Thursday, 31 May 2007

Language is a Skill

“It's not personal, Sonny. It's strictly business.”

- Michael Corleone, Godfather

From my posts, it is rather obvious that I am disheartened by the current state of the nation. I am getting more and more convinced that the country is in a crisis – not a short-term 1997/98 type of crisis, but a gradual and ultimately more damaging and pervasive crisis of norms and institutions that will lead our country to abject marginalisation in the ever competitive and fast moving global economy.

Back to the titular topic, I am utterly dismayed by
some of the issues that were raised regarding private sector employment practices. From the unanimous readers’ and editors’ opinions of our major newspapers (particularly this one), it is clear to me that narrow-minded and debilitating racism is a norm to Malaysians – in fact, we are encouraged to be racist, to view each other as ‘outsiders’ and that the economy is a zero sum kind of game – if ‘they’ win, ‘we’ lose – and that wealth of a nation is inherited, not created.

I digress.

Anyway, back to the narrower titular topic, it is accused that language-based employment requirement (fluency in Chinese/Mandarin) is a form of racist conspiracy plot by the private sector (which obviously reads Chinese businesses to these commentators) to ‘membolot kekayaan negara’ by preventing Bumiputera graduates from gaining rightful employment in the country. This is indeed a depressing assertion. If the accusation is accurate, as our Deputy PM claimed so some time ago, then I am utterly appalled by the degeneration of entrepreneurial acumen of players in the private sector in which racist motivation drives business decisions. More on this later.

If this assertion is inaccurate, then it truly reflects a sad state of affair in the mindset of Malaysians – narrow-minded, nihilistic, provincial and destructive. It takes a racist to see this in such a racist perspective.

Anyhoo, consider these mock scenarios:

Thayalan and Sons, Export and Import (M) Sdn. Bhd

Having operated for over a decade through export and import activities between India and Malaysia, Thayalan and Sons, a home-grown company, now is considering expansion of their business to China to tap the immense market of 1.3 billion population.

Sales managers and executives fluent in Mandarin are needed. Please apply.

How does the language requirement fit in in this scenario? If a Malaysian-Indian company requires staff who are fluent in Mandarin, based on their strategic business decision, would it still be considered a racist decision?

Mahmood Sports Apparels Sdn. Bhd.

With the rapid expansion of our business, CEO Encik Mahmood bin Ali had decided to set up its 100th branch in Pasir Pinji, Ipoh. Given the populace of that area are mostly Chinese, potential sales assistants fluent in conversational Cantonese and Mandarin are encouraged to apply. Please contact Encik Anwar Abdullah, Sales Manager, Pasir Pinji Branch.

How about this one? Still racist? In any case, if you change the names of the companies of the two examples to Chinese names, would you still consider the language requirements a racist conspiracy strategy?

Allen’s Classical Bookshop

Sales manager needed. Must be fluent in English and familiar with English Literature (preferably with a Bachelor degree in English Literature).

And this one, would it be considered to be discriminatory in nature? I mean, sheesh, what about all those non-Eng Lit grads? Allen must be a freaking discriminating prick for having to have such requirement. I bet it is part of an elaborate conspiracy scheme by Allen and other classical bookshop owners to systematically marginalise non-Eng Lit people. That is the sole purpose of them setting up bookstores. Let this be a clarion call for all of us (sans the evil Eng Lit graduates, of course)! We have been too ‘lembut’ for far too long! It is time for us to fight back and not let them ‘memijak kepala kita’!

V4U Publication Sdn Bhd

V4U, the latest sensational Malay magazine with all the latest news and hot gossips of the Malaysian entertainment scene is looking for experienced writers and editors to contribute to this thriving new magazine! Good command of Bahasa Melayu is a prerequisite.

Gosh, the above language requirement is obviously racist in nature! How about those poor Chinese, Indians, Kadazan and … oh wait, I forgot, basically every other races in the country has learned up Bahasa Melayu. I guess in this case, language is considered a skill and not a racist conspiracy plot by those heinous private sector companies.

Okay, back to a more sober mood.

The thing is, business decisions, be it regarding hiring, investment, expansion or marketing should be and are motivated by entrepreneurial considerations – profits, costs, efficiency and prospects for future growth. If business decisions are driven by other considerations like racist propaganda and sorts, in a competitive environment, the business will eventually fail. And I believe this reflects the true private sector conditions in Malaysia, be it multi-national corporations or home-grown Malaysian SMEs.

Furthermore, in true entrepreneurial spirit and from a dispassionate perspective, to have business policy that could irk and incur the wrath of the Bumiputeras is just plain stupid. The Malay population form the largest market segment of the country, and given the additional socio-political advantages, it makes perfect business sense to do the exact opposite. If you want to go global in selling consumer products, you do not go and make US or China your enemy.

Again, I reiterate, business decisions based on racially discriminating motivations will only result in abject failure in a true competitive environment. The only way for businesses and enterprises to survive despite of this is for them to be backed by the state, in a tangled rent-seeking web of inefficiency, wastage, corruption and decline. Racism is a cancer; a cancer that destroys entrepreneurial spirit, business innovation and national competitiveness – the very things needed for Malaysia to survive in the future global economy.


Monday, 28 May 2007

Badawi on Financial Times

The Financial Times yesterday carried a piece on the challenges of the Muslim world by our very own Prime Minister – I wonder who is the real writer behind the piece.

I think subscription is needed to read the whole piece, so here goes:

The real challenge for Muslim nations is economic
By Abdullah bin Haji Ahmad Badawi, May 27 2007

The divide between the Muslim world and the west has become the great issue of the decade. It has succeeded the cold war as the strategic issue of global concern. The terrorist attacks of September 11 2001 and the invasion of Iraq and Afghanistan, as well as the Palestinian issue, have created the impression of a clash of civilisations.

The confrontation between the Muslim world and the west is inflicting enormous political, economic and security costs on both sides. The human cost is especially appalling on the Muslim side. It is in the interests of both the west and the Muslim world that this confrontation ends and that we work together to ensure that it does.

At the meeting of the World Islamic Economic Forum under way in Malaysia, Muslim leaders from countries as diverse as Pakistan, Kuwait and Indonesia have allowed me to share with them my vision of a new “Economic Agenda for the Islamic World”. This must be a central pillar in our efforts to tackle the roots of unrest and help our own peoples, thus also addressing the causes of discontent that create breeding grounds for terrorism.

There is a danger that today’s overwhelming focus on the Muslim world’s political relationship with the west is diverting attention from even more fundamental social and economic problems. The Muslim landscape that stretches from Morocco to Mindanao is more diverse than western commentators often suppose. There are peaceful countries where the people are wealthy, healthy and educated. However, these are sadly outnumbered by countries and regions that are under­developed, poor and in turmoil.

Some 31 of the 57 member states of the Organisation of Islamic Conference are classified among the least developed nations, including the countries that occupy the bottom five places on that list. Unemployment rates are double the global average, nearly one-third of the population is illiterate and women face many disadvantages. This level of backwardness and economic deprivation helps fuel a host of social ills and makes it easier for people to recruit terrorists.

Poor governance is a feature of many parts of the Muslim world. Political oppression, abuse of civil and political rights and corruption trouble many Muslim countries. Extremism and militancy also dot parts of the Muslim landscape due to factors that are largely domestic but are sometimes external.

What is needed is a clear and shared commitment to eradicate poverty, illiteracy and unemployment in the Islamic world. These are the real threats to both the Muslim and western worlds. If people have a sense of economic opportunity and purpose they are far less likely to be seduced into becoming terrorists.

The Muslim world is challenged on many fronts and must confront these challenges squarely. It is the challenges from within that are the gravest and to which the greatest attention must be devoted. It is only by taking responsibility for their own fate that Muslim countries can gain the self-respect needed to occupy a position of dignity within the global community. Unless they are economically strong, politically viable and socially resilient, they will remain marginalised from the global mainstream; vulnerable to exploitation, division and domination.

Development must, therefore, be at the top of the agenda of all Muslim countries and communities. This is not simply an issue of income levels, good housing and adequate health facilities. It must also mean a literate and in­formed society, a representative political system that gives effective voice to the people, the absence of severe inequalities, efficient and honest administration and a commitment to the rule of law. A country cannot be considered developed until rights are respected, women are empowered, minorities protected and corruption eradicated.

The west can help Muslim countries meet these goals. Indeed, it is in the west’s interest to do so, not least because it is the best way to counter violent extremism and heal the divisions that feed it. But, it is also time that other world leaders recognise that most Muslims share their hopes for a prosperous and peaceful world.

Muslim leaders are already taking responsibility for modernising their own societies. Malaysia will continue to lead by example. This, and not the nihilism of global terrorism, represents the truest form of liberation and it is one I would call on all world leaders to support.

These two paragraphs are… erm, … like rain on my wedding day:

Poor governance is a feature of many parts of the Muslim world. Political oppression, abuse of civil and political rights and corruption trouble many Muslim countries…

Development must, therefore, be at the top of the agenda of all Muslim countries and communities. This is not simply an issue of income levels, good housing and adequate health facilities. It must also mean a literate and in­formed society, a representative political system that gives effective voice to the people, the absence of severe inequalities, efficient and honest administration and a commitment to the rule of law. A country cannot be considered developed until rights are respected, women are empowered, minorities protected and corruption eradicated.


Japanese Monetary Policy Oxymoron - A Contractionary Stance to Boast Consumption

I have come across many commentaries lately suggesting that the Bank of Japan should stop its next to zero interest rate policy (n-ZIRP?) and increase rates to boast household consumption. For example, Oxford and Yale trained Thomas Palley wrote this on Project Syndicate:

How Japan Fuels Global Financial Instability

... the policy of ultra-low interest rates may also be bad for Japan. This is because ultra-low interest rates may hurt Japan’s households and lower consumption, and this effect may be larger than the benefit that a weak yen confers on Japan’s exports.

Higher interest rates can spur consumption if their impact on income outweighs the increased incentive to save. This may well be the case for Japan, which has a rapidly aging population. Current ultra-low interest rates may be scaring people about the adequacy of future income. Raising rates could alleviate those fears, increasing consumer confidence and spending.

Additionally, raising interest rates would be a form of expansionary fiscal policy. This is because Japan has a large public debt, and increasing interest payments on that debt would put extra money in the hands of households...

My intuitive reaction to this kind of statement is ..." this couldn't be right". But without the luxury of time and the incentive to investigate the claim further, I couldn't quite coherently argue why it is so. The naggy feeling remains, akin to the naggy feeling I got after reading "Malcolm Gladwell's Bl!nk: The Power of Thinking Without Thinking" - something is just not right.

Anyway, last friday, Takehiro Sato, Morgan Stanley economist on Japan wrote this piece which I am significant more sympathetic towards:

Misconceptions on Consumption

Can an increase in deposit interest rates lead to a self-sustaining consumption path?

There are some quite enthusiastic adherents to the hypothesis that an increase in deposit rates, due to an interest rate hike, will stimulate spending. But consistent increases in deposit rates are a must for such income gains on bank deposits to have a steady stimulatory effect on spending. This type of view just is not logical, however, when you stop to think about it.

Let’s look at a basic example. The BoJ’s cumulative 0.5% policy rate hike has resulted, overall, in a 0.2% demand deposit rate currently. Money supply data indicate that individual bank deposits total ¥450 trillion (as of March 2007), and assuming a parallel shift in all durations of deposit rates as well means that a 0.2% deposit rate increase would create full-year income gains of ¥90 billion (or about 0.3% of disposable income). The assumption is that this flows entirely into consumption. However, this type of interest income cannot be expected to stimulate spending additionally in the following year without consistent increases in deposit rates, and results in basically no marginal increase. Basically, rate hikes of 0.5% annually are needed to reap this degree of income gain. While verifiable analysis is still necessary to tell whether such income gains can be fully passed on to consumption, this argument does not intuitively hold water for us.

.... (read the rest for more detailed arguments)

However, I doubt that this provides a definitive conclusion to the matter.

Fellow economists and others out there, what do you think?

Good Monday morn',

Friday, 18 May 2007

Good Government – Populism versus Institutions

From Martin Wolf today:

“A populist sways the electorate by playing on basic emotions. A populist element is present in most great democratic leaders. But populism is also dangerous: it is a step towards arbitrary government…

The dominant characteristic of the populist is dislike of institutional constraints. This is why the populist is the opposite of the conservative. Conservatives treasure institutions: they embody continuity, ensure predictability and preserve wisdom…

Some of the most interesting recent advances in social science emphasise the role of institutions and permanent organisations in making large-scale co-operation among strangers, which we call “civilisation”, possible. Institutions give people the security and predictability they need if they are to make plans. Friedrich Hayek, a classical liberal, would add that nobody can design a society’s institutions from scratch. That is the “fatal conceit”. Institutions evolve…

Good government, then, is a government of laws – not of men – and of orderly procedure – not of whim. It uses institutions, modifies institutions and, where necessary, creates new institutions. The granting of independence to the Bank of England was a superb example: it modified the structure and function of a good existing institution, thereby creating better, more consistent and more predictable policy.

… Good government is institutionalised and systematic, but also decentralised. It is not populist and chaotic. This is something true conservatives and wise liberals should both understand…”


PS: Sorry for the hiatus – have been and still am terribly sick, busy and troubled, but this piece is too precious not to blog about.

Wednesday, 2 May 2007

Potpourri Wednesday

Many interesting readings today.

Firstly, there is Ben Bernanke very timely speech on free trade and the dangers of protectionism. Mark Thoma from Economist’s View writes: I expect this will convert all you doubters into enthusiastic supporters of the free trade agenda. Insular Malaysian policymakers should take note too.

Embracing the Challenge of Free Trade: Competing and Prospering in a Global Economy
Remarks by Chairman Ben S. Bernanke, May 1, 2007

…I will argue that one possible response to the dislocations that may result from trade--a retreat into protectionism and isolationism--would be self-defeating and, in the long run, probably not even feasible. Instead, our continued prosperity depends on our embracing the many opportunities provided by trade, even as we provide a helping hand to individuals and communities that may have suffered adverse consequences.

If we resist protectionism and isolationism while working to increase the skills and adaptability of our labor force, the forces of globalization and trade will continue to make our economy stronger and our citizens more prosperous.

Then there is the latest Martin Wolf’s op-ed on Financial Times, particularly dedicated to the current Malaysian leadership who are squandering our economic opportunities, and for those defeatists who are allowing the former to do so.

Risks and rewards of the world economy’s golden era
By Martin Wolf, May 1 2007

Posterity will regard the economic performance we are now witnessing as a golden age. It will also know, although we do not, how long this era lasts. That will depend on decisions now taken. Such a period offers opportunities. Posterity will blame those who fail to seize them.

Golden periods such as these are rare and never last long. They must be exploited while they do. Posterity will condemn us if we let the chance of building a better world on today’s foundations pass by unheeded.

Of course, there is the Digg’s user revolt, providing a reflection of the power of the people. Mike Arrington from TechCrunch summed it up nicely:

Digg Surrenders to Mob
Michael Arrington, May 1 2007

…Just now, co-founder Kevin Rose posted yet again on the Digg blog, effectively capitulating to the mob’s demands: He says

But now, after seeing hundreds of stories and reading thousands of comments, you’ve made it clear. You’d rather see Digg go down fighting than bow down to a bigger company. We hear you, and effective immediately we won’t delete stories or comments containing the code and will deal with whatever the consequences might be.

If we lose, then what the hell, at least we died trying.

Until today, it seems, even Digg didn’t fully understand the power of its community to determine what is “news.” I think the community made their point crystal clear.

Vive La Revolution.

On lighter notes, there are David Leonhardt on behavioural economics and losing weight, …

Your Plate Is Bigger Than Your Stomach
By David Leonhardt, May 2, 2007

…We just have to decide which cues we are going to choose — the ones that lead to us eat more or the ones that lead us to eat less. The same goes for retirement savings, among many other things. Once we understand that, we can start using our mindlessness to our advantage.

… Kenneth Rogoff pretending to be Paul Wolfowitz, …

Top Secret! Memo From Paul Wolfowitz to Bank Staff
By Kenneth Rogoff, May 2007

… Let me fill you in on the facts of life. Ever since the World Bank was founded shortly after World War II, the President of the United States has always hand-picked the President of the World Bank. That’s life; stop whining. We Americans may hold only 16 percent of the shares at the World Bank, but we insist on keeping its presidency as our birthright. So what if there might be better qualified candidates from the developing world or Asia? I am tired of hearing people say that South African finance minister Trevor Manuel would be far more effective in my job than I am. (Trevor is a good guy, but dream on. He has neither the right passport nor the right friends.) …

and finally, an interesting addition to


(Emphases added)

Malaysia – A Crisis of Norms and Institutions (3)

Property Rights

Another insightful piece from John Kay today:

Property rights and the wrong path to democracy

Financial Times 01 May 2007

There are two methods of allocating property rights: Top down – by the dictates of a central administration – or bottom up – rights to land are acquired by working it.

In Argentina – as in Latin America generally – the top-down mechanism dominated. The beneficiaries were not, in the main, good landlords. The process of assignment established an indissoluble link between political influence and personal wealth.

The English-speaking countries of settlement, rather than colonisation, were different. The bottom-up mechanism – the principle that the strongest claims to the land belonged to those who worked on them – came to dominate… historical events arose from, and reinforced, a democratic political culture and an individualistic social one. Property rights were allocated, and personal success determined, by talent and effort not connections and ancestry.

Bottom-up allocation supports democracy, consensual politics and economic development that emphasise enterprise over the search for political favour. Top-down allocation leads to polarisation and dictatorship, yielding short-run stability and occasional violent disruption…

Note: John uses land to represent factors of production/economics assets in general.


Tuesday, 1 May 2007

Malaysia – A Crisis of Norms and Institutions (2)

Institutional Change: Natura Non Facit Saltum?

Point to ponder today – from Dani’s latest blog entry:

Oligarchic capitalism in one country

Something funny happened to Russia on its way from socialism to capitalism. A bunch of politically-connected "oligarchs" managed to subvert the process while making themselves hyper-rich. In a fascinating paper, Serguey Braguinsky asks “whether oligarchic capitalism represents a transition stage that will eventually lead to a true market economy and political democracy, or whether it is a blind alley that can only lead to another inefficient socioeconomic system." He is not optimistic. A major contribution of the paper is its database of almost 300 oligarchs covering a period of ten years. Among its conclusions: the newer generation of oligarchs, who had little connections to the old nomenklatura system and who could have produced a true entrepreneurial class, ended up engaging in rent-seeking and asset-stripping instead, becoming virtually indistinguishable from the old kind.

And from the paper itself:

At least since Alfred Marshall put the famous epigraph Natura non facit saltum on the title page of his Principles of Economics… economists have realised that institutional change is a continuous and incremental process…

The study of the actual process of transition from communism to “oligarchic capitalism” is important because it contains valuable lessons about the interaction between economic reform and institutional environment that need to be better incorporated into economic analysis. The communist ideology and the planned economy were widely viewed as the greatest obstacles to normal economic development based on private property and market prices. Once those obstacles had been removed, economists saw good reason to predict a smooth transition to a market economy, followed by sustained economic growth.

The “big” question… is whether oligarchic capitalism represents a transition stage that will eventually lead to a true market economy and political democracy, or whether it is a blind alley that can only lead to another inefficient socioeconomic system. Our own conclusion is that at this moment, there are more reasons to be pessimistic than optimistic…

The process of institutional transformation has demonstrated once again that it is impervious to rapid changes.


(Emphases added)