

They conduct a thorough study of the supply chain of the fantastical juice and they find it. It is the retailers. ”These retailers are hoarding the fantastical juice and profiteering from our noble effort. They leave us with no choice. We must regulate them.”

And so, the do-gooders decide that only retailers with the special license can sell the fantastical juice. The do-gooders also introduce price control and ensure that there is a fat margin for retailers. This will encourage the retailers to be more honest because if they are caught, they will lose their license and, because of high demand for the fantastical juice, they will lose a guaranteed profit. The elimination of price variation eliminates the opportunity for retailers to indulge in profiteering as well.

The retailers register a protest, claiming that it is not their fault. ”Supply, being inflexible, is unable to match demand. We do not hoard it. We cannot sell what does not exist.”

”Oh, if that is the case, then you are not managing your inventory efficiently enough for the good of the people. There is enough production for the whole country. We will manage the supply for you.”

Just to keep it airtight, only government-owned transporters are allowed to deliver the fantastical juice in the country.

The do-gooders marvel at their new master plan for the fantastical juice. Their proudest achievement is this: the cheapest fantastical juice in the region is still here.

Alas, shortage persists. ”Someone must still be profiteering from this noble effort,” cry the do-gooders.

Being at their wit’s ends, the do-gooders approach several consultants. These consultants point out that the consumers are consuming too much of fantastical juice. ”That is why there is shortage. They are over demanding it.”

The do-gooders are angry. ”Those no good consumers! They are abusing the system! We want to help everybody, but everybody is abusing our trust! We must regulate them!”

And so, consumption quota is imposed on every consumer. With control at every point, the do-gooders match demand and supply to solve the problem of shortage.

At least, theoretically because those with low demand get too much quota and those with high demand get too little quota. To solve the problem, consumers participate in the black market. Consequently, crime associated with the black market flourishes as cartels are formed to profit from the unlicensed and hence, illegal trade.

”Criminals! All of them are criminals!” shout the do-gooders, ”Send in the police.”

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

First published in The Malaysian Insider on July 18 2010.

Categories
Politics & government

[2218] Of wanted: political capital and will

There is mutual frustration between those in government and those who identify themselves as ordinary citizens in Malaysia. The frustration originates from the incapability of both to understand the other side’s challenges. This makes the gears of a huge machine — the government — stuck. It needs to work again.

The period immediately after the March 8, 2008 was supposed to be an opportunity for major reforms. The machine was supposed to work again after years of abuse that exhausted its credibility. The filters were supposed to have been washed, even if partly. Rusted wheels replaced. The joints, oiled.

That was not enough, apparently. Skepticism against the government — or perhaps more generally, against the state — not only persists but also grows. It has grown so much that it is disconnecting the government from the people, and the people from the government. It is threatening the idea that the government is the people, and the people are the government.

Given the record of the Barisan Nasional federal government, however, that skepticism is justified. In fact, skepticism against the state is a good thing to have. It is the first line of defense against tyranny.

Yet, skepticism is healthy only up to a certain dose. If there is too much skepticism, the central functions of the state cannot be carried out. Too much skepticism erodes the reason for a state. And there are signs that skepticism has become a monster in Malaysia, devouring too many regardless of agenda.

In the current political and economic climate, that skepticism has grown to a point that no reform can take place. The size of government is big so that it needs to be cut down so that there is less opportunity to repeat abuses of the past. Unfortunately, efforts to reduce it and put public finance in order are widely seen by many as a deliberate attempt to short-change citizens.

The problem of a big government is very real. Its effects on individuals and society are observable. Its growth over the years in Malaysia is something that cannot be missed. The Abdullah administration committed gross gluttony while the supposed benefits of big government were unseen. Something has to be done now, but nothing moves. Loud popular opposition stands in the way.

Part of the reason is that the challenges associated with big government are far removed from the ground. Public finance, for instance, means little to men and women on the streets. Individuals do not directly face it and hence, they do not see it as problems to solve, at least not soon.

Incapability to see it does not mean all is fine and dandy. The tragedy is this: Efforts to solve it inflicts relatively immediate pain while its benefits will only come relatively later. Furthermore, benefactors of big government will obviously defend it. Coupled with those is the fact that most of us enjoy the idea of instant gratification, so the loud popular opposition is not a surprise.

In justifying their opposition to initiatives to cut the size of government, they do raise very pertinent questions. What about corruption, what about leakage and what about inefficiency in the public sector? These are among the questions many have asked. Why should we pay for their excesses?

Recent allegation by the civil servants’ union, Cuepacs, that nearly half of civil servants in the country were suspected to be involved in graft does not instill confidence. The size of the civil service suggests that the government is uninterested in cutting down its expenditure seriously. Purchases of overpriced defense equipments suggest unwise spending. The investigation of the Port Klang Free Zone (PKFZ) is going unsatisfactorily, if there is any progress at all. Recent large losses of enterprises linked to the government exacerbate the image of the government of the day as incompetent.

Slammed with the idea of a goods and services tax along with the withdrawal of subsidies, rightly or wrongly, taxpayers get the perception that they are picking up the tab for somebody else’s mistake. As far as critics are concerned, the government is swimming in excesses, disconnected from the concerns of the masses.

The boilerplate answer to this two-way disconnect is commitment to democracy: Voters should till the land. Get a completely new captain and crew to staff the bridge.

It is an attractive solution as it removes one disconnect. As with any boilerplate argument however, it is insufficient. A libertarian fear revolves around this: Such a democratic solution solves only one part of the equation. It may build the trust that is required to run the machine smoothly again. What it may fail to do is to address the problem of big government.

The alternative in the form of Pakatan Rakyat has not demonstrated their grasp of the issue. They are happy with mere populism so far, such as promises of free water and bigger subsidies.

They really cannot be blamed for that. It is only expected. The truth is that Pakatan Rakyat needs to run a populist campaign to enter Putrajaya.

That does not negate the fact that economic populist policy tends to run a country down. That does not negate the fact that unpopular moves are required to solve the problems. Clearly, political capital is required to run unpopular policy.

But who has the political will? Who has the political capital?

Putrajaya, so far, lacks at least one of them.

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

First published in The Malaysian Insider on June 14 2010.

Categories
Economics

[2213] Of taking undue credit from the growth

When the economy first began to tumble down in 2008, those within the government were eager to point out that weakened external demand caused it. The financial crisis that began in the United States hurt global trade. Being a highly trade-dependent economy, there was no escaping for Malaysia. To put the blame on those in the government was unfair and wrong.

Now that the economy is rebounding in a spectacular fashion, those within the government are eager to claim credit for it. Perhaps, way too much credit.

Although it is arguable that the stimulus spending did contribute to the encouraging 10.1 per cent year-on-year growth of GDP — controversial claim but let us leave it at that — it is likely that the growth was mostly due to the same external factor that caused the recession in the first place. Contribution by the stimulus package was probably very pale compared to contribution from external demand.

It helps to rewind back to 2008 and 2009 when it all began. We need to understand that the cause of the recession was the drop in international trade, as far as Malaysia and other trade-dependent countries were concerned.

Furthermore, it is crucial to remember that not all of the RM67 billion of the stimulus package announced was actual spending. For instance, some came in form of guarantees. This lessens the potential impact of the stimulus, unlike what the proponents would like to believe. When they speak of the stimulus, they almost always speak as if the whole RM67 billion was direct spending, which is not true.

Even if all of the RM67 billion were in form of direct spending, it would still not counter the effect of falling trade volume. The spending did very little to reverse the fall. At best, one could claim that it cushioned the impact of the recession.

Here is a digression. Fiscal stimulus proponents argued earlier that it was a cushion. It was not much of a cushion, as we all saw. Their narrative has changed. They now claim that it aids recovery. Funny how the story changes, is it not?

The reverse in trade trend was so great that it created a great chasm in any graph. No government spending could overcome that chasm. The fact that the country entered a recession despite what Prime Minister Najib Razak called unprecedented spending is proof enough.

Toward the end of 2009 and in the first quarter of 2010, world trade recovered as spectacularly as it had fallen during the so-called Great Recession. For high trade intensity countries like Malaysia, it was extremely good news simply because it signals normalization.

Nothing more. This is a crucial point. The 10.1 per cent is merely a sign of normalization rather a sign of actual rapid growth, in the bigger picture. More than that, it is about the normalization of trade.

The big picture is this: The big growth numbers in high trade dependent countries that suffered significant contraction — be it in Malaysia, Singapore or Taiwan — are due to base effect rather than proof of excellent economic management skill of the countries with respect to growth. That chasm in the graph allows base effect to take a prominent role in exciting growth.

What is base effect?

Consider a person investing RM100 in a fund for two years. At the end of the first year, suppose the fund makes a loss of 50 per cent and hence, the person has only RM50 now. At the end of second year, the fund makes a return of 100 per cent and hence, the person has RM100 again.

Notice that the person, after two years, makes no profits or loss. Yet, the person makes a staggering 100 per cent return in the second year, if the second year is taken in isolation. That 100 per cent return is only impressive if the full context is unaccounted for.

Consider the case of Malaysia for the past two years. The year-on-year growth for the first quarter of 2009 was terrible: -6.2 per cent. The year-on-year growth for 2010 was magnificent: 10.1 per cent. What does two-year growth from the first quarter of 2008 look like?

A mere 3.2 per cent.

If one takes a ten-year horizon, then one will realize the mediocre contribution of the first quarter of 2010 to the Malaysian economy compared to other years. Take an even longer view and January, February and March of 2010 become insignificant points.

The reason for its insignificance is that base effect is temporary.

This story is repeatable in other Asian countries badly affected by the recession. Singapore suffered 11.5 per cent contraction in the first quarter of 2009. In the first quarter of 2010, it registered 15.5 per cent growth. Taiwan contracted 10.2 per cent. It grew 13.2 per cent later. These are extraordinary numbers caused by extraordinary circumstances, not by extraordinary government.

The story of able administrators becomes weaker and weaker as more and more countries with high trade intensity — which Malaysia is one of — exhibit the same pattern of growth. There must be a reason why multiple countries that share similar characteristic with Malaysia are showing great growth.

That reason is base effect. It comfortably explains the phenomenon to a large degree.

Are you still unconvinced about the centrality of base effect?

Take Thailand. Despite all of its troubles, it is expected to achieve stellar growth of 8.9 per cent in the first quarter. It contracted 7.1 per cent a year earlier. It is hard to believe that the growth in Thailand was due to good economic management by the government. Base effect is able to explain it rather well.

Supporters and proponent of fiscal stimulus maybe unconvinced by the base effect argument. They may insist on multiplier effect from two previous stimulus packages. Unfortunately for them, increased trade dominates the celebrated statistics of the first quarter. This increased trade drives the base effect.

And what about the multiplier from trade? Surely, the benefits of trade spill to other sector of the economy.

If somebody or something deserves to take credit for exciting the economy, it is world trade. It is consumers of the world. It is not the government or the fiscal stimulus.

Lastly, the second and third quarter of 2009 registered lower levels of GDP compared to the respective quarters a year earlier for Malaysia. That means the base effect will likely disappear only in the fourth quarter of 2010. Opportunity for spectacular growth will diminish soon enough.

For his administration claim credit — or for somebody to credit the administration — for the performance of the economy, before the base effect peters out, especially as early as the first quarter, is premature.

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

First published in The Malaysian Insider on May 24 2010.

Categories
Politics & government

[2198] Of either empower it or be done with it

In an ideal world, the Dewan Negara would serve to strengthen division of powers in Malaysia. It is supposed to represent the interest of member states of the Malaysian federation. In the world we live in, such idealism is as mythical as a unicorn. If being a glorified rubber-stamp is not insulting enough to the idea of federalism, the upper house functions as Santa Claus’ sack, with the prime minister as Santa. Every time he reaches in to reward his political allies, the farther the myth of federalism floats beyond memory.

Yes, this refers to the recent appointment of four new senators to the Dewan Negara.

Put aside the issue of appointment as political reward for a moment. Put aside even questions regarding the capabilities of these new senators.

Consider what the appointment does to power of the 13 member states vis-à-vis the federal government, which for years appeared to be more of a central government for a unitary state than that of a federal one. Each time the prime minister plays the role of a generous political master, the 13 member states lose their rightful influence to shape the course of this country.

The line where the Dewan Negara begins to stop functioning as protector of state interest has long been crossed. What else is there to say when the number of senators speaking on behalf of the federal government is nearly double that of those who truly represent their states?

For federalists, a discussion on capabilities of these senators is a worthless exercise to have. For them, the Dewan Negara is dead. It is dead as a symbol of federalism and it is dead as the protector of federalism.

Life can only be injected into it by relieving the prime minister of power to advise the Agong with respect to the appointment of senators, as well as convincing the Agong and relevant institutions to give up the power to appoint senators. Without such power, there is one fewer avenue for the federal government to bully the states.

Efforts to convince the rulers to give up the power might not be as hard as it sounds. After all, it is in their best interest to have a functioning Dewan Negara, where the interests of each state can be properly forwarded without being beholden to the federal government. With greater say within the federation, member states will attain prestige. That prestige will come in the form of a more balanced relationship between the states and the federal government.

Without such power, the Dewan Negara, again, is dead. One buries the dead.

Yet, the institution and its senators walk aimlessly and pretend to debate matters of national importance with nauseating pomposity, as if their debates and votes matter. At times, these senators even have the audacity to request for more public money in the name of serving the people. The dead cannot serve the people.

Either empower the Dewan Negara, or be done with it altogether. Rather than let the dead walks to consume precious public funds the living need, it is better to let the dead be dead.

Federalists would mourn the demise of the upper house. Know however, that to mourn once is far less painful for federalists than to suffer mockery all the time.

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

First published in The Malaysian Insider on April 30 2010.

Categories
Economics Liberty Society

[2192] Of embrace a more holistic view on development

There is much stress on economic freedom these days. This is clear by the fact that the New Economic Model is advocating less government in various aspects. So excited are the document authors about the idea of free market that at its rhetorical climax, they highlight the phrase ”market-friendly affirmative action”, never mind the apparent contradiction that the phrase invites. That phrase is perhaps the hallmark of contradiction of the document in terms of economic freedom. The latter part of the document suggests various government interventions that do not tally with its rhetoric. Yet, the document does begin from a liberal point and that is a good starting line. It has to begin somewhere after all.

Truthfully, the goal of the document is development and not the creation of freer market. Without strong conviction to the idea of free market in pursuing its main goal, contradiction is only natural. To criticize the authors of such contradiction is an effort unlikely to impress them and others who share the same view on development vis-à-vis free market.

They primarily believe that the government has a role in development. Such idea is hardly a controversial one. The government can indeed play a role in development even while adhering to the concepts of limited government and free market.

The issue is that the goal of development set by the New Economic Model is unsatisfactorily limited in its scope. The document limits the idea of development to merely economic progress. It ignores the larger meaning of development, just as freedom takes a larger meaning well beyond the realm of business and economics.

Development is not merely about better infrastructures or higher income levels for us all. While income levels do indicate general well-being in many ways, it is not the only factor in development that needs to be taken into account.

Development must empower individuals in a comprehensive manner. More often than not, this means enhancing economic progress as well promoting individual liberty. Indeed, economic progress and individual freedom work hand in hand. Without the other, each feels empty even if each lifts one up from the gutter by a tiny margin. Both are required to catalyze the jump out of the gutter.

Without development as confined within self-limiting definition of economic progress, individual freedom itself is redundant. Individuals living in dire economic condition will be unable to reap the dividend of liberty for they are incapable of understanding virtues of freedom. Without such comprehension, they are unable to make full use of it for their benefits. As the Malay idiom goes, what is a flower to a monkey?

There are so many elementary concerns need to tend to that whatever freedom they have is meaningless. It is the excess capacity that will never be used up. For instance, what is free speech when the stomach growls endlessly? In fact, free speech with an empty stomach can easily descend into anarchy as the hungry and famished knock rule of law essential to the preservation of liberty down to the ground to satisfy their very basic desire while robbing somebody else’s rights and liberty.

Similarly, where there is economic progress without individual liberty, what use of those shinny sedans or overly big four-wheel drives, clean and smooth roads together with tall and richly decorated towers when they are merely a posh prison to keep the prisoners happy? After all, what is economic wealth while one is repressed, living in fear?

They have the all the means but if the means are prevented from reaching the ends by traditions or prejudices, economic progress become meaningless. Life must be one cruel joke if economic progress in the end only comes to naught.

Individuals have to become richer not only in monetary terms but also in terms of themselves. The set of what can be done must be enlarged and the set of what cannot be done must shrink for development to take its holistic meaning. Choices have to expand.

Their choices have to be well informed. That is only possible through the tradition of free enquiry that embedded in it the concept of free speech and free press, among others. They must be able to express themselves and to do so is to practice freedom of expression. We talk about how young graduates lack communication and social skills in general: can we blame them when the avenues for practice are limited and guided paternalistically?

This idea is not new. Nobel Prize Laureate economist Amartya Sen is the vanguard of the idea. Although it must be said that he goes farther than a classical liberal would, he articulated similar view much earlier and wrote Development as Freedom for wider consumption.

Development must focus on both fronts for it to be meaningful. It is in this sense that the New Economic Model is insufficient. Malaysia needs more than economic freedom.

This is not to say that the authors of the document are not doing their jobs. Their terms of reference are clear: focus on the economic front. And they are doing just that. They cannot be blamed for that.

The other focus on the social front where it involves individual freedom is the job of ordinary citizens.

And the government is in the way. Hopefully, the Prime Minister and his Cabinet embraces the wider meaning of development to enable Malaysia to progress at all fronts. Hopefully, they will realize that only a liberal democratic system can bring Malaysia forward in a convincing style.

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

First published in The Malaysian Insider on April 12 2010.