Categories
Economics

[2677] Should we bring development to them?

Europe was uncontested center of the world during the periods leading up to the 20th century. It was the fountainhead of human civilization. Their progress allowed them to become the foremost colonial powers of the world. The British Empire itself was so vast that as the saying goes, the sun never sets on it.

European achievements created significant inequality in the world. It was an inequality between peoples. It was the modern world versus the primitive world. It was the world of steam engines against the bullock carts.

That inequality later introduced one strong justification for European colonialism across the world. It was the white’s man burden: it was the responsibility of the white people to civilize mankind as a whole.

The world has changed since then. Almost all countries belonging to the Western world are now mired in economic turmoil while many countries of formerly colonized peoples are now actively lobbying to become the new center of the world.

But the idea of the colonialist’s burden never truly died long after the age of colonialism. Underneath what appears a racist idea is the assumption that all of us must live in a certain way. All of us must want the convenience of modern life. That convenience ranges from clean running water and stable electricity supply to good education and health services. We must strive for a minimum level of modern standard of living. We want and need development, as the assumption goes.

To put the idea in a less racist connotation, the white’s man burden was really a forced technology transfer that was meant to raise the recipients’ standard of living to one which the givers’ deemed as acceptable. The modern society looks at its primitive counterparts and decides, ”We can improve their welfare if we educate them.”

It is a narrative the group with the significant advantage says to the less well-off one in the style of a father telling his child, ”I know what is best for you.”

The colonial masters are no more but the paternalistic idea of spreading the light, so-to-speak, remains. In modern Malaysia, it comes in the fashion of the center developing the periphery. It is about those in the Klang Valley and other urban areas civilizing those far at the edge of enlightenment.

Development agenda in Malaysia, after all, has mostly been dictated from the seat of power. The many five-year plans over the years are some of the proof on how centrally-driven the Malaysian development process has been.

This is not so much a condemnation of those plans. Clearly many aspects developments require considerable centralization. But that does not negate the paternalism goes along with the developmental dictation.

Consider also the rhetoric surrounding the idea of gratefulness by those in power: all of us should be grateful to the bringer of development. Whether or not the rhetoric is reasonable, it highlights how strong the assumption that we all want and need development is.

But it is hard for the beneficiaries of progress to be grateful when they stand apart from that assumption on development. There are those who do not want development even if it improves their welfare.

Take for instance a hypothetically significantly isolated village in the Malaysian interior far from the smallest of towns. Perhaps a hypothetical Malaysian example does not quite make it. Imagine instead real indigenous communities in the inaccessible interior of Brazil and Papua New Guinea whose lifestyle has not changed by much for over thousands of years.

An earnest development push will see roads snaking into the interior to reach these communities. A tarred road will come. Next, a constant electricity supply. Soon, telephone line and maybe not long after that, the internet if there is no mobile coverage to start with. All of that will bring the community closer to the mainstream modern world and threaten to make the old way of life into something that fits the exhibition requirement of a museum. The mainstream culture can swallow whole most ferociously.

If certain communities refuse progress, should the modern society leave the indigenous society alone? Or should the modern society take up the old white man’s burden as theirs — ours — to carry?

Agreeing to the communities and leaving them largely alone does not seem very humane in the long run. The inequality between the modern society and the isolated communities, which is already big, will widen. That inequality will if it has not yet, disfranchised the communities. They will lose their voice among the noisy and sophisticated modern society. The danger is that when they scream, nobody can hear them.

But to bring in progress to them regardless of their wish is the height of arrogance. It is a very authoritarian idea that outsiders know what is best for those communities and that the outsiders should dictate the course of those communities.

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 Selangor Times on April 12 2013.

Categories
Economics Politics & government

[2676] Investment growth is volatile, a slowdown is not necessarily extraordinary or worrying

Some parts of the economy enjoy stable growth rates in normal times. Consumption and government spending are two of the GDP components which grow in a stable manner, unless there is a recession. As much as ridiculous as it may sound (yeah, that is the libertarian in me speaking out), the government does plan its expenditure and that is one of the reasons for smooth government expenditure growth. The same with consumers and others in the private sector too.

Export and import growth rates are stable too, although it is more volatile that the consumption component.

The same cannot be said with investment. It is a stylized fact in macroeconomics that the investment component of the GDP is wildly volatile. It is by far the most volatile of all GDP components. In one period it could reach for the sky and in the next, it could be six feet underground.

Here is a chart to show exactly how volatile investment is compared to other components of the real GDP of Malaysia:

Malaysia RGPD Component 2006-2012

The volatility of GDP investment component (truly, it is gross fixed capital formation) will be mostly true for other countries as well.

So, anybody who wants to score a political point cannot really score a political point if investment in one period slowed drastically. It is the nature of the series. It is just how the economy works.

I write this because the Penang state government has come under criticism because investment into the state has fallen dramatically.[1] Given the context of volatility and investment, I would not take the criticism too seriously.

Now the investment figures referred to are not strictly the real GDP investment component (the one that is of controversy is the approved investment figures), but the nature of volatility is the same anyway.

Slow investment growth may be a worry but only if there is a significant slowdown in the sense that there is structural break. In other words, something like if the average investment growth from 2005 to 2010 is significantly lower than the average from 2001 to 2005. In contrast, if investment growth in 4Q2012 is significantly lower than in 3Q2012, or even if 2012 as a whole is lower than 2011, I do not think one can say much without further context: from the series itself without further context , an investment growth slowdown or even an outright investment slowdown gives out no real story.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
[1] — GEORGE TOWN: A DIP of 73 per cent in investment flow into Penang has the state Barisan Nasional questioning the state government’s abilities to drive and continue growing the manufacturing and services sectors. Both sectors, state BN committee member Ong Thean Lye said, were the main sources of revenue for the state and had in previous years placed Penang at the top in the country’s investment ranking. However, there were now growing concerns that investments were on the decline with Penang only getting RM2.47 billion in investments last year compared with RM9.11 billion in 2011 and RM12.24 billion in 2010. [Looi Sue-Chern. Harvard’s Gopinath Helps France Beat Euro Straitjacket. New Straits Times. March 22 2013]

Categories
Economics Politics & government

[2675] The taxpayer’s deplorable options

I do consider the payment of income tax as a responsibility I must fulfill. As a member of society, I have some responsibilities toward its maintenance. The fact that I am a citizen makes that responsibility of paying taxes doubly important.

That responsibility arises from my enjoyment of multiple public goods that exist through public funding, never mind that its distribution may be less than ideal since only a minority of Malaysians pay income tax, and never mind that some public goods can be provided for through private means.

The provision of these public goods makes the sum of the income tax that I pay more palatable to me than being robbed on the streets or being swindled by a snake oil salesman. At least, I get something out of the money that I pay out even as there are cases of mismanagement or abuse of public resources by the government of the day.

While I do rationalize the payment of income tax and other types of taxes as such, that does not mean I enjoy paying those taxes. I dislike paying taxes and I especially dislike paying income tax as opposed to consumption tax. Sometimes, I do wonder how far we have progressed since the days of old when the fruits of one’s labor were expropriated by men — in the name of equality, as well as women — of power. Perhaps progress is the fact that tax rates today are lower than they were in times of feudalism. Perhaps, perhaps, perhaps”¦ I tell myself perhaps.

What is certain is that I am sensitive to the income tax rates that I face.

The tax rates themselves are linked back to government expenditure. That makes me sensitive to plans which lead to government expenditure growth.

Apart from my distrust in the government in guaranteeing my civil rights, taxation is one of the other few reasons for my skepticism of the expansion of the role of government in our society. It can hit my pockets, which is not as deep as those in power.

The upcoming general election provides me with an opportunity to assess the options that I have on the table. This election may be the first ever where Malaysians can choose which economic policies they prefer to see implemented.

There have been manifestoes written and shared before of course but the 2013 general election makes it most realistic to imagine a change in federal government, without any political exchange in the style of the failed September 16, 2008 (and by the stars, let there not be any).

Yet, the choices so far have been disappointing.

On one hand there is Barisan Nasional where despite all the sleek public relations exercises suggestive of change, it is still business as usual in too many ways. For one, abuse of public funds goes on as usual.

Just the other day, the deputy prime minister declared that children of workers of Pos Malaysia — a private company after it was divested away by Khazanah Nasional Berhad to DRB Hicom which is ultimately controlled by Syed Mokhtar Al-Bukhary — would be given free netbooks by the Malaysian Communication and Multimedia Commission.

This is the use of public resources to benefit private parties and this is only one example of abuse; Barisan Nasional has no qualms utilizing public funds for its election campaign.

Those kinds of abuse adversely impact government expenditure in one way or another.

The government in its 2013 Budget plans to embark on fiscal consolidation, which is admirable. Yet, plans are plans and it looks all the more incredible as each day passes by. Each day of campaigning is another day the government of the day embarks on economic populism that is funded by public funds in an abusive way to blow the fiscal consolidation plan apart.

On the other hand we have Pakatan Rakyat.

Pakatan Rakyat does offer a vision to address the weaknesses of the incumbent government. Considerable portions of its manifesto try to address monopoly in the private sector that was actively created by the Barisan Nasional government which is something I can support. Pakatan Rakyat’s proposal to increase competition in the automotive industry is also something that I and many have argued for.

Yet, Pakatan Rakyat’s plans to reduce fuel prices, water tariff and others through greater subsidies will demand expansion of government expenditure. That is of significant worry to me. This is especially so when it is clear that the government will require a structural change in doing things in order to lower the fiscal deficit.

Pakatan Rakyat’s plans appear to move the position of public finance to the opposite direction.

Apart from the plan for increased expenditure, the political coalition is averse to expanding the tax base in the form of introducing the goods and services tax to replace the pre-existing sales and services tax. What is all the more remarkable is that Pakatan Rakyat plans to reduce personal income tax.

With increased spending and reduced taxation, the deficit may increase especially if other sources of revenue do not increase fast enough. This raises more questions on the revenue side. Does Pakatan Rakyat plan to increase company taxes and other indirect taxes? Will a Pakatan Rakyat government look to Petronas — which is trying to invest in itself more — for more contribution?

Second Finance Minister Ahmad Husni Hanadzlah claimed that Pakatan Rakyat’s plans would nearly triple the fiscal deficit when compared to 2012 level when compared to nominal GDP and increase government debt level by 10 percentage points to 62 per cent of GDP.

Now, it is election time and his claim should be taken with a pinch of salt. Nevertheless, the direction of change in those figures as suggested by the minister appears reasonable. It does not take a person with wild imagination to think that the fiscal deficit and the debt level under Pakatan Rakyat’s plan will increase.

Pakatan Rakyat itself has not sufficiently clarified how it plans to do all that it promises without increasing the deficit. Its 2013 national manifesto is quite silent on the combined impacts of greater expenditure and its revenue plan on public finance. Pakatan Rakyat supporters have at one time or another claimed the Pakatan Rakyat government will curb corruption and leakage so much that it will allow a scenario of greater spending and unchanged taxation. While I am impressed with Pakatan Rakyat’s commitment to an open tender system for one, I am skeptical that those leakages and corruptions will be easy to tackle and if it is successful, it will release sufficient resources to plug any financial gap.

I ultimately do not believe heightened fiscal deficit and debt level will be sustainable to maintain a good standard of public finance. Economic forces are bigger than either Barisan Nasional or Pakatan Rakyat and I think when both parties are free from populist pressure and faced with the stark reality of public finance, they will tend to do what is responsible.

So if Pakatan Rakyat does get the opportunity to govern Malaysia and run its plans, sooner or later it will likely have to make room for realism with regards to its tax promises or its spending-related promises. Unfortunately, more often than not, raising taxes is far easier than cutting expenditure.

It is within this context that I consider Pakatan Rakyat’s words on taxes to be as incredible as the Barisan Nasional-led federal government plans for fiscal consolidation in 2013.

As a taxpayer, I am staring at my deplorable options.

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 March 15 2013.

Categories
Economics

[2674] It is Scott Sumner Day, again

How do you write Scott Sumner Day in Japanese? Haruhiko Kuroda Day?

The BOJ said it changed the target for money-market operations from the overnight call rate to the monetary base — cash in circulation and the money that financial institutions have on deposit at the central bank. It predicts the measure will grow to 270 trillion yen by the end of 2014. [Toru Fujioka. Masahiro Hidaka. BOJ Doubles Bond Purchases in First Kuroda Easing Salvo. Bloomberg. April 4 2013]

The last Scott Sumner Day fell in September 2012, the day the Federal Reserve announced QE-infinity.

It is not exactly nominal GDP level targeting, but the shift from rate to level is a big one.

I still do not quite fully understand it but I am sure the commentary over the internet will help.

Categories
Conflict & disaster Society

[2673] Integration, not expulsion for Sabah

There are several possible consequences that I fear from the ongoing armed conflict in Sabah. One of them is a public wide urge to expel Sulu and Filipino immigrants out of the state.

There is already considerable negative sentiment against the Sulu and Filipino people in Sabah even before the armed men landed to bring trouble in Kampung Tanduo in Lahad Datu. I do sometimes feel the sentiment borders on racism. Rightly or wrongly, they are blamed for many things in the state, ranging from high crime rate and job stealing to the grab of land from the indigenous people. Apart from that, the now postponed Royal Commission of Inquiry on Illegal Immigrants in Sabah highlights how illegal immigrants were granted Malaysian citizenship for political expediency.  For many Sabahans who suspect that that has been the case for a very long time now, the inquiry only confirms their suspicion.

At the same time, there is a clear security threat arising from the armed conflict. There is a question regarding the immigrants’ sympathy since many of them do share the same ethnicity as those who are or were part of the armed group. Add in the Sulu and Philippine claims of Sabah, the consternation among some Malaysians of the immigrants’ loyalty will be easy to understand.

The worst case scenario has the immigrants rebelling against the Malaysian authority in support of the claims.

The two factors — the negative perception and the possible security threat — provide for a possible recipe for the expulsion of the immigrants from Sabah.

I am unsure how widespread the support for such expulsion is and I am happy to read in the mainstream media that there have been calls not to stereotype all immigrants in Sabah, especially those with Sulu ethnicity. Nevertheless, some Malaysians do talk casually about the matter.

Given the number of immigrants in Sabah, and some of them are now legal residents of Sabah now, the policy of mass expulsion is unrealistic and inhumane. It is impractical because it will be a logistical nightmare to expel so many persons.

Besides, mass deportation has been done in the past in Sabah and in other parts of Malaysia but it does not appear to be working. And if it does work contrary to past experience, the mass deportation or expulsion will likely affect the economy of Sabah adversely.

If thousands of individuals are suddenly taken out of the economic equations, something bad ought to happen. The economic growth of the state will surely take a hit. And there is more than economic cost to the policy of expulsion.

There is arguably the more important human cost to it.

Expulsion is inhumane because for better or for worse, these immigrants have been living in Sabah for decades now.

They have built their new lives in Sabah. Their families are here. Their children were born and brought up in Malaysia. These children know Malaysia as home, and not the Philippines.

Expulsion or deportation — call it however you like — would uproot the immigrants from their lives. It would force them to begin anew when there was really no need for that. After all, they migrated to Sabah in search of a better life. They escaped the instability of southern Philippines.

Any person with a hint of humanity in them will think twice about turning those immigrants away or forcing them to return to the very place they ran away from.

In fact, I am of the opinion that expulsion would contribute to the worst case scenario more than the case where the authority would leave the immigrants alone to their lives.

In an environment where immigrants may already suffer from discrimination, the policy of expulsion would create even further discrimination against them as the authority actively tried to catch all illegal immigrants.

Naturalized immigrants would also come under the unwanted spotlight. Really, the only thing that separates legal residents from illegal aliens is identification papers. Imagine having to go through security checkpoints: profiling is inevitable in that case. More often than not, profiling creates anger. It is a pointing finger that always points accusingly and nobody likes to be accused of something, especially if they have nothing to do with the things they are accused of.

So, expulsion — regardless whether they would actually be expelled — could create anger among the immigrant communities against everything Malaysian.

That anger might translate into something more sinister.

The only humane way to address the security fear is to take that high and tough road. That demands that we integrate the immigrants into our society.

With integration, they can feel that they do have ownership of Malaysia, rather than seeing the country as a foreign land that they have no stake in. This may mean the expansion of government services like education, health and security to immigrant communities in Sabah.

Once they feel fully Malaysian, the question of loyalty will be irrelevant.

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 Selangor Times on March 15 2013.