Thursday, 25 January 2007

Malaysia Must Embrace Change

With all the discussions on firm-innovation driven growth and development recently amongst (for example, read the World Bank's blog Innovation in Emerging Markets) how Malaysia is floundering), I found Martin Wolf's Tuesday editorial piece on the Financial Times rather timely. The piece is not only interesting but also very relevant. Titled "European corporatism must embrace change", the discussion of the piece centred on the argument by 2006 Nobel Laureate Edmund Phelps on the core distinction between the continental European and the US, and why the former failed to converge to the latter.

Reading the article, it is not very difficult to identify the similarities between the European model and that of Malaysia

Here are some paragraphs from the article.

"...A central distinction, argues Prof Phelps, is between capitalism and corporatism. By capitalism, he means a system of free enterprise that embraces and motivates entrepreneurship. By corporatism, he means a system in which businesses have to negotiate change with the government and “social partners”.

Capitalism does not mean laissez faire, argues Prof Phelps, just as corporatism does not mean an absence of private ownership. The difference lies in the openness of the former to economic experiment and so to the gales of Joseph Schumpeter’s creative destruction. The new entrants nurtured by a dynamic free enterprise economy are the catalysts of innovation. But the incumbents protected by corporatism are too heavily invested in the status quo: they are prisoners of the present.

The US, as it has been since the late-19th century, remains the world’s frontier of market-led innovation. Well-organised corporatist economies, suggests Prof Phelps, can catch up on the progress made by such a dynamic capitalist economy, but cannot surpass it, because they are parasitic upon the latter’s vitality.


Here Prof Phelps offers bad news and good news for continental countries. The bad news is that a system delivering neither dynamism nor high employment is failing. The good news is that Prof Phelps believes it is possible to combine dynamism with desired “social inclusion”, provided the welfare state subsidises employment, not idleness. He does not simplistically recommend low taxes and an end to the welfare state. His focus is, instead, on a willingness to embrace market-led change. His advice is good: those who resist economic change will surely be overwhelmed by it, in the end. "

Similarly, the Malaysian system must embrace change.


Read the full article here (highly recommended) on
European corporatism must embrace change
By Martin Wolf
Published: January 23 2007 17:27

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