Categories
Economics Politics & government

[2890] Second best solutions, democratic compromises and reforms

I do have strong policy preference, and that preference originates from my ideological leanings. But the preference only sets the default position, or more accurately, the initial stance. I am willing to be swayed by data and models but then again, over the years, I have learned data and models can be bent so much even with the best assumptions, it can be interpreted in various ways that make the numbers never quite as objective as it is made out to be. In the end, it is the context of the numbers that is important, not the numbers themselves. Numbers alone can be meaningless in social science, and economics.

I have become less ideological over the years, especially after the 2008 global financial crisis, and my policy preference is driven more and more by empirics. But after a year in the public sector, I find my preference has not quite been assaulted by empirical results. Rather, it has been a lesson on compromise and second or even third-best solutions.

Second-best solution is arrived at when the ideal solution is not possible given some constraints. The best solution is technically possible in the sense that it is technologically or economically possible. However, the challenges from the political or social aspects make it difficult to achieve fully.

For instance, I prefer to have the ECRL be cancelled outright. It does not seem very economically viable, and there are cheaper ways to encourage connectivity across the country while developing the areas outside of the peninsular economic centers. But the need to be careful with China, especially at a time when the global economy is at risk of heightened protectionism with Malaysia dragged into an unwanted trade dispute, means my policy preference is out of reach.

And it is not merely a theoretical concern. After all, China did employ unfair trade practices on the Philippines just to punish the latter over totally unrelated issues involving the overlapping claims in the Spratlys and the Paracels several years back. China can be a big bully, as any big power can be, and Malaysia being a small open economy should not test that proposition by too much. We have been successful in pushing for our case with China, but one has to wonder where is that line that we should not cross.

That is one example of having to land on a second-best solution, with an external consideration.

But more often than not, the challenges are internal in nature.

In a democracy where consensus is absent, the available solutions are frequently second best. There are so many stakeholders to take care, making compromises a must.

Just today, a senior civil servant asked how do I feel about working in the public sector, and how does it compare against the private sector. I answered that professionally, working in the public sector was tougher than in the private sector. In the former, there were so many parties to manage and to satisfy, whereas in the private sector, one could doggedly pursue an agenda, or even bulldozed it all the way through. In a way, achieving the ideal solution is easier outside of government than inside of it.

However, that does not mean the public sector is redundant. Many things do require the public sector to work and cannot be done through the private sector alone. It is the reality of a non-anarchist world, which is true almost everywhere in this world.

This can be linked back to the manifesto of Pakatan Harapan.

The Institute for Democracy and Economics Affairs, a think tank I somewhat have a relation with, today criticized the government for being overambitious with its election manifesto, and for the government’s weak resolve in delivering its promises.[1]

I would say that the manifesto is an example of the ideal solution, and the current situation is a second-best solution.

And this does not yet account for the fact that even the manifesto is a work of compromise, and that a manifesto as an ideal is supposed to be bold (in a good way, not the Brexit shambolic way). Furthermore, many supporters of the government work on having reasonable compromise. I for one is not 100% in agreement with the manifesto. But the urgent need for reforms after years of proliferating brazen grand corruption meant compromise had to be made to achieve a goal of cleaning the country. Second-best solution was what we had, because the ideal was not achievable.

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

But coming back to the criticism leveled by the think tank on the government lacking sufficient resolve to deliver institutional reforms, I think I can come out and say such reforms are still coming and it is not clear whether on its own context that it would be demoted from the ideal to the second best solution. Besides, it is not as if there was no reform at all. All too often, people forget the significant reforms that are already staring them in the eyes, be it the separation of powers between the prime minister and the finance minister, wider application of open tender, greater transparency and freer media.

There are challenges even in the areas I have cited where reforms have happened. But wide-ranging reforms require time, especially in a robust democracy. Mock the line all you want, but you know it is true.

The important thing is that, we must persist. Democracy simply does not end at the ballot box. It is more than just going out to vote. A fancy deck does not a reform make, too.

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

[1] — The government has set a list of unrealistic goals and showcased a lack political will to fulfil other achievable promises made in the Buku Harapan GE14 election manifesto, according to the Institute of Democracy and Economic Affairs (Ideas). Ideas research director Laurence Todd (photo, above) said the think-tank’s ongoing Projek Pantau monitoring of 244 selected sub-promises found little progress made to about 30 percent of the “unrealistic goals” set in areas of education, institutional reforms and the economy. [Alyaa Alhadjri. Report card on Harapan shows ‘unrealistic goals’ in manifesto. Malaysiakini. June 28 2019]

Categories
Liberty

[2889] The only person in the wrong is the fascist threat make

As a libertarian, hate speech is always a difficult subject to touch on. It is difficult to determine how far should free speech go until a line has to be drawn.

The pure libertarian position is very tolerant of all kinds of speech, and even hate speech. So tolerant that it goes so far away towards the horizon that for a peaceful society with high social capital, there exists a boundary much, much closer and well short of the libertarian realm of the unacceptable. Here, there is a conflict between inherent right and the ideal of coexistence. Without context, an answer is difficult to reach and even if it is reached, a libertarian is unlikely will be content with it. But living in a peaceful society will always call for a compromise, and that is the price we all have to pay in some way.

But when a person makes an explicit physical threat against another person or group of identifiable people, then the libertarian answer is quite easy: it is wrong and action has to be taken to make sure that such threats will not be realized. This is because of the non-aggression axiom (I know, I know. The axiom is problematic. Nevertheless…). The use or threat of force against a person is coercion and coercion is a big no-no in the libertarian understanding on how the world should work.

And so, I am not particularly impressed when what seems to be a group of fascists complained that a follower of their ideology, and the person himself, has had his right to free speech or free press robbed after a bookstore decided to stop selling his book that encourages others to murder certain people who they do not agree with.[1]

In the first place however, the store is a private entity. The bookstore owner can do as he damn well pleases.

The author later complained that the pull out proved that there were people afraid of him. Rightly, so. He is after all calling for murder. One must be so dull in the mind to think such opinion is an astounding revelation and people should not be afraid. If somebody made a credible threat against me, I would go to the police for protection and take the necessary precaution against that threat (and possibly, even preemptive measures). One does not need to be libertarian to act such a way. It is human nature.

In the end, there is only one violation of right in this episode and it is the physical threat made by the fascist. That alone from libertarian perspective makes it sufficient for police action to be taken against him.

In any case, a fascist’s world is one where a libertarian cannot live free. When a fascist cries for freedom, such a claim should always be viewed with supreme skepticism.

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

[1] — A bookstore has dropped two books by author Helmi Effendy over his social media comments on killing Malay “traitors.”

“Effective immediately, we will not be selling any books by Helmi Effendy at Kedai Fixi or on fixi.com.my. We support freedom of speech, but not threats or ‘prayers’ for people to be killed,” Buku Fixi said in a statement today.

Helmi is the founder of right-wing publication The Patriots.

[…]

“May the Night of Broken Glass become a reality in Malaysia. The Night of the Long Knives will kill Malay leaders and voters who have betrayed their religion and race,” he said in his post.

[…]

In a Facebook post today, the author lashed out at the move, claiming that his books have been “banned.” There is no government ban on the books, however.

“I don’t care. I don’t give a f***. I take it that when Buku Fixi takes my books off their shelves, it means someone out there is very very afraid of me,” he said. [Store drops books over author’s call to kill ‘Malay traitors’. Malaysiakini. May 29 2019]

Categories
Economics Politics & government

[2888] Clearing the air around FDI definitions

There is a kerfuffle about the definition of foreign direct investment, due to the former PM Najib Razak’s messaging and the general public’s unfamiliarity of it. I strongly believe Najib actually understands the nuances of FDI but he is navigating through the somewhat complex definition to score political points with half-truths. Truly, you need to know the actual definition to play around with skillfully. After all, he was the Finance Minister for about a decade and one ought to learn something while at it, including about government policy on fund transfers and its weaknesses.

Of interest today are 3 points, given the ongoing popular public discussion, which is quite ill-informed.

One is approved FDI published by Malaysian Investment Development Agency, or MIDA.

Two is actual FDI published in the Balance of Payments documents published by the Department of Statistics

Three is “asset sale.”

I will not very delve deeply into these because the manuals are thick, arcane and I doubt more than 1,000 people in the world have read the manual from cover to cover. In Malaysia, probably fewer than 10. For instance, the Balance of Payments manual published by the International Monetary Fund, (the mouthful title is the Sixth Edition of the IMF’s Balance of Payments and International Investment Position Manual) has 351 pages with discouraging font size and spacing.

But there is a surge in public interest it in. Which I suppose, is a good opportunity to educate.

Let us start.

Approved and actual FDI

To start we need to attack both point 1 and 2 because they are easily confused despite have been frequently published and easily accessible.

Approved FDI and actual FDI are two different sets of numbers. Yet more than once, the media and even trained economists have referred to both as simply FDI without hinting its differences. The media probably does not know any better while economists are being sloppy though they likely know the difference. This is a constant source of confusion for the public (and the media) and it becomes crazy when politics is injected into it.

Approved FDI is self-explanatory. A foreign investor applies for permission to invest in Malaysia and the Malaysian authority decides whether to approve. Not all investments get approved and for example, my former employer’s request to do so was rejected for unclear reason. If approved, it will go into the approved FDI statistics published by MIDA.

The important thing is approved FDI functions as a leading indicator to actual FDI. In less complicated English, approved FDI provides the maximum limit to actual FDI. Theoretically, approved FDI is always higher than actual FDI because sometimes, a company would get its approval but later change its mind in terms of investment of value, or even investing at all.

Theoretically because sometimes, approval to invest is given for a period of time and practically too, it is difficult to invest immediately upon approval. Accounts have to be set up, the money has to be transferred, people have to hired, etc. I have been told after approval, a lot of approved FDI get realized roughly about form 1 to 3 years. But the point is, approved FDI gives us an inkling what the actual FDI would be. Example: when approved FDI in 2017 was low, so was actual FDI in 2018. When approved FDI was high in 2018, actual FDI in 2019 was also high. It is not a clean correlation due to the problem of lags, but there is a noticeable one.

There is further complication to the public understanding of FDI. MIDA publicly published approved manufacturing FDI quarterly (all-sector data annually). So without basic understanding of the metadata, confusion is easy. Indeed, the relatively complicated definitions have been used by Najib to spread half-truth about FDI.

The purposeful switching of context

Before I move on to point 3, allow me to digress and comment about the ongoing political conversation about FDI.

When assessing Najib’s post, one has to realize when he is switching the definition and context. When the government talks about 2018 approved FDI, he will switch to 2018 actual FDI and accuse the government of lying by stating actual FDI is lower than approved FDI. When the government talks about actual FDI in 2018, he would veer somewhere else to again pain the picture that the government is being dishonest.

For those unfamiliar with the numbers and context, they would say Najib was arguing based on facts. But if only they knew how context could make facts as half-truth. The best of disinformation works as such.

FDI and “asset sales”

The last point I want to make is about FDI asset sale.

The definition of FDI is hard to master fully even for working economists. But in general, it is acquisition of long-term stake in local companies (plus several other things). In the IMF manual, if I recall correctly, a purchase of share at least 10% in local company would qualify as FDI.

This is why when Mitsui buys a minority stake in the Malaysia-based IHH Healthcare, it is FDI.

This is also the reason why when Petronas sold its 50% stake in its RAPID projects in Pengerang to Saudi Aramco of Saudi Arabia, that was considered FDI too. But of course, Najib will not mention that asset sale that happened under his watch. He would call that investment, and he would be right, just like how Mitsui’s purchase is investment. Najib wants to have his cake and eat it too.

Finally, for me personally, I am not hung up on asset sale. In the end, what is important is the returns to investment, not the investment per se. A fund should maximize returns, and if it diverges from that, it has to be for a very, very good reason.

But perhaps politics is more complicated than the Balance of Payments manual. You do not a good reason, just half-truth. We are, after all, live in the age of Trump.

And for the FDI conversation, know that Najib is switching the context and manipulating public ignorance to win the credibility game.

Categories
Economics WDYT

[2887] Guess the 1Q19 Malaysian GDP growth

The 2019 first quarter GDP will be out on May 16. Since we live in an age of trigger warning, let us play the game first:

How fast do you think did the Malaysian economy expand in 1Q19 from a year ago?

  • Slower than 3.6% (17%, 4 Votes)
  • 3.6% - 4.0% (26%, 6 Votes)
  • 4.1% - 4.5% (30%, 7 Votes)
  • 4.6% - 5.0% (26%, 6 Votes)
  • 5.1% - 5.5% (0%, 0 Votes)
  • Faster than 5.5% (0%, 0 Votes)

Total Voters: 23

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The consensus views are that growth for the quarter will be weak, possibly in the lower half of the 4.0%-5.0% range. Some are even betting on something lower. There are at least two justifications for the pessimism.

One, industrial production grew only 2.7% YoY during the quarter, largely due to contraction in mining production. Supply disruption continued to bedevil the sector after a major incident in Sabah last year. Manufacturing did largely okay, except in February. This leads us to the second factor.

Exports. Exports plunged quite drastically in February and a bit in March. While some of it had to do with supply constraints in the mining sector, manufactured goods exports also dropped, which indicated weakness in external demand. The country until recently had benefited from the trade war through trade diversion and business relocation. This could be seen from FDI and trade data. But prolonged and wider trade war would slow the expansion of global trade volume, possibly to a point where trade diversion would not overcome effects from slower trade growth. If the February and March export trend continues (exports for the quarter was down and in fact, so did export volume) in the second quarter, that might indicate we have reached that point where positive trade relocation factor is giving way to volume growth slowdown. The the escalating China and the US trade conflict is very likely the one major contributing factor to Bank Negara Malaysia cutting its policy rate by 25 basis point rate last week.

These two trends could hit the domestic economy in terms of employment. But so far, employment statistics have been going strong. It has not budged from 3.3% and anecdotally, there has been no story of widespread layoffs caused by weakened domestic and external demand. There were layoffs, but those appear directly induced by government policy, not demand per se. For instance, the non-renewal of contracts for political appointees and other politically-linked projects, which are not quite demand-driven.

There are complaints of economic slowdown among the public and in the media for awhile now, but again, that has not quite affected employment statistics by one bit. This makes the slowdown in the past few quarters puzzling to me. A pure supply-driven slowdown could explain this and there were supply problems. It is also possible that firms are hoarding labor supply, with a view of better economic performance in the near future.

From pure GDP growth statistics perspective, there might be some good news. Net exports might be doing better, or more accurately, external demand is doing better than domestic demand. Export volume index fell 2.2% YoY for the first quarter; import volume dropped 3.1%. The usual goods exports decreased 0.7% versus import drop of 2.5%. This could boost the GDP growth up by way of net exports, even if it is just math at work. If the actual GDP growth does surprise the market on the upside, I think it would come from here.

The downside is, the import volume drop suggests private consumption growth had slowed down. After all, imports are just a reflection of domestic demand. But to be honest, the consumption growth in the past several quarters have been extraordinarily high due to the changes in the tax regime. Such growth should decelerate and we would only see a “normal” growth rate for consumption in the fourth quarter of this year once the tax factor has been equalized across the relevant period (This of course is purely from year-on-year perspective and this is where quarter-on-quarter calculation offers a quicker and a better way of measuring changes).

As for government spending, it should be on the recovery mode and I think the worst should be behind us (or nearby, if it is not behind). As for gross fixed capital formation, I would want to say the same thing, but I really do not know.

Categories
Economics WDYT

[2886] Guess the March 2019 inflation rate

When the Malaysian consumer price index dipped 0.7% an 0.4% year-on-year in January and February this year, there were hysterical claims that Malaysia was experiencing deflation, never mind that deflation is characterized as persistent decline in prices rather than temporary dip. And never mind that the bad deflation is one associated with decline in demand, rather than supply-driven, which was what the dips in January and February of weighted average consumer prices were.

Just for context, the prices for January and February were heavily affected by the drop in retail petrol prices, on the back of the shift from GST to SST. But by March and April, retail petrol prices were on the way up and for RON95 and diesel, it hit the ceiling set by the government. RON97 continues to be on the prices as crude prices now soars to above $70 per barrel.

Additionally, we know when inflation would stabilize as we know when retail petrol and diesel prices were stabilized. Given the structural changes and its effect on year-on-year calculation, year-on-year and headline figures should not be the focus at the moment.

Anyway, the March numbers that will the out tomorrow should reflect this, as has been highlighted as early as January. And so…

How do you think did the consumer price index change in March 2019?

  • It fell (14%, 1 Votes)
  • It did not change (0%, 0 Votes)
  • It rose (71%, 5 Votes)
  • Unsure/Do not know (14%, 1 Votes)

Total Voters: 7

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