Friday, 1 June 2007

Dividing Wealth

We Malaysians are absurdly concerned about dividing wealth. Not redistribution of wealth from the well-to-do to the needy, but plainly about dividing wealth amongst different races, treating wealth as though it is like manna from heaven.

And when it comes to dividing stuff, we inevitably need to impose our judgement on what is equitable – on what proportion is fair. And after much observations, I realised there is a consensus – what is fair is a proportion that relates to the proportion of that race to the total population. I mean, it is totally logical and rational right?

If say you have three adopted sons – Ali, Ah Chong and Muthu – and you want to divide 15 sweets amongst them, it is only fair that each gets 5 sweets. Right?

Okay, let’s inject some realism to this analogy.

1. Wealth is created, not inherited

Let’s add some details to the above story. Say that you are not the owner of the sweets and your adopted sons actually work themselves to earn those sweets. Ali is the most hardworking and diligent, earning 8 sweets. Muthu is next, earning 5 sweets and Ah Chong, being the lazy lad that he is, only managed to work enough to get 2 sweets.

What happens now? Does the notion of fairness as articulated above – dividing equally – still apply? If our notion of fairness is so simplistic, what will happen?

Ah Chong, with only 2 sweets, is the one who needs the most help. So as a parent, you subsidise him – give him more sweets. And since Ali is over 'endowed', you either ignore him or tax him so that you could transfer some of Ali’s sweets to Ah Chong. Muthu, well, you treat him indifferently.

What you are doing, in fact, is to encourage laziness and punish effort. Done often enough, you will breed resentment in Ali, complacency in Ah Chong and promote disunity overall. Since Ali is not rewarded anyway, he might just be less diligent and earn fewer sweets – or perhaps he might just run away from home. Ah Chong, on the other hand, knowing that he will be helped anyway, might as just as well be lazier and be fed the sweets regardless.

And this is the key reason why dividing wealth in such an arbitrary manner is misguided – wealth is created, not inherited. There is no omnipotent Master of Corporate Equity handing out ownerships to the various races in the country, like the parent in the above example. The Government of Malaysia is not the owner of the wealth of the nation, and neither should it be an absolute arbitrator of equity and sorts. A good government is one that facilitates a thriving private sector through good governance and upholding the rule of law, not stifles the sector with silly regulations.

2. Looking Beyond the Racist Perspective

Let’s consider another addition of realism to the example. Now, instead of just 3 sons, you adopted 6 – Ali, Ahmad, Ah Chong, Ah Wong, Muthu and Siva. And now you have 30 sweets (say you accumulated them through a form of savings of sweets from your kids previously). And instead of starting of with nothing, your sons actually have some initial sweets to begin with.

Say, the initial starting points are -

Ali – 20 sweets
Ahmad – 5 sweets
Ah Chong – 23 sweets
Ah Wong – 2 sweets
Muthu – 25 sweets
Siva – 0 sweet

If you are a racist, you will group them together and you get:

Malays – 25 sweets
Chinese – 25 sweets
Indians – 25 sweets

So with your silly notion of racist fairness, you give each race 10 sweets each, and further divide it to 5 per individual. So now you get:

Ali – 25 sweets
Ahmad – 10 sweets
Ah Chong – 28 sweets
Ah Wong – 7 sweets
Muthu – 30 sweets
Siva – 5 sweets

Clearly, this manner of redistribution of sweets results in great inequality if you choose to look beyond the racist perspectives and see them as individuals. Is this what we want? Ah Chong is already rather well off – should we give him more just because he is Chinese? Siva is poor – should we not give him more just because he is Indian?

Let’s blind ourselves and look at our sons as well-to-do and needy:

Well-to-do – 68 sweets
Needy – 7 sweets

Would you redistribute your sweets differently now?

This is the second point – Malaysia has one of the worst inequality of income in the world and the worst in Asia. And the most ironic bit about this is that it is even worse if you look solely at Malays as a group. If we are really driven to eliminate socio-economic inequality, why are we still having indiscriminate policies that help Bumiputera regardless of whether he is a multi-billionaire or not? And why are low income Indians neglected despite the Government knowing well their woes since the very first Malaysia Plan? Because they are Indians and not Malays, and hence do not deserve to be helped even if they desperately need aids? Imagine a 7% discount for a Bumiputera bungalow of RM 5 million – that is RM 350,000 worth of ‘aids’ we are giving to a single Malay multi-millionaire, money that could be used to assist dozens of needy Indian, Malay and Chinese families.

When are we going to truly look beyond ethnicity and address real poverty?

Going back to the beginning, the simplistic notion of fairness and our policies based on this dogmatic pre-occupation of ethno-economic equality – it is both destroying our economic competitiveness and promoting disunity without truly addressing the true issue of socio-economic inequality. When are we going to realise this folly?



zcer said...

Rationality is doing what is needed to achieve what you want. Irrationality is undermining your own agenda. Missing your objectives by chasing stray targets.

democratic junkie said...
This comment has been removed by the author.
democratic junkie said...

i think the government has thought of this and 101 other possibilities 35 years ago. They have the best brains at their disposal, be it hired internally or outsourced. If im not mistaken, the person who formulated our initial NEP was a norwegian economist. And i still think they do consult foreign experts on economic policies. Wether or not they take the advice is another matter all together.

What im trying to point out is they are politically driven. Politics takes precedence over economic decisions....Politically, umno has done very well over the pass 50 years albeit at the expense of the nation.

democratic junkie said...

hey elanor,

could you shed some light on the computation of the recent GDP figures? Are the figures audited by an independent party? Exactly how reliable are the figures?

Thanks....enjoyed your post.

Anonymous said...

actually, i think elanor was pointing out not politicians' folly, but rather how Malaysians in general have succumbed to looking at things through the racist perspective.

zcer said...

Noo! we should pretend the politicians didn't fool us on purpose. We must pretend they were stupid. It's easier being stupid than evil. The truth doesn't matter here. This is politics.

democratic junkie said...

fear is an effective tool to win elections if administered correctly. Look at bush's re-election. He harped on the 9/11 issue, american safety and security. He won.

imagine this.......If our opposition achieves a landslide victory, the malays from kampung baru will come out stabbing chinese and indians at will and bam!, emergency ordinance kicks in. government takes control and we go back to square one. Then Najib will tell you to vote BN if you want peace, just like his father did. Oh how apt!

zcer said...


democratic junkie said...

as in instilling fear into the electorate.

zcer said...

no, i mean, How is it related to what we should do about the govt deliberately trying to manipulate us for political ends. Should we accuse them of that outright? Or should we pretend to criticize them as stupid? We certainly need the populace to be aware of the fooling in the first place. But which is more productive?

democratic junkie said...

i agree with you and i think awareness of their hidden agendas is a more productive choice. on the contrary, one should always tread with caution in educating the populace as we have oppressive acts such as the ISA and government contolled institutions such as the police, army, and judiciary(to a certain extent).

najib controls the army, so no coups for us=(. Assasinations wont solve the problem and genocide is just too barbaric. so yeah, just educate, vote, and hope the fighter jets the army purchased are not for annihilating opposition supporters.

zewt said...

very very well written... brilliantly put in the sweets analogy. on one hand... we know what is going on... but we also know that concrete steps to eradicate poverty will not be taken... i am sure we all know why...

Jeg said...

i'm guessing Elanor went to Cambridge with the government scholarship.

Or did she? can someone confirm this to me?

If Elanor was under scholarship, it's a shame how she came out with this entry.

But again, can someone confirm this to me?

zcer said...

Elanor owes the scholarship (if there was one) to the people of Malaysia (taxpayer's money after all). Not to the government.

democratic junkie said...


Cantab said...

Another brilliant post; simple so non-economists like myself can quickly grasp the concept that something is not so sweet back home.

And Jeg, how/why is it relevant how Elanor went to Cambridge? Scholarship or no scholarship, we are all still entitled to an opinion, no?

Or am I missing something here? Haven't been following this too closely recently..

Elanor said...

Thank you all for your comments, truly appreciate them.

And Jeg, if I was sponsored under a Government scholarship, would you care to explain to me why I should be ashamed of the fact that I wrote this?

I do not think I fully understand your line of reasoning.


somethingmissing said...


Can you confirm to me that you're a government scholar? As a Malaysian, I feel that if this is the case, it's a shame that you made that comment on Elanor's blog. Because you're arguing against opinions that I believe are crucial to a positive future for the nation, and therefore you yourself are behaving in a way that's detrimental to the nation. Such a shame. Scholarships are in fact awarded by the whole nation and not just the government or the status quo that you hold so highly, hence that government or status quo is not above criticism - quite the opposite. The nation is what matters, and the nation is not the government, nor is it a specific racial group or a status quo.

Now, I actually don't think that it would be a shame for you to hold a government scholarship, since you clearly care about the nation's future in your own slightly misguided way. However you seem to equate your own approach with an approach that any scholar is duty-bound to adopt. That's a huge shame.

Anonymous said...

It is a shame that you care more about whether Elanor was a government scholar ... instead of seeing the merit or demerit of what Elanor is writing.
Even if Elanor went to Cambridge under Malaysian Government Scholsrship, paid by tax payers, her duty should be towards the tax payers, and it is precisely what she is doing, high lighting the challenges Malaysia is facing and hope something can be done about it.
Jeg, can you tell me who pay most of the tax in Malaysia and who get most of the benefit? Should they pay more attention to service the needs of the tax payers?