Malaysia's Demise

Hoisted from my previous post; my response to a reader’s comment.

Hi Anon,

I am very sorry about the exclusivity of the post. About North's idea: economists have been increasing technical, relying on model building (equations), mathematics and statistics, to explain economics phenomenons. In a sense it is getting more like physics (disclaimer - this is an extreme oversimplification).

But according to North, while technical constructs are important, to truly appreciate how a country's economy performs, it is absolutely crucial to understand two things: history (what happened before really matters) and institutions (laws, regulations, political structures, social cohesion, mindset of the people, governance, education, corruption).

The more you look at Malaysia, the more you realise how truly true this is - mathematics and models explain very little about economic performance in Malaysia (and when they do explain scenarios, they are always not very interesting). Understanding the true fate of the nation does not lie in looking at the interest rates BNM sets, the exchange rates regime, the inflation rates and so on.

But rather, the fate is determined by what happened before (history) which shaped the institutional structures (institutions) the way we have now. Sometimes history shapes good institutional structures - sometimes it shapes very negative ones. Malaysia, I am increasing convinced, is stuck in a very negative path - we are having a crisis of institution, shaped by our history.

My greatest fear is that this problem is faceless and everywhere - there is no single source. The problem is in all of us, all our organisations, all interlinked together, feeding on each other and giving strength to the decline of our nation. Institutional crisis in Malaysia - the extremely racist mindset, the prevalence of corruption, the need to separate performance-reward structure and replace it with ethnicity/connection-reward structure, the lack of social cohesion, the decline in educational quality - are all linked together, feeding on each other and are not promoted by a single source. No, it is not due to the ruling political party or the oppositions but by our history, our society and every single one of us.

As an example, even without government's direction, our companies have racist policies by themselves - Maybank, and the call by the Bumiputera 'intelligentsia' to retain the racist policies that makes no business/economics-sense is a case in point. The decline is self-sustaining.

If the problem has a single source, the solution is clear - if it is faceless, the solution is… … sigh.

I do not have an answer for that. That is why it is my greatest fear - watching my country's slow but painful demise.

Elanor

PS: Akerlof's latest works is on how to systematically analyse economics by including identity - that is, instead of assuming everyone acting rationally, we have to consider how people will actually act based on their belief on how they should act based on society's expectation of how they should behave. Basically by making economics more personal again.