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.