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Sakmongkol ak 47

Saturday 2 January 2010

Thinking about the new economic model.

Our PM, Dato Sri Najib Razak has announced plans to make the shift to a high-income economy. Hurrah! We are all going to enjoy having higher incomes. For some of us, that is. We are all going to enjoy a higher standard of living. Higher incomes bring with them, a higher standard of living. Refined stuff, better facilities. Hopefully, along with higher incomes, come also sophisticated thinking.

PM Najib has to contend with two things already. The high court ruling that Catholics can now use the term Allah indicates an era of proactive and adventurous judiciary. Hence we can expect tumultuous years ahead where the executive will be at odds with an assertive judiciary.

But a righteous judiciary is what we need to qualify our country as a high income economy. Every aspect of a citizen's right is equally protected under the constitution. Maybe we actually need an assertive judiciary to ensure citizens' rights are not trampled down.

Competition among these rights requires wise adjudication that will become increasingly dependent on public spirited judges. The quality of justice will depend on the quality of judges going to the Palace of Justice in Putra Jaya.

It's like Karpal Singh said- the grandiosity of the Palace of Justice must be matched with the quality of justice dispensed from there.

Two, Malaysians are greeted by the increase of sugar price by 20 sen per kilo. That would at once suggest that an economic model founded on monopolisation of essential goods isn't working. When Robert Kuok enjoyed an almost monopoly over sugar, Malaysians had to pay high price for sugar. Now even when the government takes over, and the government is a bigger monopoly, it can't contain the price of sugar.

I will not be quick to say that this is a proof that government should not do business at all. It would show that an economic model based on monopoly will not work. The practical solution then is to open up the market. Let imports be done properly and allow importers to compete freely.

So, what is this-a high income economy? That is defined as the people in Malaysia having a per capita income of USD 16,000 to 17,000. Didn't vision 2020 started by TDM also has a vision that by 2020 Malaysia will become a developed nation? A developed nation is where the people have a per capita income similar to what we have said.

If that is so, then saying that we are going into a high income economy is similar to restating vision 2020.

Now, the thing about restating is that it suggests a re-assurance that we shall get there by any means necessary. Why the re-assurance?

A re-assurance in the form of re-stating that economic idea becomes necessary because, the present administration isn't 100% confident it can achieve vision 2020. You can't be confident if you continue to think that the government can plan every single minutiae of economic impulses to spur the economy.

Look around us. Those economies that adopted IMF measures during the 1997-1998 crises have emerged with stronger growing economies. They were able to do so because their economies were propelled by resilient economic agents and institutions. We have lagged behind because our economy bent backwards to protect the unfit and therefore less resilient.

Now, here is the irony- what if during 1997-1998 financial crises, we had followed some of the IMF measures. Allow market forces to weed out the free-loaders and weak, re structure the economic foundations and all that. Those measures would have made our economy more resilient. Those lean years who would have prepared us better for the coming decades.

Don't you have compassion for those who would have suffered during the economic meltdown? Those sidelined through the adjustment process, if they were that good in the first place, would have been able to pick themselves up again and regroup. If we had done that, that would mean Anwar Ibrahim who was the finance minister then, isn't a dunderhead after all  in economics.

2010 onwards is the best time to test which economic approach is right. Selangor will be test case to see whether economic prescriptions along IMF-esque measures can work. We can then compare Selangor economy under the advice of Anwar Ibrahim with the economic models practised by the majority government elsewhere in our country.


Justice Wenger J Khairy 2 January 2010 at 11:56  

Dear Dato',
Lets 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 percapita 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 implict GDP growth rate to achieve that figure is 11% per year.

PM says that we can only grow at 6% per year. Lets assume its 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.


BCTan266 2 January 2010 at 12:48  

Dear Dato,

It is interesting that you brought up the issue of IMF prescription and its negative after-effects on our nation's economy. Letting freeloaders adrift that tapped into the spine of the nation’s economy should have been our prime consideration then. But alas! The good doctor decided to put aside a cardinal principle in medicine, and that is of allowing the body to heal on its own by removing the offending source/s or impediments of the illness. He used to allude to cutting off limbs to heal the body which is the more drastic form of the art of medicine. But when the time called for it, he did not play by the game.

But yet we still dance till today to the music composed more than a decade ago. Nothing wrong there except that many of our leaders and their followers are forcing down the throat of innocent and gullible ones a propagandized fallacy. Totally beholden they buy hook, line and sinker the false assertion that the tremendous recovery that the nation has made was purely because we have a champion in TDM who did not want to dance to the tune of the IMF.

Kudos are being continually heaped on Tun for it. He did well with some of his other unconventional moves. No arguments there. Even Prof Jomo acknowledged these recently.

Dato, I wished the government would listen to you more for the many sensible viewpoints that you have posted on this blog of yours.

By no means I aim to discount TDM's efforts and his brilliance by cutting him at his knees over the IMF issue, but don't you think it is time the hypocrisy was ended; that we as a nation has managed to forge ahead purely because TDM refused to subscribe to the prescription of the IMF. I think the reverse maybe true on many fronts! Because of that refusal we are now carrying the burden of defeat brought on by the very liberties and indulgences our leaders took for self preservation as well as the desire to stay in power. These motives were what propelled them. Not your interests, Joe Public!

Or is it by doing the hawks in the ruling government would inadvertently validate Anwar's credentials vis-a-vis the IMF prescriptions that he had wanted to pursue in the first place; and for which much disdain was heaped upon the poor man's head? Could it be so? After all, by extension the government would have lost a major bogeyman so often blamed for Malaysia's ills?

I think it is time for Malaysia’s leaders (and Malaysians in general) from both sides of the divide to grow up and be honest. Malaysia is in peril of being a nation that could have been. Let not complete this fresh decade and end it in 2020 as a pathetic nation riddled with indictments of our lack of courage to call it the way it should be. A spade is a spade. And so is a cad, even if he is your ‘much esteemed’ leader!

Anonymous,  2 January 2010 at 13:22  

dato sak; we were on autopilot for 5 years ,regardless of what pills we swallowed , during that 5 years our economy went backward.


Wenger J Khairy 2 January 2010 at 17:04  

Dr Putera,
Your talking rubbish and you have 0 fact to back it up. I analyzed all our data and truth is Pak Lah did very well when he was in charge. I challenge you - name 1 statistic from all our financial statistics that state our economy went backwards from 2003 when the Master Liar was in charge?

Just 1 stat.

You cannot do it because it does not exist. The Master Liar made up all these stories because his cronies were being affected. Pak Lah first had to build back the credibility with the international markets that was hammered when the Master Liar declared capital control.

The Master Liar also destroyed the education competitiveness and during Pak Lah's time he had to resuscitate that.

So get your facts right. That is unless you are ok with sprouting notions unsupported by facts, or talking rubbish in other words.

Unknown 2 January 2010 at 17:45  


Your Comment;

"PM Najib has to contend with two things already. The high court ruling that Catholics can now use the term Allah indicates an era of proactive and adventurous judiciary. Hence we can expect tumultuous years ahead where the executive will be at odds with an assertive judiciary."

It should have been obvious that in the last decade this has been happening all along. Mahathir tried to contain it his way......

Will DS Najib able to do the same?

Anonymous,  2 January 2010 at 17:47  


Justice Wenger J Khairy said;

"Obviously, the king has no clothes."

Look at all the Slogans


Joe Black

walla 2 January 2010 at 18:02  

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?

walla 2 January 2010 at 18:02  

Angst out of the way, how can we seriously start?

One, pull the plug on spin. Start by telling the msm they have free range to write and pursue and investigate anything they want. All msm journalists who have suffered for so many years gritting their teeth to write things in a manner against their rakyat-centric conscience will be recognized for their suffering and suitably compensated and any IJN bills they incur will be covered.

Two, float the MACC off the executive. It reports to Parliament which will devote one special session every quarter to its deliberations in concert with the Auditor-General's reports and action items. All deliberations, right down to the last detail, are to be web-posted in full. The two bodies will also need to convince the rakyat that they have covered all grounds, including the lacuna that hide in departmental practices that allow for non-reporting of certain expenditures owing to no or lax administrative rules set for them. The MACC should also confer closely with bodies like the ICAC on investigative measures and their statutes of limitations.

Three, because the MACC and the Auditor-General report to Parliament, so too should the AG office and the Judiciary and the blues. No point having input but no output in process improvement chains. The rakyat ask what is the point of investigating something traceable to the executive arm and then leaving it to another branch of the same arm to decide whether to chase or to delay. Last anyone checked, thousands and millions are different by orders of magnitude.

Four, take all the fervent social contract champions. Include the Utusan people, the Umno rightwingers, the Pas leftwingers, and such. Allocate one three-hour prime-time tv slot. They sit on the stage and take all the questions from the rakyat and foreign visitors on one and only one matter - how to make Malaysia more competitive and relevant within the next ten years. Leave nearby some mops for the blood that will be spilled. Do that, get it all out, so that we all can move together as 1Malaysia without some still clinging to denials and comforted by the clouds in their heads.

Five, interface more the economic planners with the rakyat. The rakyat have a lot of brains and exposure. Year in year out, the planners are the same faces. Like fifo. Surely more exposure is better than less exposure on the subject of out-of-the-box thinking needed to break out of molds in order to achieve new targets. Don't do it in a conference where the rakyat have only ten seconds on a mike to post a question, badly at that, and the respondent is trying to answer as politically correct as possible since it's all on camera. Get it all out, shorne of sentimental frippery.

Six, close the loop on administrative processing in all places at all times. No rakyat should have to make personal representation and suffer the indignity of being shuttled from one place to another as though their time and anxiety are of no concern to a govt whose internal bunglings are the cause of the enquiry. In fact be proactive. Do things zippily.

Seven, do the right thing on the key thrust. Human capital has been denuded so innovation cannot proceed. Without innovation, no new idea-captures so no new income-sourcing. Without new income-sourcing no new income so no higher-income status. The private sector doesn't do research and development. Zilch. So it is the public sector which does R&D. What have they researched that have been patented and who have been doing the research? Throw that question to four above if the MoI declines to answer in session.

walla 2 January 2010 at 18:02  

Do we want to be only known this century as that place which makes hypoallergenic rubber gloves and white coffee? Do we want to be remembered by our rakyat as a country whose federal govt is only capable of the biggest self-shioking schemes of pharaohic proportions? Do we want to tell the next generations that we do not know where all da money has gone? Do we want a society that tells its elderly to fend for themselves because we can't fend for our own immediate families? Answer now, this is before us even as you reach for the kleenex.

Eight, everything in life is inter-connected to something else (as many would probably be saying when there is a power failure at night). Blessed is he who can see in the same lifetime the causes of the effects that he is suffering from. Going with the mind connected on the way of the world is the only ticket worth collecting.

This connectedness also applies to politics. No rakyat was ever born in a crib with a label on his or her forehead with the name of a political party. Except for the furrows of a new born about to bawl for milk, it's a clean slate. So why should that baby who becomes a vote-qualifying adult later be expected to whoop for any political party as though it is some godsend answerable for crib2coffin carrying? A political party is just a convenient construct to carry services, such as plumbing and road-tarring, for the rakyat. If the services are bad and the roads lead nowhere, they should not be persuaded not to look at the yellow pages for alternatives.

This means politics is not an end in itself. And that's something which Umno seems to forget with alarming alacrity. The Umno movement started as a tribal movement. With success it became a club. Now with threat to its survival it has become a syndicate. It is based on maintaining a new colonial order but without real integrity, fairness and efficiency. It lives on the bright lights of today because it can persuade itself that tomorrow will never come. Umno's DNA has not changed. Cannot be changed. At least not in the time to be taken for the new economic model to take effect. Because the rich only want to become richer.

Better call for Dr Porntip to do her DNA-analysis.

And because the DNA cannot change, there will be no connectedness in the socio-economic and political landscape of this land. Which implies that while the new economic model is being carved out, it will ignore the one factor which is needed in all enterprises of a national scale. The full cooperation between all.

How is that going to happen if funds distribution remains politically motivated? For instance, if Umno restricts funds to the Opposition states but expects the Opposition states to show their own economic model mettle against BN's new economic model, how will the comparison of who is more or less successful be done? Capitation grants, for example, are made to decapitate. In a real world where all face common external pressures, they should cooperate to capacitate where the risk is lower to achieve higher returns faster so that targets can be exceeded in order to achieve the very new economic model that is presented. Who cares who presents it? Are bouquets in such short supply that one must grasp for straws?

If all this is not seen, it will be just another blueprint, masterplan, malaysia plan even, and the only place getting some income will be the government printers at jalan chan sow lin.

It remains to end this diatribe. Just say the word and walla will be your ms. porntip.

(ps: sak, wenger khairy is bagus)

Peter,  2 January 2010 at 18:38  

One minor case (high court level - another level not sure) that has got nothing to do with economic is not going to say the judiciary is of developed status.

I really wish everyone would stop NATOing around here and there.

Where are the actions that can make our country a high income country when right now we are losing ground left and right?
... mere words will do that? Funny man.

You still have powerful guys who refuse to accept the reality of the situation that there is no such thing as free loaders or a free lunch.

You have to work for your food on the table. Who is providing it?

There is no slave and tuans as imagined by some brainwashed guys we have here. No one want to work in those enviroments.

What we see are that the high income groups are moving to provide food for other countries.
Why? We all know why but just refuse to admit it. Who loses in the end?

As for the families of those who moved abroad, there is little to worry about because they are earning very very good income and when they send home these money to their relatives who stay behind, they are earning from high income countries and spending in low and cheap income country.

Sounds like Philippines doesn't it?

The differnece is Philippines is sending millions of maids, while we are sending out hundreds of thosands of the brightest brains where countries love to absorb them. These are the people that makes whether a country can become a high income country not importing labourers and give them citizenships while professionals(spouses) take years even to get a PR. We must the only country that does that. And we want to be a high income country.

One of these days, the ones having money to spend are those who have family members in other countries to send home as happened in Philippines and Indonesia. These guys would be rich relatively because they have money to spend without worrying about jobs in the country. Money earned in English or Singapore and spend in Malaysia... is real good like those maids who earn here and spend in Indonesia.

Will this happen? It looks likely if we do not start to act rather than NATOing here and there everyday.

.. and about Robert Kwok having control of the Sugar trade and kept the sugar price high.. Hey hey.. what I heard was, it was because of Robert Kwok that the sugar price were very low compared to actual market price. The sugar price was controlled all the time.

Look why did Robert Kwok gave up and sold his interest? His actions and the short time since Robert Kwok gave up , would have told you in no uncertain terms what is actually happening.

It is not feasible to do Sugar business in Malaysia and when he is no longer in control there is no one to get to keep the sugar price down.No one to bear the cost of doing business. Now govt have no choice but to increase the price.

So you should ALL thank Robert Kwok for keeping the prices low all these years.

Do we hear such? No. We grumble and accuse him of keeping price up. This Malaysian Chinaman , just gave up and invest in China now. What would happen to jobs that would have been created if he , the richest Malaysian, had invested in Malaysia rather than China? Has anyone ever thanked him?

Ever heard it in MSM or anywhere? Not that I know of.

So he just packed up and go. Anyone trying to "tuan" this guy and what does he do?

Please correct me if I am wrong.

Just hope someone can give me a clue how Malaysia can be made into a high income country when those who can make this country a high income country are working overseas.. and more are going.

Mind you no sane and smart guy wants to work like a dog and get a glass ceiling in every level of his career on MALAYSIAN salaries. That is plain insane and stupid

Any solution? Nay... because the real problems are still not addressed.

Anonymous,  2 January 2010 at 20:17  

Walla, you are unbelievably smart !!

Well said !!


Anonymous,  3 January 2010 at 06:45  

Dear Sakmongkol AK47
It is easy with words like "shift to high-income economy" but it does not work in practice. Please look around you and name me one Muslim country that is in high-income developed economy. None.
Somehow Islam & Muslim are the obstacles to economical advancement,which you once wrote about it.
It is just like a football team that decides to change the play formation from 4-4-2 to 3-3-4 and you need the right type of players to do that.
I am sad to say that Malaysia does not have that the type of players to change the economic pattern.


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