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Sakmongkol ak 47

ariff.sabri@gmail.com

Tuesday, 5 January 2010

The NEM: New Economic Model-Part 1

Many others and I have written about the burning issue at the moment. I am speaking of course on the issue of the Name Allah. For me personally, I have nothing further to add.

Let us direct out attention to a more earthly matter. It's the bread and butter issue of our economy. I have written a short article at the beginning of this year, hoping that a healthy debate would ensue. Unfortunately, a livelier discussion of our economy was overtaken by the tidal wave of the spiritual issue.

Nevertheless, my short article was able to draw out some thinking from others more qualified that I to gloss over this subject.

The blogger who calls himself Justice Wenger J Khairy, no doubt deriving some inspiration from Justice Oliver Wendell Homes, has written a more rigorous initial analysis of our economy. I am sure a more erudite exposition of our economy will be forthcoming from his remarkable mind.

Also as usual, the genius devil is in the details, Mr. Walla has continued to astound readers with his observations.

And so, I am privileged to be able to present the thinking of these two gentlemen:-


 

One: Justice Wenger J Khairy.

Let's put some numbers.
Right now our GDP Per Capita is ~$6,200. In 2020 we want it to be ~$16,000. So compound growth should be 10% per yr on this figure. To grow per capita, we have to explicitly grow GDP and watch for the growth in population. We assume that population grows at 1.66% (last yrs data). We also assume that the employment: population ratio stays constant at 41%

now the trick by how much we need to grow the GDP. We assume that since the end number is a USD figure, that markets perfectly adjust the inflation differential between USD and RM, so that thanks to the sugar price rise, if 2010 our nominal GDP grows additional 4% due to inflation, the exchange rate depreciates by a similar amount so there is 0 inflation created growth.

Now comes the figures.
GDP = Aggregate Hours * Productivity

What is Aggregate Hours
(for the benefit of readers of Sakmongkol)
Aggregate Hours
Well its simply the number of people employed * the number of hours worked per year.

So when we create 9-16 public holiday, we reduce this number, and reduces GDP.

Aggregate Hours in 2009 ~20 billion hrs. (Souce: McWenger Consulting. BNM does not bother to keep track of this)

In 2020, keeping the population growth, the average work week ( no new holidays!) and the employment population ratio constant the amount of aggregate hours in 2020 is approximately 23.2 billion, or a growth = to the population growth rate of 1.66% per year.

Now comes the Productivity element
Productivity = GDP/Aggregate Hours
In 2008, the figure is RM 35/hr.

If we indeed want to have a per capita number of $USD 16,000 in 2020, and keeping the aggregate hours growing as detailed above, the Productivity number should be something like RM 82/hr. At RM 82/hr, and with a population of 32 million, a labour force of 13 million our GDP will be a nice round number of RM 2 trillion.
Then our per capita will be USD 16,000++.

An RM 2 trillion economy?

Our implicit GDP growth rate to achieve that figure is 11% per year.

PM says that we can only grow at 6% per year. Let's assume it's real growth. (Muhahahahah)
Then in 2020, our GDP will be RM 1.2 trillion, and our per capita will be USD$10,000++. Our productivity will be RM 53/hr.

Obviously, the king has no clothes.

But a second more insidious thing has to do with what is the marginal wage and productivity of the new jobs being created?

Does our average worker contribute RM 64,000 to the GDP?

Obviously not! As our economy now is more than 70% domestic orientated and will shift to greater and greater domestic impact as our exports become less and less competitive, we can assume that in years to come, a worker will spend his entire pay check on subsistence existence while Dr. Mahathir's sons drive around in Porches.

So if your being paid RM 30,000 a year, you know that is the only amount of contribution to GDP that you can make. So in fact, our productivity will be start to decline as our export industry gets hammered whilst the Deputy Minister of MITI is busy entertaining himself with his Jom Pi Jerlun programme and his bloggers sprout rubbish 24 * 7.

So really, the situation is extremely worrying. The data is all out there, but Malaysians by and large are the gullible sort who will believe what is written in the papers.

I will refrain on commenting on DSAI for now. In 1996, he was my favourite leader. Right now, I can only look with sadness and pity as to how the obsession of 1 man to destroy his rival has really put our country in a jam.


TWO: WALLA

Using aggregate measures like per capita incomes can be deceiving. They don't signify real income distribution. A few may hold more income than the incomes held by the many but total income divided by few plus many will seem to say each and all get the same averaged ratio. The many don't and the rich will get richer. That's how GINI coefficients have spread so much.

A new economic model should be based on a thrust that while the rich can get richer, the poor shouldn't get poorer.

The baseline for that economic targeting should then be sectoral incomes divided by number of households ranged by some weighting. Then we will know things like the per capita incomes of households whose breadwinners work in the fishing, farming or subcontracting industry, for instance, in a particular location, and how those numbers will change as any new economic model phasally operationalizes from year to year in that location.

There is talk that a stronger ringgit policy will be used as a tool to achieve the new economic model.

How that will pan out remains to be seen. Maybe planners think that our export goods will continue to enjoy inelastic demand so that buyers overseas will happily absorb the higher forex from a stronger ringgit enough for us to still build export momentum and thus get fund inflows to pay higher wages and to buy more capital goods to modernize our production for the next cycle of economic recovery.

But whether the economies of our goods buyers overseas will not be facing a double-dip is itself moot at this point. Unless one places final bets on the regional China-Asean development.

The term vision 2020 has virtually disappeared from the local lexicon. And mercifully so because when it started it was bannered all over the place, even on top of your local warung. Now it's just the brand name for that weekend van collecting old newspaper.


In its place we now have a new economic model. If we put ourselves in the shoes of the planners and strategists in Putrajaya, that's as best as one can expect of them to do - how to jettison something which cannot be achieved and replace it with something else which appears to be new, and that's why it's called 'new...', which, fingers crossed, may be accepted by the rakyat to be an acceptable replacement of the original kickass vision.

But inflationary multiplier effects will start before the new model takes shape. Sugar starts the ball rolling, flour may come soon, petrol and transport costs, certainly, with electricity to follow even after the feds have blown half a billion compensating for the bakun dam. People are going to feel another hard pinch not just on their wallets before they can warm up to an embrace from the new economic model.

Where did we go wrong? We went wrong long ago. We didn't take care of the fundamentals of nation-building. That's about progressive and knowledge-savvy human resources, sterlingly upright and efficient institutions, and precise investments that bring direct and measurable returns. We blew all the money on parties. Sorry, the Party.

Now we want to achieve the impossible. It's like trying to drum up an unstoppable force to roll over an immovable object. Maybe we should commission the Joker instead.

So what will happen in ten years time? Simple. The goal post will be shifted again. For instance, aggregate income will be denominated in rupiah or yen and reproductive rates will be reduced by fearsome promotion of birth control. The '1' in 1Malaysia could be one-is-enough. Slyly that could also be to replace the rakyats' "enough is enough". Hard luck though.

Come to think of it, if we had pursued the seventy million population target, we be finito today, ain't that so, you think?

9 comments:

Anonymous,  5 January 2010 at 02:06  

Dato,

In my opinion, if BN/UMNO cleans up their act in terms of corruption and erratic purchase of fighter jets, submarines and whatnots, the commission paid to the middlemen would be enough to feed the poor in Malaysia.

Look around us. The rich becomes richer and the poor, poorer.

What is the BN government doing? Continue to line their own pockets. Look at the Toyol dentist living in a palace worth RM24million!!!! Where does the money come from? Definitely dirty money.

If the government looks after the poor and has the genuine interest to increase real income and living standard of the people, then, they would not spend the nation's coffer like there is no tomorrow.

They are buying weapons and artillery as though they are buying candies.

If BN/UMNO cleans up corruption, our children will have a better future.

We will soon have a generation of children who can't speak English and one professor was saying he heard school children at McDonald's saying "Let's go together gether" to mean "Kita pergi bersama sama"!

The world will laugh at us ...no one will be able to understand us on the world stage! One minister even said he feels weird listening to spoken English in the office. A real dumber!

What say you Dato'?

You don't seem to reply to comments on your blogs except to Khairy.

This is not good.

Idris

yb,  5 January 2010 at 07:08  

Any research or observation done on the rise in sugar price? Any rise in petrol soon? What about Highway tolls?

What about the decreased year end bonus? What about the credit card fee? What about PKFZ? What about accidents involving double decker busses? What about Teoh Beng Hock? Jet engines?

Hello, those above, are some of the things that I follow.

By the way, who benefits from the NEM on the whole? Definitely NOT the suffering rakyat!

yb

WJK,  5 January 2010 at 08:54  

Hi Dato,
Ask the PM to hire a CFA or am i am in violation of the Code of Ethics for implying CFA (Candidatelah) has superior skills :-)

But strangely if you go thru the Maths, and recall what the PM orginally said in MSC conference, he may have actually mentioned the right number i.e 9% growth (once we add a small 2% upward bias in the ringgit to get us over the $16,000 mark)m but then backtracked.

Or is our PM keeping disgruntled staffers from the John Kerry campaign, as “he actually did vote for the 9% growth before he voted against it."

Good day, Dato'

Anonymous,  5 January 2010 at 16:11  

When i read the GDP of Malaysia is about US8,900 while that of Singapore is US38,000 beating even Japan... I was shocked into disbelieve.

How much we have lost. To reach US16,000 is a near impossibility unless the US currency become "Zimbabwe" dollar. Developed by default.

So sad ...

Anonymous,  5 January 2010 at 16:37  

What's the use of birth control if we allow those selfish towkays to keepon importing low skilled workers from less developed countries like Bangladesh, Mynmar.... and our governemnt happily give out PR or citizenship to them later??

It's like diluting our population to become less developed.

Anonymous,  5 January 2010 at 16:44  

Wenger,

Anak Pak Lah pun bawak porsche atau kereta mahal yang sewaktu dengannya..

nak buat artikel pasal ekonomi, tak payah la nak swipe mahathir juga..

ni yg buat org benci...

tgk cermin sebelum nak menghina..

baru lah jadi satu artikel yang objectif.

jangan lah pulak nanti bila org kutuk pak lah, kamu juga yg knee jerk reaction kutuk org mahathi pulak.. kamu juga yg start dulu.

donplaypuks® 5 January 2010 at 17:42  

Bro

It's a simple enough calculation, not rocket science, to demonstrate that if we wish to move our PCI of US6,200 to US16,000 by 2020, our economy will have to grow at an average compounded rate per annum of about 10%.

And that's not going to happen. No, not with an education system that is in shambles, an economy that is over-reliant on FDI's, a nation that is polarised and a Govt hell bent on promoting racist and religious bigotry because they've run out of ideas on how to unite the people and win votes by sheer performance.

With the kitty fast running out, PM Najib is still talking about buying new fighter planes and cougar helicopters costing billions. Perhaps he's hoping to shoot our way out of financial disaster!!

Not to mention Khazanah going into business and forking out billions for theme parks and 100-storey skyscrapers. You'd think they would have learnt from the Dubai experience?

There seems to be an air of defiance and unwillingness to face a reality check that borders on dementia.

If the Govt were a Plc, the Shareholders (We, THe People) would have booted out the board of directors and CEO a long time ago. Yet, many persist in supporting a regime that cannot understand the minor miracle required to achieve a 10% compounded rate of growth. How and when do you think we will reach the PCI of countries like S'pore, Korea and Taiwan? 2099?

We cannot allow the con artists and ponzi scheme purveyors to continue to rule us with nothing more that bluff and rhetoric to match their boasts!!

dpp
We are all of 1 race, the Human Race

Anonymous,  7 January 2010 at 15:21  

Is NEM going to be the new Voodoo economics?

Anonymous,  9 January 2010 at 10:21  

Wenger

Teruk betul perangai,,orang cakap pasal ekonomi dia nak salahkan mahathir..

lupa kah anda masa zaman mahathir boleh dikatakan semua orang hidup senang.ekonomi kita lebih baik.mahathir telah berjaya menukar lanskap malaysia daripada poor country to a modern developed country.ramai peniaga dan kontraktor melayu sudah established themseleves and driving big cars.ramai professional melayu yang berjaya.Doctors, lawyers,engineers ramai dash orang melayu.

janganlah setelah berjaya lupa diri dan menganggap semua itu datang bergolek tanpa sokongan umno dan kerajaan semasa itu.lihat keliling dunia mana ade a country with such affirmative action in improving education and poverty.we are i think one of the best.

awareness untuk orang melayu berniaga sudah tinggi.dari mana datang sikap ini jika tidak dari umno dan kerajaan.dulu kalau kita hendak jumpa lawyer atau doctors kita kurang pilihan untuk memilih orang melayu sekarang kita sudah ramai yang pakar dalam bidang professional yang boleh dipilih..

tepuk dada tanya selera

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