Tag: The Malaysian Insider

Categories
Economics

[2154] Of introduce targeted cash transfer instead of targeted subsidy

In spite of opposition that saw the streets of Kuala Lumpur filled with pro-fuel subsidy groups during the Abdullah administration, efforts to liberalize the fuel subsidy regime have gone a long way. Several arguments, including one that criticizes the untargeted and blanket nature of the policy have gained tremendous traction. The fact that it benefits those who do not need or deserve the subsidy is clearly one of the main motivators — the bigger drivers are probably cost and waste — behind the reformation of the policy.

The Najib administration is addressing this particular criticism. That has resulted in multiple novel moves and proposals from the federal government. Among the proposals reported in the mainstream media are different prices for different groups, a cap on subsidized fuel consumption and access to subsidy based on engine size. All of it tries to discriminate consumers at the pump. While the moves and proposals may reduce the size of fuel subsidy either in value or in quantity, the proposals under explicit fuel subsidy regime are too convoluted. The more convoluted the methods are, the more complex the implementation will be. That is a recipe for a disaster, policy wise.

I appreciate the government’s effort at making the policy more targeted and hence, making it less wasteful in terms of opportunity cost. Yet, these novel ways are unnecessary given the existence of at least one simpler alternative.

Just observe the recent attempt to limit the sale of subsidized fuel to foreigners at the border. So complicated was it that everybody was confused and in the end, it did not work. Consumers found ways around the restriction.

There is a better and much simpler way to do to this.

Before we proceed to that better and simpler policy, it is crucial for us to recall the purpose of the fuel subsidy. Its goal is ultimately to reduce the cost of living of the less well-to-do Malaysians. On top of that, fuel subsidy is not the only way to achieve that goal.

With that in mind, the better alternative to targeted fuel subsidy is a simple targeted cash transfer from the government to those who deserve it.

Why targeted cash transfer?

The first reason is that it paves the way for total elimination of fuel subsidy to free up the market. Since free prices signal scarcity, individuals and entities will make decisions that are more reflective of the reality of the energy market. On top of that, it creates real competition among pump owners. The same system of free prices already exists in the United States and Australia. Its effectiveness is proven.

Not only that, elimination of subsidy at the pump reduces consumption, all else being constant. That means lower carbon emissions. In times when carbon emissions are a worldwide concern and in light of the Najib administration’s promise to announce a carbon cut roadmap in the near future, this is an opportunity to integrate transportation and energy policies together environmental policy. Such integration is important given that, according to the International Energy Agency in 2007, the transportation sector was the source of 30 per cent of Malaysia’s carbon dioxide emissions in 2005.

Thirdly, cash can be used for a variety of things and not just fuel. Maybe a beneficiary of such a cash transfer appreciates books or food more than fuel. This has the potential of increasing the beneficiary’s welfare higher than what a fuel subsidy policy can bring. If the beneficiary does appreciate fuel more than anything else, then he or she can simply buy the same amount of fuel he or she would have otherwise bought under the fuel subsidy policy. In other words, there are more choices. The economics behind cash transfer is clearly more welfare enhancing than a simple fuel subsidy.

The next question is, naturally, how to do it.

If the sale of subsidized fuel is to be limited, then the government will have a good idea about the maximum amount of money it needs to spend on fuel subsidy. Furthermore, the lower the cap, the higher the likelihood a beneficiary of the subsidy will exhaust his or her quota. From there on, certain statistical manipulations can give us the size of money transfer per capita required to make the cash transfer method the equivalent of the fuel subsidy policy in terms of value.

The cash transfer itself can be delivered to the deserving via the existing tax system. Here is another beauty of cash transfer. It pays only to those who have filed their taxes. Thus, this is yet another incentive for those who have yet to file their tax to finally do so.

For those who just want to fill up their vehicles, here is another reason to support a simple cash transfer instead of an explicit targeted fuel subsidy policy: no weird rule at the pump. With cash transfer, any discriminative method used to ensure that the policy is targeted is done not at the pump but during the transfer of cash. This makes its implementation simpler.

So, what about it that is not to like?

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

A version of this article was first published in The Malaysian Insider on January 19 2010. Unlike the TMI edition, I added several sentences and phrases here to emphasize or rather, to clarify that the cash transfer is targeted in a sense that whatever discriminative method introduced in a subsidy regime can be applied to cash transfer system.

Categories
Politics & government Society

[2151] Of barking up the wrong tree

How many times have we heard the statement that if so and so did not exist, certain problems would go away? Specifically, one side would blame UMNO and Barisan Nasional for racial and religious problems in Malaysia, while the other would blame PKR and its allies for the instability in the country.

The truth is that politicians and political parties get too much credit for the various issues the country faces. As controversial issues erupt, the blame game begins in earnest. The usual suspects get apportioned with the blame at the slightest chance by the other side, as if there were quota to fill. The controversy revolving around the use of the term “Allah” is a case in point.

At this juncture, where venom is thrown so easily as to make the atmosphere too toxic for fruitful exchange, the air needs clearing. This can be achieved by recognizing the sources of issues and identifying proxies for what they are.

Granted, politicians and political parties — especially those in government — have disproportionate power to influence politics. There is no doubt that there are cases where the blame clearly belongs to one side.

Yet, the relationship of politicians and political parties with society is not characterized by one-way traffic. It is a two-way street. In many cases involving grander issues like race, religion, democracy or liberty, for instance, the causal flow to the other side is greater than the direction that blame-gamers typical take.

However imperfect our democracy is — condemn it as crass majoritarianism all you want — it is a democracy nonetheless. This means the views of real individuals, with real wants and real needs, along with real hope and real fear — like you and I — get represented in the system. Elected individuals in Barisan Nasional, Pakatan Rakyat and others as well, largely represent diverse opinions that exist within Malaysian society.

Even if they are not elected, individuals still have voices of their own. There is no reason to discount these voices as irrelevant when it resonates so well with other individuals.

From this perspective, these individuals are effectively proxies within the issues. To put it another way, they are mere reflections of what the society at large thinks. Without issues — the concerns lingering in our society — these proxies will not exist.

Hence, to accuse these proxies as the sources of our problems is effectively an effort to dismiss real issues that real people care for as merely artificial issues created by special interest groups. Such accusations pretend that the other side does not have real concerns.

That path will essentially result in a misdiagnosis of the problem. Based on that misdiagnosis, any solution provided to address the problem will disproportionately take the proxies into account while disproportionately discounting the issues. In the end, the intended result will likely be unsatisfactory because it will address the proxies and not the issues.

Realize that if these proxies are somehow immediately removed while the issues remain unresolved, different players will take over the proxies’ places to champion those issues. If Barisan Nasional were to be done away with, would racial issues disappear? If Pakatan Rakyat were to removed, would the demand for equality suddenly vanish?

It is naïve to answer in the affirmative.

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 January 14 2010.

Categories
Society

[2148] Of racism and moral authority

In an ideal world, moral authority is unnecessary for a person to hold a position, to raise a point, to criticize it, to object to an action, to advocate it or anything similar. What is of value is the argument itself. It is most regrettable however that we live here down in the mud where the difference between ideal and reality is self-evident. That affects many things, including effort to address racial issues.

The sure way to avoid unnecessary disappointment in this jaded world is to assume that each person pursues his or her own interest. It is true that there are altruists even in this world but that is no reason to revise that assumption regarding self-interest. If one does meet an altruist, one should consider such meeting as a bonus, no matter how frequent such encounter is.

While self-interest has proven to be a driver of human progress, it does have its downside. It is because of self-interest that far too many individuals say and do far too many things not because they believe in it, but because it is convenient to say or do so. Honesty simply cannot be taken for granted. Skepticism is always a justifiable position.

With the recognition that we do not live in an ideal world and with the assumption that one needs to make in order to avoid disappointment, moral authority becomes a useful indicator in determining the worth of an argument to some extent. Here, moral authority refers to the appropriateness of a person’s action or position in a particular issue in the eyes of others or even one’s own in an earnest way. It provides context for us to assess the level of honesty of a particular argument.

In discussing racial discrimination or downright racism in Malaysia, perhaps it is sometimes useful to look at the issue through the prism of moral authority.

There are various ways to gain moral authority but with respect to racism, one significant way is by becoming a victim of racial discrimination, or simply hatred grounded on race. By becoming a victim, one experiences actual stress caused by racism. This may sound like a tautology but such experience requires stressing so that the point made here is clear.

For example, US senator and war veteran John McCain has the moral authority — or at least he has greater gravitas compared to other politicians — to speak on the issue of prisoners of war because he was a prisoner himself. Without being one, he would have little authority to speak on the matter. Others would not give his opinion the necessary weight otherwise, controlling for other factors such as consistency.

As much as his personal suffering gives McCain his moral authority on a particular subject, a victim of racism gets elevated above others untouched by racism. Victims speak from experience, unlike innocent others. Lacking personal experience, the innocent others may look at the victims for leadership or as heroes of the issue until the innocents become victims themselves, if ever. In the same line, since the victims speak from experience, the victims may see themselves as the logical opinion leaders or heroes among the innocent others.

As a result, any person that does not speak from experience, but only speaks from the position of knowledge, suffers some sort of dismissal by others in speaking against racism compared to those who speak from experience, even if the point is the same. Such is the curse of a world less than ideal.

As such, moral authority is a marvelous resource if utilized against all versions of racism.

The same moral authority unfortunately can be a resource to promote further racism in the reversed direction and in doing so, exacerbating the problem. The perceived moral authority may explain why there are individuals who respond to racism by espousing racism. With the moral authority as victims, they consider their racist actions as justified.

When a person sees his or her racism as justified, it becomes hard to convince them why such racism is wrong. This is especially so when such racism is justified in the person’s eyes as well as in the eyes of others too. What moral authority conferred by others reinforces the moral authority a person perceives that he or she has.

Despite so, when victims of racism use their moral authority to commit further racism, there are reasons to think how that negates their moral authority on the issue. From a third party perspective or the innocent others, if the victim commits the very same act he or she suffered from onto another person, the new victim will gain moral authority to speak out against racism, or to perpetuate it. When both victims have such moral authority following a game of tit-for-tat, a third person will not be able to decide who has greater moral authority in the case. As a result, the victim gains moral authority only to lose it.

What is the case in one’s own eyes? If a person thinks that his or her racism is justified because he or she has gone through victimhood, then one must necessarily find others’ act of racism against him or her as justified when others obtain their moral authority by the same way the person obtains his or hers. Here lies the danger. The original victims and subsequent victims trapped in a racist loophole may consider themselves as obtaining additional moral authority to commit racism, each time they become victims yet again.

When individuals find themselves trapped in the loop, the ones who may be able to break the cycle are a third party and the victims of racism who use their moral authority to speak out against all kind of racism instead of committing racism in the reversed direction.

The third party, who are the innocent others and presumably impartial parties, may highlight how racists lose their moral authority from a third person perspective. Unfortunately, because the third party is the innocent others, the racists’ perception — racists born out victimhood of racism — that the innocent others do not have the moral authority to speak out against racism may limit the influence of the innocent others.

This leaves victims of racism who do not perpetuate racism in return as a formidable force in effort to break the loop of racism from the point of view of moral authority. In their own eyes, they do not see any act of racism as justified — unlike the other victims — while having they moral authority intact. In the eyes of third parties as well, they certainly have moral authority intact unlike the other victims of racism who exacerbate the problem of racism.

Therefore, if effort to address racism is to be successful in terms of moral authority, then voices of these victims who use their moral authority to speak against all kind of racism have to be amplified. We have to give them space to speak out against racism. Not only that, we need to encourage them to speak out.

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 January 9 2010.

Categories
Economics

[2143] Of stimulus may bite back in 2010

Economics has been labeled as some sort of a discipline that predicts the future. The application of various models and efforts at testing its various hypotheses that sometimes result in the affirmative may have contributed to that reputation but it is not about predicting the future. Rather, it is about finding lessons from the past, learning from it and applying it for future endeavors. More humbly perhaps, it serves as a cautionary tale.

In this spirit, what one may expect in 2010 in terms of the national economy?

Many things obviously, and it is beyond me to list it in an exhaustive manner. Given my mischievous agenda against the state in general, I will focus on only a few. That, and based on standard economic theory, two parts of the economy may deserve some attention in light of what happened last year. Two components of Malaysia’s gross domestic product are investment — specifically private sector investment — and net exports or really, exports.

Why?

Economic theory suggests that increased government spending adversely affects net exports and ambiguously affects overall investment after some time. For those who keep tabs on the local economy, the fact that the government launched two massive measures to stimulate the economy should be common knowledge. In promoting it, the government touted it as unprecedented. It is exactly because the size is unprecedented that the concern is legitimate, possibly in a way that is unprecedented too.

The same theory highlights that government spending places upward pressure on interest rate and the exchange rate.

With additional government spending on top of normal spending, it is reasonable to hold the position that the current interest rate is higher than would under a situation without such spending. Higher interest rate means higher cost of borrowing and that itself is a disincentive to invest, especially for the private sector, even if the effect on overall investment is ambiguous. The fact that the government financed its additional spending by borrowing locally further strengthens the phenomenon of crowding out the private sector. With the government expounding on the idea of having the private sector as the driver of Malaysia’s economy, the divergence between the government’s past actions as well as its theoretical consequences and the government’s words creates a noticeable dissonance — but the sun always rises in the east and so, what is new, eh?

The same effect on interest rate is applicable to the exchange rate. In doing so, it makes Malaysian exports more expensive compared to a situation without the stimulus and foreign goods cheaper. It depresses exports, given all else the same. The likelihood of depressed exports is even more worrying given the economy of Malaysia’s trading partners.

For instance, in the United States, which is a major destination for Malaysian exports and really, the world, there is fear that once its stimulus spending runs out some time in the second half of 2010, its recovering economy would go to the other direction, possibly reflecting the artificial nature of economic recovery based on government spending. Should the US economy take a nosedive again, Malaysia’s exports will take a hit, as it had earlier. It would be a double whammy for the exports component.

The importance of the exports component to the Malaysian economy cannot be overemphasized. Despite rhetoric heard these days of the need to move away from the export-driven model, there is no realistic way to make contribution of domestic demand to Malaysian economy a close rival to foreign demand for domestic goods without devastating the local economy. The chasm between the two is just too great to close. This is not to say that improvement of domestic demand is unwanted but Malaysian consumers are simply unable to consume as much as the export markets, even if Malaysia would suddenly become a high-income country tomorrow. Anybody who harbors a dream to remove the centrality of exports and trade at large to the Malaysian economy vis-à-vis domestic demand must be fast asleep.

If the US economy contracts again this year, the political pressure on the Najib administration for yet another fiscal stimulus would be great as Malaysia’s own ongoing fiscal stimulus measures expire. Already there are calls for a third stimulus in Malaysia. Needless to say, further government spending will exacerbate issues associated with the investment and exports components.

This may further discourage investment by the private sector and there may be an urge for the government to take a more active role in the economy.

Granted, at the moment, there is an effort to liberalize the economy. Yet, the reduction and the expansion of government happen in different parts of the economy, bringing about unclear net government intervention in the market as a whole. Economic theory suggests that the government of the economy portion will expand. Further involvement through stimulus spending will tilt the arrow towards the appropriate side.

Critics of this line of reasoning tend to point out that there is excess capacity during an economic downturn and hence, the negative impact of increased government spending is only a theoretical worry to be shrugged off. They forget that, as with most economic policies, there is a lag between implementation and effect. In the very short term, the impact of crowding out caused by government spending is non-existence. Notwithstanding other arguments against fiscal stimulus such as the relative ineffectiveness of fiscal stimulus for a small open economy such as Malaysia, they can hold on to their criticism in the heat of the crisis. In 2010 and farther into the near future however, the lag will catch up to make the issue less theoretical and more real as each day passes.

How the Najib administration will address that lagged impact will be an interesting economic problem. If the global economy — really the US economy — continues to improve, it will give a boost to Malaysia’s exports component. In doing so, it may solve the problem associated with the lagged adverse impact of the economic stimulus measures. Out of prudence, however, that is a bet deserving of hedging.

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 January 1 2010.

Categories
Science & technology Society

[2140] Of dude, where’s my diskette drive?

The dawn of the 21st century disappoints the part of me growing up reading works of science fiction. Here we are living in a much too glorified new century and there are still no flying cars crisscrossing the sky, no aliens from outer space walking our streets and no human bases across the solar system. We did send a roti canai to space but many things remain out of this world. Underneath this childish disappointment is another part of me who is impressed at humanity’s pace of technological progress.

The thought came to me last October when I was frantically downloading every single file I had stored on Geocities. Yahoo! shut Geocities down later that month after more than ten years of existence.

There was a time when the internet was effectively Geocities. Almost everything imaginable was available on Geocities alone. Cheats for Diablo? Latest news on Star Wars? History of the Malay Peninsula?

If the internet was the successor of the Great Library of Alexandria, then Geocities was its precious scrolls. This was back in the mid to the late 1990s. It was a time when surfing speed was incredibly slow that made today’s speed as served by TMNet god sent. It was a time when modems make noise much to the delight of a geeky kid.

It was on Geocities where I learned the hypertext markup language in effort to prove to my friends that I could do it too. With my mastery of HTML, I created my first website.

Updating it was a tough act. If I wanted to change certain details of the website, I had to go back to my text editor application and change it there. It was a big hassle but it was fun. The introduction of WYSIWYG kept me sane for some time.

The emergence of content management system as well as wide access to cheaper storage and greater bandwidth probably ended Geocities. Frustrated as the amount of time I needed to spend to update my website on Geocities, I became an early adopter of Blogger.

The generosity of my alma mater in Ann Arbor with respect to storage further reduced my need of Geocities. Since migrating to Blogger and ultimately WordPress several years later, never once I returned to Geocities, until last October. It was time to say the final goodbye. This is my requiem for it, and for everything that is beautifully obsolete.

My experience with Geocities and the internet by no mean affected me alone. Back in the late 1990s, the latest unsanctioned information was directly available only to the political fringe.

A decade later, the introduction of content management system that makes the proliferation of blogs possible democratised the internet. It is probably not too demanding to assert that this evolution brought political evolution — some would say revolution — in Malaysia. It took years, but it happened.

The return to Geocities was a walk down memory lane for me. Old photos stashed there brought me back to a more innocent age. A folder contained photos taken in Chicago. Another in New York. Another still contained countless of other places. These pictures were scanned from actual hardcopy photographs. Yes, there was a time when film was a crucial component of a camera. The film needed to be processed first before one could enjoy one’s effort. That typically took a week. Not anymore. All those processing are done with a snap of a finger. At a far, better a resolution too. Never mind all those snazzy features a digital SLR has.

I saved all of my life’s work, including my scanned photographs, in 3½-inch diskettes around the same period. One day after spending a summer away from classes, I found my spirit renewed. I was yet again prepared to take up relentless challenges thrown by a cruel Michigan. Before that however, I just needed to transfer some of my files on that 3½-inch diskette to a computer in a laboratory on campus. Amid 50-odd computers, not one of them had a diskette driver on them.

The same situation was true over all computer laboratories on campus. In its place was a weird thing called USB drive. Life was just too hard.

Just less than four months earlier, I would happily hop from computer to computer with my diskettes. On that particular day when I found out about the end of diskette drive, a child of the information revolution felt obsolete.

The world suddenly leapt by me, catching me off-guard. I adapted — I had too — but that taste of obsoleteness still lingers with me, forever a reminder that nothing lasts forever. The only thing one can do is to prepare oneself for the eventuality.

These continuous creative destructions ensure that. It also says that it is likely that tomorrow is going to be a better day. I am willing to bet on that because all these small changes, and more, have more than compensates my childish disappointment. Under its belt is a reputation enough to earn confidence from a mere mortal.

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 December 17 2009.