ETP, EPPs- rojaking our way to a high income economy

In effect, Jala is announcing a huge stimulus package containing a slew of entry point projects and whatever he wishes to term them bringing with them vast amounts of funds acquired on preferential terms I suppose. We are going to be drowned in our own saliva soon. It's all in the name of ETP. Economic Transformation.

Let us just say its disguised stimulus package. The EPF money is there. Baitul Mal is there, Tabung Haji and what not. Husni Hanazlah said it, we want to facilitate the private sector? How? Kasi pinjam dengan kadar faedah yang murah lah. Apa lagi.

Will they create jobs? Will they stimulate education and competencies? Will they lead to transforming wealth distribution? Will they build capacity? Will the EPP stimulate higher education needs and therefore fulfil our requirements for better educated, higher skilled workforce. It seems to me, its very logical premise to transform our economy into a higher income economy if we among other things(1) acquire, import technologies from rich countries (2) have a more educated and trained workforce and (3) cultivate ourselves to be competitive.

Will they create equal opportunities? I can see the sharks are already circling there- the Gamudas. The YTLs. Syed Mokhtars, the SP Setias, Berjayas etc. These are the prime movers of the ETP. Punters are looking out for the stocks of these companies. Out of the thousands in attendance, these are the chosen few who can deliver the ETP.

Spill over effects or slow trickle down? The sources of growth according to Jala's presentation are:-

• The ETP projects will provide RM1.258 trillion or 74% of the country's gross national income (GNI) of RM 1.7 trillion by 2020.
  
• The remaining 26% is expected to come from non-ETP project sectors.
  

The RM 1.7 trillion GNI growth contributions in 2020 will come from the following sources:-

31% from the 133 Entry Point Projects (EPPs), RM527 billion.
10% from EPPs multiplier effects, RM 170 billion.
33% from the 60 Business Opportunities (BOs), RM561 billion.
26% of incremental growth from other non-ETP projects, RM442 billion.

All these will generate 100% impacts? Are they over and above an economy that has reached full employment? They will just bounce off and a full blown investment will generate a 1 to 1 return? No leakages? ? No portion of those investments are sucked into depression portions of the existing economy?

It seems quite some time ago, I think I touched on the subject of the multiplier effects of spending. In the aftermath of Obama administration's huge stimulus spending, there was intense debate for example, on the effects of such spending on the US economy. The idea was the Keynesian solution. Spending will create the multiplier effects on the economy.

According to simple Keynesian models, the rationale for increased government spending during a recession is straightforward. We are in recession aren't we? We must accept this. People are already talking about double dip recession. Here our planners( fatally conceited of course) are talking outlandish economics. A future of plenty, overflowing with milk and honey.

But let me clear this issue that has bugged me. The most irksome thing that I have had to handle is this accusation that whatever is spoken against Idris Jala constitutes Jala Bashing. I think whoever thinks and sees it that way, must have elevated Jala to a cult figure or to a stature ill deserved by Jala. Hello friend, he was just an ordinary Sarawak Bumiputera who got into Shell under the bumi ticket long time ago. I am trying to contain my frustration here. Jala is not at all important in this discussion. I treat him or anyone else equally harsh. If it had been anyone else doing the Pemandu glitz show, I will say the same things. Readers forget that I was also from Shell and there, this cultist deference is non existence. So, OK, you have made it big but not necessarily on substance. So we tear Jala as just any other ordinary bloke who has come across a good fortune. Good for him.

But if he falters, we are not going to pull back our punches are we? If he dishes out preposterous and outlandish economics, we are not going to keep quiet are we? Jala or no Jala, we will criticise where necessary. So stop hiding behind this Idris Jala bashing. How clever can he be that shields him from criticism?

Back to spending. Jala is actually prescribing vast spending right? RM 1.7 trillion into our economy. We are not even mindful of inflationary effects. Under the impression that we are already operating at full employment, because whatever is invested yields a 1 to 1 return, we will incur inflation. If we haven't, then a large portion of the total investments will fill up those sectors that have suffered from the recent technical recession rendering a less than 1 to 1 returns on investments.

Now, according to the Keynesian-ish rationale, if governments employ underutilized labour and capital when they spend more, that provides an immediate boost to employment and output. Ok so far?

A further stimulus comes from the spending by the owners of the unemployed labour and capital who benefit from the government spending. Their spending helps multiply the effects of the government spending still further, and so does spending by the recipients of this second round of spending. At each round, the recipient of any spending, will spend in turn. The total impact is the sum of all these separate boosts, and its ratio to the initial level of government spending is called the spending multiplier. What is the size of the multiplier in which Jala premises his proposal? Which economics textbook? Which economic school of thought?

I find it a rarity to discover a multiplier of 10% as storied by Jala. In the US, after Obama approved of stimulus spending, a study by Dr. Christina Romer, Chair of the Council of Economic Advisers, said the spending multiplier during the recession was high. Soon after, her findings were disputed.

Jala's optimism may have ignored several considerations. First, there here is often a long delay between presentations of a spending packages, enactment of a law providing for the spending, and the actual spending. In the US for example, it was several years after Obama took office, they are still saddled with the balance of the expenditure package. In the meantime, the economy first hit bottom, followed a modest recovery in unemployment. The long lag between open day, enactment, and actual spending is an old criticism of fiscal stimulus even by very committed Keynesians.

Are the spending plans and expenditures directed at problem areas or are they going to be applied as though on a neutral economic environment? The whole spending program appears to treat as though our economy has not suffered at all. Suppose the entry point projects mentioned by Jala are absorbed into their respective but badly affected sectors, the new EPPs will not create a 100% impact. Some of the impacts are absorbed by the depressed portion of that particular economic sector. Example. Suppose that construction section/infrastructure sector has declined 20% during the recent technical recession. This will mean, 20% of the new EPPs will be absorbed by the 20% vacuum leaving a net impact of 80%. This will suggest that much of Jala's optimism is overstretched. That means even at the starting point, you have a carry-over of deficit.

Hence when Idris Jala recently said, 10% of the growth of what will be generated by multiplier effects, as an economist I find this difficult to validate. . Now, I and many people want to know, what kind of industry can generate a 10% multiplier effect. So far , the only industry that can generate such a multiplier effect is the racketeering industry ala Ponzi scheme. If that is the case, I think, the government should employ the likes of Pak Man Telo to be the head of Pemandu.