Dynamics of Fanatism

Imagine that you were in a cult. You believe that the world was going to end in 2007, and the only salvation was to believe that the mighty mothership of the Pink Invisible Unicorn would whisk you away on New Year eve, as was pre-ordained in an ancient holy text passed down by the Holy Unicorn herself.


New Year eve came. And there was no mothership. What would you do?


Rationally, you would think that is wise to reexamine your life and reassess your belief. But it is well-known that when a cult suffers from counter-evidence, it comes back stronger than ever. When cult members get setback as such, they become more fanatical.


The common explanation is cognitive dissonance: when you have given all you have to believe, you cannot possibly admit that you have made the wrong decision. You become more fanatical, more entrenched in your belief.


There is another explanation.


Imagine the same cult again. Now there are 20 members in the cult, of varying level of fanatism in belief. When the mothership fails to appear, who would be first to leave? Those who are least fanatical. Thus, the 'average fanatism' of the cult increase not because everyone suddenly became more fanatical, but because the least one left. And this increased fanaticism attracts more fanatics. And so on.


Now, for some real life applications.


University Rankings:

Consider a university that is unconcerned about quality of education and research. One that is more concerned about pleasing political masters in which reward and promotion of staff are based on connections rather than merit.

Who would be first to leave? The best lecturers. Who would remain? Those who would perpetuate the system. Quality would deteriorate. More good lecturers leave. Quality becomes worse. And so on.


Brain Drain:

Similarly, consider a country with misguided discriminatory policies that are obsessed with dividing wealth, ignoring real issues of competiveness and socio-economic inequality; without regards for merits and performance. This translates to huge incentive for the best minds and best companies to leave the country first. Situation deteriorates further, and more leave. Sounds familiar?


Racist Parties and Racial Politics:

This is the motivating example for me to write this post; the reason why the system perpetuates and becomes worse.


For now, what do you think?


Elanor

(Inspired by Eliezer Yudkowsky: Evaporative Cooling of Group Beliefs)

I am Thinking Now

A powerful and moving talk from a speaker whom I have much respect for:

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About this Talk

Patrick Awuah left a comfortable life in Seattle to return to Ghana and co-found, against the odds, a liberal arts college. Why? Because he believes that Ghana's failures in leadership -- and he gives several mind-boggling examples -- stem from a university system that fails to train real leaders. In a talk that brought the TEDGlobal audience enthusiastically to their feet, he explains how a true liberal arts education -- steeped in critical thinking, idealism, and public service -- can produce the quick-thinking, ethical leaders needed to move his country forward.

About Patrick Awuah

After working at Microsoft for almost a decade, Patrick Awuah returned home to Ghana and cofounded Ashesi University, a small liberal arts college that aims to educate Africa's next generation of leaders. Its first class of students graduated in 2006. Read full bio »

___________________________________

A must-see; the talk gives great inspiration and reflection. Personally, many things he said resonated strongly with my ethics and worldview. The topics touched on are applicable to Malaysia and its people on so many levels: His idea on the urgency and importance of beneficent leadership and the need to foster a new generation of passionate, driven and ethical citizens for the future; and his personal decision to leave his comfortable life overseas to go back home and try to make a change.

But my description doesn’t do the talk justice. Go watch it.

Elanor

Taking Notes on Justin Lin - Marshall Lecture 2007 (Part One)

What I took out from the first lecture; part one is on development.

1. Development, the progress and prosperity of a nation, is dictated primarily by institutions.
   
2. Institutions, by construct of nationhood, is in fact determined by the one dominant institution, the government itself. Other institutions are mere derivations.
3. Government is in turn a function of its leaders.
4. Leaders are in turn motivated by its permanence by appealing to the dominant social idea of progress and prosperity.

That is, development is ultimately determined by the dominant idea of the masses on what constitute progress and prosperity. Should that idea be misguided, so would the fate of the nation be in peril.

Economic prioritization based on racial considerations as the dominant social idea?

I fear for the fate of my nation.

Elanor

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.

Look North

"In the analysis of economic performance through time it contained two erroneous assumptions: one that institutions do not matter and two that time does not matter...

...if the institutional framework rewards piracy then piratical organizations will come into existence; and if the institutional framework rewards productive activities then organizations - firms - will come into existence to engage in productive activities."

- Douglass C. North
Economic Performance Through Time, the 1993 Economics Nobel Prize lecture

"Douglass North could be the most important economist of the past fifty years. Yet ... North's work is little known and little recognized, even within the economics profession."

- Arnold Kling

If there is a need to articulate how my world-view on economics has changed after working for 3 years, looking and dealing with economics at a very practical level, is that I now finally could appreciate, empathise and be inspired by the work of Douglass North in a way that I could never do when I was still studying. It is my conviction that the insight is immense and the relevance even greater so, especially for one who aspire to be an applied economist.

Real-life economics analysis and policy cannot be untangled from a true understanding of institutions and norms and the impacts they have on economic performance and the future prosperity of a nation. Malaysians should know this - the most dangerous threat to Malaysia's future is not inflation, unemployment or the next currency/banking crisis, but the slow descent into an overarching but faceless crisis of norms and institutions in the socio-econo-political realm which would eventually lead us to global marginalisation. This, however, is a story for another day.

Back to North's idea, the famous online economist, Arnold Kling (adjunct professor at Cato Institute and previously an economist in FRB and Freddie Mac and author of Learning Economics) wrote this in his latest TCS Daily piece (it is a three-parter, but only the first is out):

Due North
Arnold Kling, 13 June 2007

Douglass North could be the most important economist of the past fifty years. Yet, notwithstanding his Nobel Prize, North's work is little known and little recognized, even within the economics profession.

...The most important economic problems we face are complex systemic issues, such as underdevelopment in Africa or the financial stresses caused by health care spending in the United States. For these sorts of issues, Douglass North is as important as Keynes was to macroeconomics. However, hardly any young economists have followed North's path.

Douglass North calls attention to three factors that are ignored by mainstream economists:

-- Institutions

-- Adaptation

-- Beliefs

In textbook economics, the only external environmental factors that affect the individual are technology and prices. Social norms, habits, and rules play no role. North shows that institutions are fundamental determinants of poverty and prosperity. ...

Textbook economics treats the economy as an allocative mechanism. The focus is on the extent to which resources are allocated efficiently and equitably. North treats the economy as an adaptive mechanism. As an economic historian, his focus is on how an economy evolves over the long term, constrained in many ways by its past. ...

Finally, textbook economics is devoid of cultural context. Mainstream economics assumes that any policy can be implemented anywhere at any time. In contrast, North sees economic behavior as anchored by institutions, which in turn are anchored by beliefs within the culture. ...

But perhaps North's idea is not as unappreciated as Kling conjectured; at least indirectly. Another Nobel Laureate, George Akerlof (Berkeley), together with Rachel Kranton (Maryland), has been very persuasive and forceful in spreading their latest and serious works on norms (identity and beliefs) and macroeconomic theory; which can be said to be an attempt to set economics on a new path, a path that departs from the theoretical foundations of modern macroeconomic models by including social norms for behavior into the theoretical structures. Anyone who are interested in where macroeconomics is heading to in the future should be interested in reading this: Identity and Macroeconomics, What are we missing?

This is taken from Akerlof's presidential address at the 2007 American Economic Association meetings:

The Missing Motivation in Macroeconomics, George A. Akerlof

Abstract
The discovery of five neutralities surprised the economics profession and forced the re-thinking of macroeconomic theory. Those neutralities are: the independence of consumption and current income (given wealth); the independence of investment and finance decisions (the Modigliani-Miller theorem); inflation stability only at the natural rate of unemployment; the ineffectiveness of macro stabilization policy with rational expectations; and Ricardian equivalence. However, each of these surprise results occurs because of missing motivation. The neutralities no longer occur if decision makers have natural norms for how they should behave. This lecture suggests a new agenda for macroeconomics with inclusion of those norms.

Conclusion
... The incorporation of norms based on careful observation imparts an appropriate balance to macroeconomics. The New Classical research program was correct in viewing models of the early Keynesians as too primitive. They had not been sufficiently attentive to the role of human intent in choices regarding consumption, investment, wages and prices. But that research program itself has failed to appreciate the extent to which the Keynesians’ views of macroeconomics were also reflective of reality, since they were based on experience and observation.

A macroeconomics with norms in decision makers’ objective functions combines the best features of the two approaches. It allows for observations regarding how people think they should behave. It also takes due account of the purposefulness of human decisions.

Personally, I find the idea very appealing - a crucial step into a highly exciting direction?

Best,

Elanor

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?

Elanor

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 100^th 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.

Elanor

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…”

Elanor

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.

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.

Elanor

(Emphases added)

Vote for Change?

My post on Why Malaysia Needs More Governance and Less Corruption attracted two very interesting comments. Thank you Cantab and Elegent Lily.

A quick recap – I ended the said post by saying:

Vote for change. As Fukuyama said, the road to modernisation requires a society that desires democracy.

To that, Cantab responded:

Vote for a change? Democracy only works if there are viable alternatives. At the moment, the opposition are a motley crew of political personalities (not even parties, me thinks), clambering to oppose for opposing's sake.

What happens then? Do we put these people in power anyways, just for the sake of change? Or do we tolerate the status quo, until something better comes along?

We cannot win.

I will vote and I will vote for the opposition.

The reason for me to do so however, is not because I believe that the opposition can do a better job in running the country. For the current situation, I do not think that the issue is a matter of the ruling party versus the opposition; on choosing between the lesser of two evils. Many people I know use this line of reasoning to justify apathy, inaction and defeatism.

Democracy is a process. And democracy works when elected representatives are made accountable to the public. For this to happen, political competition is crucial for elected representatives to have the needed incentive to perform and be made responsible. Without competition, democracy is only a name – the system will be no different from a dictatorial regime. Without leaders accountable to serving the public, complacency, inefficiency and corruption will follow and leading us to government banditry and widespread waste* that will rob the nation of its wealth and the population of their future.

Much akin to monopolistic firms exploiting the welfare of consumers, a democracy requires political competition for the welfare of its people to be protected and the progress of its society to be secured.

As Elegant Lily commented:

Given the state of things, where is the country headed? …And how to foster strong institutions in the presence of little political competition?

We need political competition for the system to work. Make our elected representative be accountable to us Malaysians.

Vote for change.

* Highly recommended reading: Tim Harford’s Why Poor Countries Are Poor: The clues lie on a bumpy road leading to the world's worst library.

Malaysia – A Crisis of Norms and Institutions (1)

Why Malaysia Needs More Governance and Less Corruption

I have some ideas with me on the state of Malaysia which I wish to develop formally in the near future. Unfortunately, those ideas are still patchy and insufficiently coherent and robust to build a strong and persuasive thesis. To assist me in forming my arguments, I will be using this blog as a guiding notepad for me to jot down ideas every time I find some inspiration on the topic. These entries will carry the common title of “Malaysia – A Crisis of Norms and Institutions”.

Anyway, Martin Wolf’s latest op-ed on FT.com is again very interesting. Titled ‘The World Bank must regain the high ground’, he basically said that for the world leading institution in fighting global poverty to remain relevant and credible, Paul Wolfowitz must step down. As he put it eloquently:

The moral authority of the bank is in the dust. Only one decent outcome of this tragically unnecessary affair exists. The cause on which so many rightly agree is bigger than the fate of one man.

Anyway, the article also explained succinctly on the importance of governance in ensuring the development of any nation:

“If you want to make poverty history you have to make corruption history”… Governance (is defined) as “the combination of transparent and accountable institutions, strong skills and competence, and a fundamental willingness to do the right thing”. Corruption is narrower: it is the abuse of public position for private gain. Corruption… is “a cancer on the development process”.

Yet corruption is also the natural thing to do. That is why it has always been pervasive. It is its absence that is unnatural. A society relatively free of corruption has removed the motivations of the marketplace from politics, public administration and the law. Since rich countries are far less corrupt than poor ones, the former have a better-enforced line between what lies within the market and what lies outside it (see chart).

Yet is it their wealth that causes the low corruption or the low corruption that causes their wealth?…[A]s Daniel Kaufmann, the bank’s leading researcher on governance, argues, the relationship works both ways. “We estimate”, writes Mr Kaufmann, “that a country that improved its governance from a relatively low level to an average level could almost triple the income per capita of its population in the long term, and similarly reduce infant mortality and illiteracy.”

And more importantly:

As Paul Collier of Oxford university notes in a wonderful forthcoming book, development depends on two things: opportunity and the ability to seize it.* The quality of governance is an important determinant of the latter. But a country’s resources, size, location, environmental condition and disease load determine the former.

…

The argument between those who stress institutions and those who stress underlying conditions is fatuous. Both matter… [T]his…does not make the quality of governance less important, but rather more so.

…

In the significant case of corruption, it is a question of changing incentives and moral norms. Changing incentives involves: paying officials more; removing unnecessary and, above all, unnecessarily complex regulation; increasing transparency, not least through free media; and allowing citizens to exercise a “voice” through elections. Making such changes is hard technically and politically, since the beneficiaries of the corrupt status quo have the power to make progress difficult. But it is sometimes possible.

Mental Note 1:
Malaysia is blessed with favourable underlying conditions. Very unfortunately, the current institutions are squandering all the wealth and opportunities away.

Mental Note 2:
Vote for change. As Fukuyama said, the road to modernisation requires a society that desires democracy.

Elanor

(Emphases added)

* The Bottom Billion, Oxford University Press

The Academia is a Meritocracy

From Mankiw’s blog today:

A student emails me from Greece to ask:

I wish to follow an academic career and I would like to teach at famous universities (like Harvard, MIT, Stanford and so forth). Do you think that this is possible?

Yes, absolutely. Academia is very much a meritocracy. Success at getting goods academic jobs is determined by research productivity, measured by such things as publications in top academic journals (such as the AER, JPE, and QJE) and citations by others in academic journals (recorded in the Social Science Citation Index and Google Scholar).

Local universities do not apply?

Subsidising Idleness is Soul-Destroying

I love reading the Financial Times – especially the op-ed articles. If I have to choose reading only one newspaper, FT is the one.

This is from Martin Wolf today. Besides his usual remarkable insights on the matter he writes on, I found the last few paragraphs being rather instructive in thinking about economic policies in Malaysia.

How to promote employment while protecting the low-paid
Martin Wolf
Published: April 10 2007

…The impact of globalisation on workers’ incomes depends on the size of the pie and their share in it. The evidence of a positive impact on the former is overwhelming. The evidence on the impact of globalisation on the latter… has been a factor, but not the dominant one.

Yet the most striking conclusion of this analysis has been the benefits of policies that promote employment… While incomes can be sustained through transfers, subsidised idleness is soul-destroying. French voters, please note (Elanor: Malaysian voters too).

The right policy, then, is to promote employment while augmenting the incomes of the low-paid… It is also to promote the highest quality of basic education across the labour force and provide good opportunities for motivated workers to upgrade their skills.

The right policy is to combine openness to trade with a politically acceptable sharing of the gains in high-income countries. The challenge is huge. But it is one at which we cannot afford to fail.

General pointer on the direction Malaysia should move towards – stop being insular, embrace globalization; stop subsidising idleness and complacency, improve education.

Unfortunately, the country is currently moving the other direction.

*Mumble grumble, emphases added*