Monday 29 October 2012

Who will fix the Malaysian economy? — Syahir Sulaiman

OCT 29 — No problem can be solved from the same level of consciousness that created it. — Albert Einstein

Malaysian economy — the diagnosis 

No one may object to the statement that the Malaysian economy is in a problematic state.

The government of the day had embarked on its journey of economic transformation via its alphabet soup of GTP and ETP in tackling the NKRAs with all sorts of BR1M, KR1M, PR1MA, TR1MA. The government in-waiting then had its version of economic reform via its Buku Jingga and all sorts of promises and hopes. Yet, the bottom line still seems shady.

Fiscal prudence is pivotal when the deficit and debt level are alarming. All eyes are set to monitor the federal government debt that does not show any indication of not breaching the ceiling rate of 55 per cent of GDP (2013E: 54.2 per cent; 2012E: 53.7 per cent), given the generous vis-à-vis lavish spending by the incumbent, besides vast natural resources vested in our land. The government’s fiscal discipline also needs to be tightened, given the precedents where actual spending, especially operating expenditure, has been exceeding the original budget due to additional supplementary budgets tabled when the year just begins.

Inflation seems unavoidable as early as the first quarter of 2013 when the sudden available money and vouchers to be pocketed and disposed of may result in a situation where “too much money is chasing too few goods”, thus pushing the prices of goods and services further up despite the gradual rise of material cost nowadays.

The level and profile of household debt will then be continuously monitored by Bank Negara. As reported, household debt as a proportion of the country’s gross domestic product in 2011 is translated into a ratio of 77 per cent, the bulk of it came from the financing of sky-rocketing property and excise-duty inflated cars.

Inflation certainly has a bearing on households with a monthly income of RM3,000 and below and those living in urban cities as this segment of households is more vulnerable to potential  income shocks due to their substantial debt obligation with limited buffers to counter any loss of income to sustain consumption and price increases.

As denounced by Jeffrey Sachs in his book “The End of Poverty”, “many factors can affect a country's ability to enter the world market, including government corruption, legal and social disparities, diseases, lack of infrastructure of transportation  and communication, unstable political landscapes, protectionism, and geographic barriers”.

In order to address and remedy the specific economic stumbling blocks of various countries, Sachs further espoused the term “clinical economy” and stated that “countries, like patients, are complex systems, requiring differential diagnosis, an understanding of context, monitoring and evaluation, and professional standards of ethics.”

Malaysian economy — the remedy 

No one may object to the statement that Malaysian economy is in a dire need of fixing.

A healthy economy thus depends on the level of aggregated demand and supply which stems from the accumulation of transactions involving goods and services, carried out by businesses and enterprises under the economic regime adopted by the government.

On the business side, there are two types of enterprises, those who rely on exploration and those who rely on exploitation. Every economy has both, but a healthy one favours the explorers.  However, over time, many explorers become exploiters once they are “too big to fail”, run out of new ideas, extending their production lines instead of developing new products, lobbying governments for favourable tax and contract deals, cut costs by putting pressure on their workers, merge with competitors to form monopoly, and manipulate customers to squeeze their margin.

Successful enterprises invest their time in inventing better products, serving customers more effectively, and supporting workers in ways that enhance their commitment. Government support should be shifted from protecting large established corporations to encouraging the growth of social enterprises and budding start-ups.

Incentives and subsidies should be channelled to improve competency and resilience of the people and enterprises. Regulation and taxation should be used to nurture sustainable investment and productivity, not to breed a generation of “know-who” that surpassed the quality of “know-how”.

In the corridors of power, there are also two kinds of politicians, those who rely on services and those who rely on manipulation. Every country thus has both, but a healthy one favours the former, instead of the manipulators who count on corruption and abuse of power. A fiscal policy full of integrity is vital for Malaysia. The economic regime thus must be built on values, instead of greed and fear. Flow of financing should promote entrepreneurship and risk sharing, instead of risk avoidance. Capitalism seems to be equated with debtism, and incremental income must be rooted from a real economic participation and activity.

Above all, the real engine of economic growth is the people. It all depends on our propensity to produce, to consume, to save, and to borrow. We have to live and consume within our means, thus to save wisely and to leverage only on productive and quality debt.

Malaysia is certainly at a crossroads. A fundamental change is required, not just on economic performance and social quality, but also in the people’s mindset and delivery of public goods and services that underpin our ability to develop the country. The journey will be long and arduous, God willing, we will succeed.
Thus, the answer to the earlier question is, you and me.

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