Thursday, September 23, 2010

When other things are equal....

I am not a professional economist but I've seen enough facts of life to say that many economic laws don't seem to work no more.The economists are fond of saying "when everything else is equal" a higher market demand will stimulate production and investment in the production of those things in high demand. But nothing is equal. A country may not be able to produce the things in demand because of technological or other problems and so the country IMPORTS them. More money flows out and the trade balance is disturbed, leading to a negative balance of trade.

Isn't that true in many cases for Malaysia? We have often run short of building materials like steel and cement and we imported them. Why not produce more locally? Where's the capacity to do so? Even foodstuff like rice an sugar are imported because we do not find it economical to be self-sufficient in their production. It's cheaper to buy from neighboring countries than to produce them ourselves. We don't produce papers and fertilizers because of trade agreement with other ASEAN countries. Now the cost of newspapers and books keeps escalating. Some text books cost hundreds of ringgit while in India and the Phiippines one can find cheap newspaper edition costing less than RM10. Why are we surprised then that the average Malaysians don't do much reading, hardly a book a year?

Dr Mahathir has been writing a lot about the fallacy of Direct Foreign Investment being able to boost the economy of a nation. It only promotes foreign interests while the people as a whole gain very little. Then there is currency trading and manipulation of the share market that can cause a country to go bust. Remember what happened to the value of our ringgit. It's still below what it used to be in the 1960 and 70s. I still remember the pleasure of paying RM2+ for a USD and RM3+ for the British Pound. In that light we've gone backward. We're half of Singapore in currency value, you know. Don't fret. We're better in many ways but not money-wise.

Now we're gunning to become a high-income economy by 2020. How? Raise productivity, more added value, pay higher income, have a more creative and innovative industrial sector, create a higher level technological skill among the workers with more training, higher education etc etc.The economic theory which has become like a law is that higher productiviy will push up income level and propel a country into a high-income group. All very nice but a higher productivity can only be induced by a higher market demand. Can we create that demand at home and from abroad? Are we going to compete with foreign products which Malaysians are ready to pay for at exorbitant prices (for branded names that is). To pay higher wages, productivity increase must be substantial and sales must increase to absorb the increased products. There has to be more market promotion and retail costs will go up as a result. Will there be more sales at lowere prices? Otherwise prices will escalate leading to higher inflation.

I think some straight thinking based on the reality of the Malaysia market and our export potential needs to be done. Market research is the one thing that Malaysia had not given enough attention to, What is the maximum potentials of our domestic market capacity and that of export which could absorb an expanded level of production and what is the level of production which would remain viable without causing surplus and wastage?

I think a lot of market research needs to be done. Don't waste too much time, efforts and money on identifying National Key Results Area (NAKRA) and measuring performance since the feedback from the grassroots will be enough to indicate what has successfully been carried out by government and what has not. Just listen more to the hue and cry of the public, not to the technical reports of the so called experts with lots of figures but not reflecting public sentiments.

With regard to the concept of a free market where prices and competativeness determine who will lead in an industry, we all know that there's no such thing as a free market. All countries especially the rich countries protect their market by imposing
import restrictions and high import tax. While higher technology ensures that their products are superior in quality the restrictions and tax protection ensure that the prices of their products are more viable. How can the developing countries break through the trade barriers that they erected.

Well, the economic laws again need to be reviewed in order to see how the human factor makes things different and not equal as held by the economic formula. In Malaysia even the innovative ideas are hard to sell and industries don't want to cough up too much money for reasearch. Let others do the research and they will just use the findings. We forget that research itself is an industry which if we fail to develop will make us dependent on research dome by foreign countries. We have to pay through our nose to use their findings in technological advancement.

So, the simple economic rule is enlarge your market, create more demands and then step up production. Do the reverse and you'll end up with surplus production that cannot be sold.


abdulhalimshah said...

Akhi Norzah,
I support your views with regard to pragmatic ways of looking at our country's position vis-a-vis our competitors say like our next door neighbour.
Economists should get one of their hands chopped off so that they will stop the argument with the phrase " on the other hand" apart from ceterus paribus. We definitely can live without economists, but we cannot live without the people who supply our daily needs like our staples and things that make our lives tick.
Last night I talked to a guy who learned the ropes in doing business in the food supply chain to 5 star hotels and right to preparing feasts for tens of thousands of people. He is street-wise and his days of catering business is over and now he just run a petrol station in Klang. He is the epitome of practical economics and he concurred with me that if you have been a civil servant, business is not your cup of tea because it is a dog-eat-dog world altogether.

kaykuala said...

Akhi Norzah,
‘Ceteris Paribus’ a Latin phrase for ‘everything else remaining equal’. You’re right Akhi Norza. We’ve been all the more richer in knowing and for having experienced during our lifetime, technological change, cyberspace, the currency crises ( Pound Sterling in the 60’s, $ in the 70’s and our own RM in the 90’s) that we just can’t help but feel helpless and frustrated on what we are seeing now. Are we that disadvantaged not to be able to exploit and alleviate the sad situations to our advantage?. ‘Assumptions’ the mainstay of economic theory comes into play most definitely. Assuming ‘everything else remaining equal’ provides a convenient way to explain without the bother of other permutations that may colour the outcome. But it does’t work that way. In the real world, assumptions cannot deflect what naturally comes to happen. There’s nothing wrong with the economic theories but more of the application and implementation on the ground, replete with leakages ( wastage, overpricing, corruption etc, etc.) My fervent hope is that the measures recently revealed by Pemudah to bring us into the era of a high-income society come 2020 signaled a whiff of fresh incentives. There again, we need to familiarize ourselves with the various acronyms to start with let alone witnessing on their implementation which touched on various facets of development that left us mystified and confused. To be fair, it is utterly unbecoming for us to prejudge them until we have more details, anyway.
For one, at least there are various measures revealed rather than just wishful thinking towards Vision 2020. The goal was set by PM Mahathir, and the road-map is now introduced by PM Najib. Let us hope politics may not put spanners in the works that may set us back unnecessarily.

Al-Manar said...

Dear Norzah,
Neither an economist nor a professional educationist I find something wrong whichever direction I look into in these fields. Wonder sometimes if is just the age.

norzah said...

Akhi Halim, business is a dog-eat-dog world alright.
I tried after my retirement and ended being cheated left and right by the person you trust.
On the national economy, we seem to be creating funds after funds in the millions, direct foreigh investment seems to be coming by the billions. Yet,
people say we have no money and the country is facing some financial straight. Govt has been putting its hands into the pocket of EPF, PETRONAS, PNB, and other Govt-related Corporations. When their funds dry up, we'll be in the hot soup.
What is the truth, we never know. What we know is that some politician businessmen are making tons of money and living like kings.
The Chinese billionaires are of course becoming multibillionaires. The common Malays, dok tang tu juga.

norzah said...

Akhi Kaykuala, I like your optimism and refrain from prejudging the economic situation of the country. Yes, we certainly have a lot of plans and roadmaps to make this nation a high income nation, But I am a realist. I see things around us and get worried. Who are the rich Malysians today? How rich compared to the taukeys? Scan all the economic hubs of the new town centers,Puchong, Kinrara, Bukit Kiara, Sungai Bulu etc etc. Who are the property owners, the business operators, the capitalists? Who are the investors in the South and North Corridors that are going to control the national economy?
I don't want to wake up and see myself as an outcast in my place of birth, everything else but my house, being owned by you-know-who. Are we not plying into the hands of rich Singapore now, a country where foreign capital can pour in without any limit and citizenship can be bought with money. In the north, is Thailand happy with us? South Thailand is kicking up a lot of dusts. Even Indonesia is not happy with us. Stop getting maids from Indonesia and get them from, where? Thailand, China, Philippines...? Where is Penang going? To Malaysians or what?
Well we are on our way to a high income economy, where meritocracy is the rule. No special rights, no disadvantages allowed, no handicap. Everybody must play with zero handicap or leave the green. Are you in or out, Akhi?

norzah said...

Akhi Pakcik Al-Manar, I feel exactly as you do. But I want to at least be able to point to some wrong that can be corrected, even as a nobody but a peace-loving
anak watan. With Singapore coming in a big way through JB and Penang going for a Malaysian Malaysia,
and KL belonging to the multibillionaires, some people might be pushed to the hills. I do hope that Kelantan and Trengganu will remain "underdeveloped" (as some people say), but in the hands of Anak Watan. I'd rather own my little acre than be a tenant in a rich, luxurious, six-star condo. How about you?

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