DS Najib- what is to be done?(1)

DS Najib- what is to be done?

First, his task is appointing a highly-capable economic team,

and (2) telling the nation what he plans to do starting the afternoon of March 2009. Specifically: the members of his economic team.

Who they are, we don’t know yet. He must have advisers. He does not have to shy away from appointing advisers. But I hope the team of advisers will not include those paper tigers reviled by the public. Anyone with a modicum of business knowledge with tons of OPM (other people’s money) can do what those alumni of Ethos did. So throw them out first.

Appoint some madcap economists- the more unconventional the better. Keynes wasn’t a typical economist in a tweed jacket and sporting bifocals like Buddy Holly’s. He married a ballerina, headed an insurance company, lover of art, connoisseur of wine( and perhaps the fairer sex too), members of an avant garde group. Preferably a younger group. Late 30s or 40s, representing a generational change and a fresh start. Despite their youth, they must also have some experience . All must be pragmatists, we can even classify them as "centrists" or "centre-right," but in truth they will be remarkably free of ideological preconception. This is more important. Between theory and practice, says Lee Kuan Yew, practice is more important. Also the remark by Deng Hsiao Peng about not caring whether the cat is black or white, as long as it catches mice.

All have well-earned reputations as hard workers, well-versed in the technical details of public and private finance.

In selecting the advisors stay away from veterans of the old battles over supply-side economics or deficit reduction. No need to be well-known to the public. Not necessary to be visionaries. Because we don't need visionaries when the economic perils are clear and immediate. We need competence.

DS Najib must come out with a plan big enough to meet the challenges we face which is to jumpstart job creation in Malaysia and lay the foundation for a strong and growing economy.

Again, I have no inside knowledge, but I'd expect it to be about larger than the RM7 billion proclaimed. Heck the broad band business is RM11bn that would make Rohana Mahmood and Mustapha Ong salivate. Whatever stimulus package must be directed on infrastructure of a sort that will not only put people to work but also improve the productivity of the economy. Increasing productivity is more important than ensuring class F contractors get jobs.

DS Najib’s economic plan will be a down-payment on his larger plan to increase the nation's public investment. His plan will be timely at a time when aggregate demand is shrivelling because consumers aren't spending and investors have stopped investing, and exports are shrinking. DS Najib must recognize that government must be the spender of last resort. He will combine old-fashioned Keynesian economics with newly-fashioned public investments to pull the economy out of its slump.

And he needs to outline his plans now. By putting his economic team in place and telling the nation what he plans to do immediately after he takes office, the incoming PM will be asserting leadership at a time when the Abdullah administration has all but abdicated.

After having his team, he must get down to the fundamentals. First, he must understand that the main problem right now is not the supply of credit. To hell with Valuecap or other big-name borrowers. Of course the Financial Market is jittery at the moment because the possible bursting of the housing and other asset bubbles means that lenders are fearful that creditors won't repay loans. But even if credit were flowing, those loans wouldn't save jobs. Businesses want to borrow now only to remain solvent and keep their creditors at bay. If they fail to do so, and creditors push them into reorganization under bankruptcy, they'll cut their payrolls, to be sure. But they're already cutting their payrolls. It's far from clear they'd cut more jobs under bankruptcy reorganization than they're already cutting under pressure to avoid bankruptcy and remain solvent. This means bailing out boutique investment bankers or the insurance industry or the housing industry may at most help satisfy creditors for a time and put off the day of reckoning. DS Najib must take note that industry bailouts of the nature featured by Valuecap and its like won't reverse the downward cycle of job losses.