Categories
Economics

[2775] Before you kick the low-tech sectors…

The idea that Malaysia needs to graduate from low-tech, low-skill sector to high-tech, high-skill sector is well-rehearsed. If you have been reading my blog long enough, you will know that I am not a fan of such narrative.

I consider it as a feel good rhetoric as if there is a switch somewhere that turns everything low-tech to high-tech where most if not everybody is a high-tech workers. I also think the narrative appeals to our xenophobia, peppering ugly racism with some kind of economic rationale as if it would make it less racist.

Recently, I came to think of yet another reason why I am opposed to the low-tech, high-tech story.

When you think of it, many low-tech sectors are the base of high-tech sectors. Without the unsexy low-base supply chain, the high-tech sector just cannot exist because these high-tech sectors depend on input of these low-tech firms.

Consider Penang with all of its Intel, National Instrument, Dell, Honeywell and many other so-called high-tech anchor companies. What support them are the smaller guys producing relatively unsophisticated components. Without these smaller guys, which are low-tech (admittedly, not as low tech as spinning cloth or harvesting the paddy field or palm oil, but low-tech nonetheless), these famous names would not be here in the first place.

If you forcefully kick these so-called low-tech out, the question is, where would the high-tech guys source their inputs? If they have to source it from abroad, would that increase their logistics cost? Would the high-tech guys move to where the inputs are?

Sure, we have a global supply chain but in many cases, like the auto sector near Bangkok and the electronics sector in Penang, it is the hubs that draw on local resources before joining the global supply chain. The existence of the hub depends on whether the economy can support it. It does not exist in vacuum. And it is the unsexy low-tech sector that provides the support the hub needs.

A lot of people who favor the narrative of low-tech to high-tech also forget in many ways, the low-tech sector is the incubator for high-tech firms. Many high-tech firms were originally producing ”stupid electronics”, the basic components that require only high school knowledge of physics, chemistry or general science. But they experimented later, turning themselves from dumb manufacturers through ”trial and error” to high-tech ones with actual ”research and development” arms.

Globetronics for instance used to produce just LEDs and ICs for Intel in the old days. I do not think anybody would dare call LED high-tech but it went on to support higher-value products for Intel. Now, Globetronics produces multiple components more complicated that ICs and LEDs, feeding other higher-value electronics manufacturers all around the world.

This is not only applicable to the electronics industry. I cited electronics because it is a large component of the Malaysian economy.

Other I can probably cite safely is the rubber industry, specifically glove manufacturers. I have never visited these manufacturing plants and you would think making rubber gloves are so low-tech, but I know equity analysts covering several Malaysian glove manufacturers and the name Hartalega pops up as a high-tech glove manufacturer, focusing on automation and productivity.

Also, there is a reason why these glove manufacturers are in Malaysia. Southeast Asia — Indonesia, Malaysia and Thailand — are the largest producers of rubber in the world. That is such a low tech.

In Sarawak where I was several months back, without passing judging on the politics there, many big local contractors were merely cheap builders meeting Cahya Mata Sarawak’s needs. Now, firms like Shin Yang, Naim and KKB are more than just that contractor some big guys would call for petty civil work. They are not exactly high-tech but the point is that they have graduated to do more complicated structures.

Like I said, low-tech is the incubator for high-tech sectors.

Besides, it requires a big investment and experience to run big high-tech. These people, a lot of people want to run before they learn to walk. We do not have to crawl and take a hundred years to get things right but these low-tech sectors are where we can do our trials and errors, before doing our “research and development”.

Categories
Economics

[2774] TPP is not just about the US

Among those who oppose the TPP in Malaysia, the US is on their crosshair, always. The opposition is so US-centric that I wonder whether they are anti-TPP, or anti-US. Malaysia has signed several other FTAs in the past years and negotiating more but you do not hear any complaint against those. Among the pro-TPP too, whether it is about trade or involving some kind of geopolitical babble, more often than not, it is about the US and sometimes about Malaysia too.

Yet, Malaysia is negotiating the TPP with 10 other countries and there is hardly any question asked about what these countries want out of Malaysia and what Malaysia would get out in return. Judging from various reports, it is quite clear that what Japan wants is very different form what the US wants, never mind the exemptions requested by all countries to accommodate their domestic political reality. But there are not many questions asked on this front.

Granted, Malaysia has active FTAs with six other TPP countries — Australia, Brunei, Japan, New Zealand, Singapore and Vietnam — through the Asean trade system. There is even one between Malaysia and Chile. The TPP could very well replicate those existing FTAs. But the question I would love seeing asked and answered is how TPP would change the existing ties. Is there any new special request between these countries?

And we know, the TPP has more depth than any of the previous FTAs Malaysia has signed.

What about others that we do not have a treaty with, like, besides the US, Canada, Mexico and Peru? We would have to discuss with them from the ground up. No, there is no question asked here too.

During the Malaysia-Singapore Retreat earlier this week, Singaporean PM Lee Hsien Loong mentioned the TPP. In this video, he mentioned it at 1:11:

That was a chance to ask specific Malaysia-Singapore issues within the TPP. But nobody asked them there. I do not even see any analysis about the TPP coming from the annual retreat.

So, I think this is the area where the debate in Malaysia at least should spread out to.

Categories
Economics

[2773] Convergence versus middle income trap

There are always chatters in the background how Malaysia is growing slower now compared to years ago, mostly with the 1990s in mind. The general sentiment and popular line parroted is that country is stuck in the middle income trap as growth is too slow for Malaysia to break from the middle pack and become part of the developed world . For good measures, some would cite Indonesia and the Philippines as growing faster now, though that is not strictly true all the time.

So, the idea is that we are in for a bad time in some quasi-permanent way. Growth is slacking behind some preferred rates. Some have courageously applied the term secular stagnation, as if the troubles faced by the US, Europe and Japan are the same as Malaysia’s. I dislike using the term within domestic context.

But I have wondered for a long time now. Is Malaysia really in a trap or is it merely the plain old convergence brought by the forces of diminishing returns as explained by the orthodox growth theory.

I am leaning towards the latter answer.

An economy can never grow at a high rate forever. At the heart of the mainstream growth theory taught at most respectable universities is the idea of diminishing returns (even with the AK model and its variants, which are a step up from the famed Solow one, you can see diminishing returns given some parameters). Beyond the savings, (human) capital, technological progress and population growth that complicate the models, at the center is the idea that growth will slow down eventually as an economy becomes bigger and richer: this is diminishing returns.

Why poorer countries tend to grow faster than richer countries? Why richer ones find it harder to grow in contrast? Poorer economies have an easier time at growing because of weaker diminishing returns factor. Build a bridge and you would grow the economy by a lot. For more advanced economy, you might need to build a lot more bridges to see some growth: the bigger you are, the harder is it to grow. In the same vein, you do expect a country to grow slower the richer it becomes.

Granted, there are challenges to the mainstream theory. The convergence predicted always needs to be qualified but it is still one reason why we should be careful with the idea of middle income trap. There are alternative, in fact I think stronger explanation, to the so-called middle income trap.

Through experience, most casual proponents of middle income trap narrative in Malaysia are ignorant about the mainstream idea of growth and its links to diminishing returns. With the belief that there is no alternative explanation given ignorance about mainstream growth theory, it makes it easier for them to take the slower growth rate automatically as the proof that Malaysia is in such a trap and so we need to do something to push growth higher and faster. A politically convenient story as well, if you know what I mean.

I do not think the rate is a proof in itself. There has to be something deeper to justify the allegation that we are in such trap (with secular stagnation) instead of just because the average growth rate now happens to be lower than those registered in the booming 1990s. Before believing in the middle income trap hypothesis, we have to ask ourselves, are there something causing economic growth to slow and stuck at a low rate, or is it a natural growth process — the diminishing returns — described by the orthodox growth theory?

Because of this, I have come to think the middle income trap is at best a heterodox side note to the orthodox growth theory and at worst, an irrelevant lemma: it is a ”just so” statement that is true within the larger model to trivially prove the idea of diminishing returns, rather than being a special problem by itself.

Categories
Liberty Politics & government

[2772] Almost first world economy, but third world politics

When Najib Razak first became the prime minister, he introduced us to his transformation programs in 2010. It was the Government and the Economic Transformation Programs, easier called the GTP and the ETP if anybody cares to remember anymore. On the eve of the 2011 Malaysia Day, the prime minister announced another one and called it the Political Transformation Program, the PTP, though it really appeared as an afterthought, probably included only because the speechwriter thought it sounded grand.

On that September night, the prime minister proposed to remove all emergency declarations made during the fight against the communist insurgents, relax laws against public assemblies and repeal the much-abused Internal Security Act. There were several other promises too. Notwithstanding the ominous caveats, he fulfilled his promise. Later in July 2012 and probably encouraged by the progress he made, Najib proposed to replace the Sedition Act with something else, giving the idea that more liberalization was on the way.

Enter 2013. As the general election approached, Barisan Nasional ran on the slogan ”Janji Ditepati”, meaning promises fulfilled. It was not long before the counter-slogan ”Janji Dicapati”, a humorous wordplay meaning broken promises, made its way to popular usage.

The 2013 BN under Najib did worse than Abdullah Ahmad Badawi in 2008. Stung by the electoral results, the conservatives within his party questioned whether Najib’s liberalization was working for UMNO. Their opinion was firmly in the negative.

Najib, losing his resolve and political capital while fretful of losing power the way his predecessor did, gave way and made multiple about faces. Among those U-turns was the direction of the political transformation program. And so, instead of liberalization, there was a noticeable reversal and a steady increase in political persecution.

The promise to repeal the Sedition Act remains a promise and in fact, it is being used more religiously now it seems with the latest case involving the arrest of several journalists from The Malaysian Insider.

New harsh laws are being introduced at Parliament that made the earlier repeal of the ISA a farce. Meanwhile, government critics are sent to lock-up as the police mete out some kind of extra-judiciary punishment while at the same time, UMNO politicians get special treatment and are free from the same ill-treatment others have received. The double standard says a lot about the ongoing political persecution however much the government denies it while hiding behind race, religion and the monarchy.

Regardless whether we agree on its efficacy, all the transformation programs have one intention in mind or at least they promised to do one thing: To push Malaysia into the wondrous modern First World from the tired old middle income grouping.

Unfortunately, the political part is subverting it. The so-called Political Transformation Program is transforming Malaysia from the verge of First World to the Third World.

We have to remember that being developed — First World, high-income nation and whatever the preferred jargons are — should be more than merely about income. Development has to be holistic and includes the sociopolitical front. Else, what we have is another old forgotten: First World infrastructure, Third World mentality.

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 Malay Mail on April 2 2015.

Categories
Society

[2771] Gentrification is the root cause

I am not a stylish person and my sensibility gets offended if I have to pay more than RM10 for a haircut. And so I typically go to an old barbershop within the Kampung Datuk Keramat wet market for a simple one for just six.

It is a quaint little utilitarian establishment with no pictures decorating its empty walls, just paint peeling off. The owner makes no pretension that it is anything else but a barbershop unlike the fancy salons you would find in the sexier part of town.

He was busy attending to another customer as I arrived. But as is true to most small businesses, his customers are mostly his friends.

His friends are of certain age, possibly above 50 years old. On his ageing analogue radio, old Malay songs from the sixties I do not recognize would blare out and fill the space. The generation gap between them and me is impossible to miss. As a young man with shorts and a pair of shoes, I stood out in that environment.

They were in a conversation but he found time to acknowledge me. ”I’ll be with you in a minute,” he said in Malay. So I sat quietly on a wooden bench, took my phone out from my pocket and began browsing the Internet as I waited for my turn.

They returned to their conversation, which was about a condominium project nearby. It was the Datum project, a local issue that was in the spotlight several weeks back. I have patronized his establishment before and from my previous eavesdropping, I remember he said he used to operate at the old flats that were demolished for the Datum condominium on Jalan Jelatek.

The Kuala Lumpur City Hall — for close to two decades now — wants to relocate the ageing wet market to a new complex just down the road that they call the Keramat Mall, a building of confused architecture and utility. Local traders here have long complained the rent at the mall is too expensive, and it is located a story above ground to complicate matters. And so, they are in a permanent revolt against city hall and continue to operate at the wet market. Whenever there is a fire at the market, conspiracy theories make the rounds and they almost always feature the authorities trying to force them out. The Federal Territories minister recently accused outsiders of meddling and inciting the local traders not to move.

Keramat, together with the more famous Kampung Baru, falls under the Titiwangsa parliamentary seat in Kuala Lumpur. In 2008, for the first time ever, Umno lost the seat to PAS. The then representative, Dr Lo’ Lo’ lived here. She died of cancer 2011 and PAS struggled to fill her shoes, leaving Umno to win back the seat in the last general election. But it was a tough fight.

The so-called mall which for the longest time was a white elephant, home to street cats and frequented by suspicious characters, was turned into a mini-Urban Transformation Center with offices belonging to the immigration department, health department and the police just last year. The UTC as they call it.

The prime minister’s face is splashed across the building facade, possibly implicitly telling the residents to be thankful. Or perhaps the reason for the re-investment is the Umno-led government is anxious about its future in Kuala Lumpur: out of 11 parliamentary seats, BN controls only two. On a notice board, I could read yellowing Utusan news clippings boldly claiming that the mall could transform Keramat. I wonder what it wrote about the mall back in early 2000s when it was recently completed.

The old, smelly, wet market first opened in the 1970s, and still stands in defiance of the federal government.

A stark contrast presents itself to anybody who stands in the middle of the small, packed parking lot that more often than not is the source of congestion in the neighborhood. On a very bad day, the traffic could back up all the way to Jalan Ampang on one side and Setiawangsa on the other. A poorly dressed old man would park his deprecated motorcycle next to a shiny silver BMW car.

Look around and you would realize the market is a mishmash of wooden and concrete structure with zinc tops. Farther, a mid-range military apartment complex dominates the horizon that just 10 years ago was full of trees and abandoned buildings. To the right stand the more expensive condominiums along Jalan Jelatek. Turn around and you may possibly spot Petronas Twin Towers along with other modern buildings from the Intermark to the imposing Hong Kong’s Bank of China-like building with its crisscrossing frames on Jalan Tun Razak.

All of those surround the compact kampong with the wet market and a mosque nearby at the center of the area. Most of the houses here are standalone homes but there are several low-rise low-cost apartments nearby too. But farther away towards the limits are big bungalows with their shiny cars.

The planned Datum condominium, that luxury condominium project, will add to that contrast. Politically, the condo will be just across the border in Selangor, but it is an integral part of Kampung Datuk Keramat nonetheless. It is one of those things where an invisible line on the ground means nothing. This is where city and Selangor state politics mix, a mix that goes back all the way before 1974 when Kuala Lumpur was carved out of the state.

Datum will not be the first condominium here. The first went up during the go-go years of the 1990s, robbing some of Keramat residents of an unobstructed view of Kuala Lumpur. The UEM-controlled Faber Group is building another on Jalan Gurney where prices range from about RM400,000 to more than RM3 million per unit. There is also the recently completed Suria Jelatek Residences at the Ampang end of Jalan Jelatek, besides the Datum project — the lowest sub-sale prices running at around RM600,000 for a shoebox —  but this seems to be going farther, but still a walkable distance, into the expat enclave that Jalan Ampang is. I have a suspicion that Jalan Jelatek is slowing turning into an annex of that enclave.

Kampung Datuk Keramat is not immune to the changes. Hang around at the Datuk Keramat and Damai light rail train stations and you will find American, European and Middle Eastern people among the riders departing from here.

In the 1980s and 1990s, the foreigners were mostly Indonesians who eventually, I think, were absorbed into the community. The new foreigners are much harder to absorb into the community, they are more transient and they do not mix with the locals. They do not go to Pasar Keramat.

Kampung Datuk Keramat is finally experiencing what Kampung Baru went through more drastically back in the 1990s when Kuala Lumpur first rushed to the sky with the Twin Towers as the crowning jewel just right at its doorsteps.

Not everybody is comfortable with the change because it can mean having to move out. The old barber was chased out of the ground floor shop lot within the old low-cost flat compound where Datum will rise. He is now in Pasar Keramat but the federal government wants to clear the market, and move everybody out to the old, new mall.

This is gentrification. Located so close to the city, Keramat attracts the new well-to-do to the formerly unsexy location, and possibly pushing former residents out.

When the residents get kicked out, they become angry. Who would not, especially when you have been living here all your life? The fear of dislocation is especially acute: if you look at the voters’ age profile in 2013, 66% of them were 40 or older. Sure, voter and population profiles do not coincide precisely but it is still indicative of this particular society at the ground level. This is an amazing figure especially since the median age for the whole country is about 26-27 years old. Titiwangsa, and specifically Keramat, is an old neighborhood in a young country.

And so when the unruly protesters went nuts against the Datum project in late January, tearing the zinc wall marking the boundary of the empty construction site while throwing racist claims the development would turn Keramat into a ”Chinese district,” I think they were judged too harshly, especially by outsiders who make no effort to learn the context on the ground.

I do think they — the local protesters — were really protesting against the gentrification of Keramat. They saw vast development going around their home and they are not directly benefiting from it. Right or wrong, they see themselves as the victims of gentrification. Racism is a secondary issue and perhaps, was put into the mix by outsiders who know only racial politics to win a brownie point. This is not to say okay to racism, but there is a need to separate the wheat from the chaff here.

I think gentrification is the cause and not so much race because when the developer of Datum came out to share that most of the interested buyers were Bumiputras, that fact did not relax the opposition to the development one bit. They continue to oppose because it does not matter if the new buyers are Malays or Chinese, or foreigners altogether. The development pushed them out of their homes and their shops. It is they who suffer, not anybody else, regardless of race.

The only ones who were embarrassed by the revelation were Perkasa and Umno.

I am not against gentrification. I feel it is inevitable and it revitalizes the community in some ways. It signals rising affluence and it makes the gentrified neighborhood cleaner and safer. And I personally am agnostic about the Datum development.

But the losers of gentrification must be compensated well. It cannot be that they are given some pitiful pocket money and be left to beg on the street and forced to move out elsewhere farther away from the city. That would create a sense of unfairness that could give rise to other problems in the future. The benefits have to be shared equitably with the residents.

To dismiss the opposition to the Datum project as being fueled by racism and instigated by outsiders is to miss the whole point altogether.

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 Malay Mail on March 27 2015.