Tag: The Sun

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Economics Politics & government

[2679] An Iron Lady to stop populism

Democracy by far is the most respectable way a society can govern itself. That, however, does not mean that democracy has no weaknesses at all. As Winston Churchill is often quoted, “democracy is the worst form of government except all the others that have been tried.”

It is the best that we have after thousands of years of experimentation. Populism is the very essence of democracy. The good thing about that is that it helps ensure the power of the day must always come back to the people if they want to renew their mandate.

Unfortunately, populism is probably the worst feature of democracy as well. That is so because populism can bring about irresponsible policies that can be costly in the future. Everybody loves having a good time but nobody likes to be there for the clean-up.

We saw that in Greece when the government spent everything that it had and more to make its people happy.

The economic populism we saw there is not the only cause of the Greek sovereign debt crisis but it was a major contributor nonetheless. When the debt crisis finally came about and it was time to tighten the belt, the country was up in arms.

And who can forget, in a humiliated and desperate pre-World War II Germany, Adolf Hitler was popular. That populism later brought devastation that no one had seen before.

Greece of recent times and Germany before World War II are extreme examples of populism gone wild. But it is still a cautionary tale for all to bear in mind: there is always cost to populism.

In the late 1970s, Margaret Thatcher was elected as the prime minister of the United Kingdom. She was no friend of populism. She swam against the current ferociously. “The lady’s not for the turning,” as she once said in response to increasing opposition to her policy.

She was adamant in changing the way of doing things to push the UK national economy forward and out of the doldrums. In her mind, there was too much government in the economy and the private sector played too little a role.

The most important thing of all is that she succeeded in revitalising the economy of the UK. She did the job she set out to do even when it cost her job.

Her determination in pursuing her policy shocked her colleagues. Fearing that they might lose the election, they turned around and gave her the boot.

She died earlier this week at the age of 87. The vile comments that followed the news of her death only strengthened the idea that she was not very popular.

At the very least, she was divisive. But whatever one thinks of her, she took her responsibility to heart and she did not flinch. As Malaysians go to the polls, perhaps it is worthwhile to reflect on the resoluteness that Thatcher showed.

This is especially so when both sides of the Malaysian political divide are engaging in populism.

Both are promising to either increase subsidy or cash transfer in hope of winning the general election. To make the matter worse, both sides promise to cut taxes even when their promises if implemented will see government expenditure rising.

The continuing economic populism cannot be good for the health of public finance. Sooner or later when the party is over, somebody will have to pay for that. The path of economic populism is ultimately unsustainable and somebody will need to hit the brakes.

Fortunately, Malaysia is still at the stage where we can hit on the brakes gently. Government finance is still at a respectable level. There is no need for the harsh fiscal austerity in practice in Europe as European economies struggle to grow. But the leeway that Malaysia enjoys cannot be true for too long if economic populism goes on.

The responsible side will be the one which will hit on the brakes gently. The responsible side will be the one that goes out promising a vision that does not depend on promising yet more subsidies and money to voters.

The responsible side will be the one that stands up and reminds all that we cannot go on partying all day, every day.

It is in this respect that Malaysia needs a Thatcher.

One may disagree with the policy Thatcher implemented in the UK in the 1980s but her resoluteness and refusal to succumb to crass populism is something to be admired.

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 Sun on April 11 2013.

Categories
Economics

[2660] A currency war that is not so bad

A currency war is inevitable in the era of quantitative easing (QE). While the long-standing assertion by major central banks that the exchange rate is not a policy tool is pretty much true, there is a well-understood link between monetary policy and the strength of a currency. It is no mystery that the market expects a currency to depreciate each time the monetary authority in control of the particular currency decides to expand its policy.

So, just because the exchange rate is not a policy tool does not mean these central banks are not involved in a currency war. The truth is that it only makes their participation in such so-called war indirect. These central banks have been accused of weakening their currencies through the back door even as they maintain a free-floating exchange rate mechanism.

The need for QE is not being disputed here. The world is stuck in an extraordinary situation where any typical monetary policy is simply inadequate. Rates are so low that it cannot be lowered anymore. QE easily circumvents that problem.

The need for weaker currency for certain countries is also not being disputed here. Time is so bad in the developed world that, almost everybody there wants to export their way out to prosperity.

Currency depreciation does increase the competitiveness of a country by making its exports cheaper to the rest of the world. The issue is that nobody can have a weak currency all at the same time. A currency is always valued against the rest. Someone out there will always suffer from a stronger currency. It is a race to the bottom so to speak.

Under normal situation, the tit-for-tat policy can be disastrous. Economists have a special name for that: beggar-thy-neighbor  Add in concerns for hot money inflow and asset inflation, emerging economies are ill at ease with ever looser monetary policy in advanced economies.

But then again, are the QE and the implicit currency war that follows really that bad in this time of extraordinary circumstances?

The world’s economy requires some kind of rebalancing. Notwithstanding the debate on fiscal austerity in Europe, there is a need for the developed world to spend less and save more, and they may need to export more and import less.

This is the very opposite of what is mostly required by many emerging countries, which do save too much and continue to be export-dependent. The dependency maybe untenable in the near future since most exports go to the very economies that are struggling to grow in the first place. There is just not much room for exports to grow anyway.

For Malaysia, there has been some kind of rebalancing. While the national economy continues to rely heavily on exports, domestic demand has played an increasingly bigger role in moving the economy forward.

Despite uncertainty in the global economy, Malaysia has grown at a rate that is largely surprising in the past few quarters. The fourth quarter national GDP numbers will be released soon and the figures will likely show an uninspiring export growth in contrast to a relatively strong domestic demand growth.

Strong domestic demand translates into strong import figures. In fact, the contrast between global demand of Malaysian goods and services and domestic demand has been spectacular. Malaysian exports for 2012 did not grow more than 1% from the year before while imports grew by nearly 6% in the same period. It is really a wonder that Malaysia maintains a trade surplus still.

Before anything, it is good to know that at least 20% of imported goods and services in 2012 originated directly from countries which unambiguously run a QE programme. Three of those countries are the United States, Japan and the United Kingdom.

These two facts, the first being strong import growth and the second being a large chunk of it is coming from the big three advanced economies engaging in QE, highlight at least one benefit of the currency war: the continuing depreciation of those currencies has kept Malaysian imports cheaper than it would have been otherwise.

This is especially relevant since Malaysia is embarking on massive investments which include the construction of mass rapid transit lines. These efforts require considerable imports of goods the domestic industries are incapable of supplying.

Furthermore, the federal government does have a role in financing these projects in one way or another. It is very possible that the growth of government expenditure has been limited by a stronger ringgit, which has allowed for cheaper imports. That also means it limits the size of fiscal deficit of the federal government, which has come under intense public scrutiny in recent times.

So from this perspective, the supposedly currency war between the big economies is not that bad. While some measures against hot money and asset inflation may be called for, this is a show Malaysia should sit back and enjoy.

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 Sun on February 14 2013.

Categories
Economics Politics & government

[2642] They should have auctioned it

The state — or in common parlance, the government — is the guardian of public resource. These resources are ones that we own collectively, like petroleum, or of interest in the past few weeks in Malaysia, telecommunication spectrum. It is the responsibility of the government to manage and use the resources efficiently. If it cannot, then there is a case to privatize those resources to those who can.

In privatizing these resources, one would expect the government to raise some money it can use to improve the general welfare of the public. One of the best ways to raise money from such privatization is by auctioning the public resource.

Economists typically love auctions because it is efficient. In everyday English, it means an auction can extract the most benefit out of a transaction for the seller. In an auction that focuses purely on maximizing sale prices, the government will benefit enormously from the outcomes of the auctions.

In the Netherlands recently, the government raised nearly EUR4 billion by auctioning the 4G spectrum to the private sector. Initially, the government had expected to raise half a billion euro only. The large difference came as a pleasant surprise to the government. In time when the Dutch government is tightening their belt as a reaction to the economic crisis that Europe as a whole is facing, the EUR4 billion will help in maintaining the quality of public service in the Netherlands.

If one is concerned whether such privatization and auctioning would create a monopoly, there are types of auction that can address exactly that. Restrictions can be imposed so that nobody can buy everything, or buys too much. While total receipts out of those auctions may suffer, the government will still enjoy considerable revenue out of it that can put to good use.

One example will bring us to the United States in 2008 when the Federal Communications Commission (FCC) conducted a controversial spectrum auction. Restrictions were imposed to prevent telecommunication firms from gaining too much market power. Google, worried that these telecommunication firms would restrict access to various content and applications on the internet, even decided to participate in the auction despite not being a telecommunication firm per se. After all had been said and done, the FCC still raised nearly USD20 billion from that particular auction while addressing the issue of market power.

In contrast in Malaysia, 4G spectrum was transferred from the public domain to private firms for free. There was no sale at all, and much less an auction.

For the public, the privatization is an outright welfare loss. An asset that could have been worth billions of ringgit of public money ended up as being nothing.  There is no new revenue for the government and so, the public cannot benefit from the privatization exercise as much as it should. And this comes at a time when the government recognizes that it needs to broaden its taxpayer base, which is narrow at the moment. So, the privatization will not be popular to discerning taxpayers.

Even libertarians, who would typically support privatization exercise, will find this particular Malaysian privatization as very disappointing.

Despite the fact that the privatization came at the expense of potential revenue for the public, some would no doubt defend the flawed privatization. Several defenses have been presented so far.

One argument suggests that with the free award, the recipients would be able to provide cheaper services with the same level of quality than they otherwise could. This is not a given unfortunately and right now, it is a mere speculation.

The reason is that these recipients can effectively form a cartel. This has happened in the past, even with the new Competition Act is in place. In fact, Maxis and Redtone International, two of the 4G spectrum recipients, are already collaborating in rolling out their 4G network. How far this particular collaboration will go is for all of us to see.

Worse, some could even essentially resell the spectrum to other more serious telecommunication companies instead of utilizing the spectrum for themselves. In doing so, they would realize the economic rent that should belong to the public in the first place. If there was an auction or even just a sale instead earlier, there would have been less opportunity for such rent-seeking activities. An auction especially would have squeezed the incentive for rent-seeking out into public pocket and force firms to try to create new wealth rather than engage in unproductive rent-seeking.

Unfortunately, now that everything is done, we are left with the possibility of collusion in the market and a whole lot of room for rent-seeking activities by private firms at the expense of the public. This is not an ideal market scenario.

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 Sun on December 25 2012.

Categories
Education Science & technology

[2620] Do not erect barriers to learning science and math

I am partial to an education system which has the English language as its medium of instruction. That is because I am most comfortable where English is the primary and the common language. While the Malay language is my mother tongue, I mostly use English to run both my private and professional life.

For a person with my background, it is reasonable for a stranger to expect me to be supportive of the policy (PPSMI) to teach science and mathematics in English. While I do sympathize with the policy, I oppose it.

I do not think anyone can doubt the importance of learning science and math. From the liberal education perspective, there are not too many other subjects that can liberate the mind the way science and math do. In terms of practicality, it offers a wide range of rewarding career choices.

To be good at both, one has to comprehend various scientific and mathematical concepts. The foundational lessons especially are crucial in allowing students to understand other more complex ideas. In both subjects, each concept is built upon an earlier concept. Failure to comprehend basic lessons will cause the student to struggle later. In a system where a student largely progresses based on his or her age, this can bring about a devastating snowball effect.

Learning those lessons can be harder than it is when both subjects are taught in a language that students struggle to master in the first place. That presents a two-layer barrier to mastering those basic scientific and mathematical concepts.

The language barrier adds to the frustration which can kill schoolchildren’s interest in science and math before the interest has a chance to bloom.

For many children from middle and upper-class families, English comprehension skills are not likely to be a problem. That is not true for the rest.

Consider a proxy to the mastery of the English language. Typically, families with higher incomes can be expected to have children who are better at English than those belonging to lower-income families. Here are the numbers. Based on the 10th Malaysia Plan, nearly 53% of households earned a monthly income of less than RM3,000 in 2009; about 66% earned less than RM4,000 a month; close to 76% earned less than RM5,000 a month.

The figures have probably improved since 2009. After all, 2009 was a recession year and we have recovered from that recession. Nevertheless, it is likely that a significant number of households still do not earn too much. This is a structural economic issue and such issues do not just change significantly in three years.

Notwithstanding the technical concerns about the evolution of household income over the past three years, that possibly means that more than half the children in Malaysia may have trouble with English. If PPSMI is to be continued in its blanket fashion as it was enforced earlier, that may lead to the making of a lost generation in terms of science and math education. As for the level of English, I am unsure if ­science and math classes are the place to learn English grammar, vocabulary and comprehension skills.

While I oppose PPSMI, that does not mean I think English is unimportant. I live in corporate Malaysia and in corporate Malaysia, English is the national language and not Malay. I know English is important. The inability to speak and write in English will come at a very great cost for fresh graduates and labor market veterans alike. I do believe that the teaching of English should be emphasized in all schools and at the early stages. The barrier to learning English should be reduced.

What PPSMI does to many students instead is that one, it does not reduce barriers in learning English — one does not learn grammar, vocabulary and comprehension skills in science and math classes — and two, it erects barriers to learning science and math for underprivileged children.

The point is that the teaching of English should not come at the expense of learning science and math.

At the very least, do not force students with a weak grasp of English to study science and math in English. Instead, let them improve their English in and outside of classes and let them learn science and math in the medium they understand best.

For students who already have a good command of English, let them study science, math and perhaps other subjects as well in English.

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 Sun on October 29 2012.

Categories
Society Sports

[2591] Sports and unity are false friends

It is always nice to watch Malaysians from across the spectrum uniting and cheering behind a Malaysian athlete or team in competitive sports at the international level.

That more or less happened when the number one national badminton player Lee Chong Wei was up against Lin Dan of China at the London Olympics. He failed to get Malaysia’s first gold medal but that did not deter the “I’m proud to be a Malaysian” sentiment among Malaysians.

Sports does sometimes give that warm feeling that we all live under the same brilliant, tropical sun. It can emphasize the common bonds that we share as Malaysians. It is that same feeling that has pushed the idea that sports should be supported further to unite Malaysians in times when our society appears so divisive in so many ways.

Yet, call me a skeptic. While there may be various reasons to support the development of sports further, I do not believe unity should be the driving factor in doing so.

I am skeptical of the value of sports as a substantive unifying factor for Malaysians. It is overrated as a unifying tool.

The reason I believe so is because the ability of sports to unite us is at best superficial. It is more or less effective only during the duration of the match. If we are lucky, then the feel-good atmosphere can last several days after, before we direct our attention to the next issue or event of the day.

Sports can make us temporarily forget our real world problems. That respite can be good for our health. We do need a break from time to time but that is all that it really is — a break and nothing more. Once the game is done, each of us will go our own way.

Sports just does not suddenly make us come to realize, “Hey, we are all Malaysians and so let us hug each other, and be best friends ”¦ forever.”

That kind of logic should be left in the essays of young schoolchildren as they develop their writing skills. It makes cute narrative but unfortunately, it is naïve to expect a child’s narrative to dictate the complex real world.

We do not live within school classroom settings. We are not children and unlike most children, we are not forgetful of past wrongdoings and conflicts, for better or for worst. As proof, some of us are still stuck with the May 13 incident which occurred more than 40 years ago.

Malaysia as a whole will likely move on with respect to the issue only once the generations that identified with that incident are gone and replaced by younger generations unburdened by the hangover of yesteryear.

We will go our separate ways because sports solve nothing of importance in the way we live our lives and deal with our differences. As such, old divisions will remain and we will continue to squabble over it.

Meaningful unity can only be achieved through equitable resolution to real problems and differences that we face as a society. The unfortunate thing is that problems are aplenty and it will take a very long time before we can even take a substantive step forward.

We need to have hard, sober, open and long discussions and debates on all of these problems.

We cannot run to sports to forget our problems and expect the temporary respite from our divisions to last. Sports are no refuge from our deep divisions. It is just but a wooden, creaky hut.

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 Sun on August 31 2012.