Taking on Adam Smith (and Karl Marx)


April 21,2014

Taking on Adam Smith (and Karl Marx)

PARIS — Thomas Piketty turned 18 in 1989, when the Berlin Wall fell, so he was spared the tortured, decades-long French intellectual debate about the virtues and vices of communism. Even more telling, he remembers, was a trip he took with a close friend to Romania in early 1990, after the collapse of the Soviet empire.

piketty-“This sort of vaccinated me for life against lazy, anticapitalist rhetoric, because when you see these empty shops, you see these people queuing for nothing in the street,” he said, “it became clear to me that we need private property and market institutions, not just for economic efficiency but for personal freedom.”

But his disenchantment with communism doesn’t mean that Mr. Piketty (left) has turned his back on the intellectual heritage of Karl Marx, who sought to explain the “iron laws” of capitalism. Like Marx, he is fiercely critical of the economic and social inequalities that untrammeled capitalism produces — and, he concludes, will continue to worsen. “I belong to a generation that never had any temptation with the Communist Party; I was too young for that,” Mr. Piketty said, in a long interview in his small, airless office here at the Paris School of Economics. “So it’s easier in a way to reopen these big issues about capitalism and inequality with a fresh eye, lbecause I was too young for that fight. I don’t have to justify myself as being pro-communist or pro-capitalist.”

In his new book “Capital in the Twenty-First Century” (Harvard University Press), Mr. Piketty, 42, has written a blockbuster, at least in the world of economics. His book punctures earlier assumptions about the benevolence of advanced capitalism and forecasts sharply increasing inequality of wealth in industrialized countries, with deep and deleterious impact on democratic values of justice and fairness.

Branko Milanovic, a former economist at the World Bank, called it “one of the watershed books in economic thinking.” Paul Krugman, winner of the Nobel in economic science and a columnist for The New York Times, wrote that it “will be the most important economics book of the year — and maybe of the decade.” Remarkably for a book on such a weighty topic, it has already entered The New York Times’s best-seller list.

“Capital in the Twenty-First Century,” with its title echoing Marx’s “Das Kapital,” is meant to be a return to the kind of economic history, of political economy, written by predecessors like Marx and Adam Smith. It is nothing less than a broad effort to understand Western societies and the economic rules that underpin them. And in the process, by debunking the idea that “wealth raises all boats,” Mr. Piketty has thrown down a challenge to democratic governments to deal with an increasing gap between the rich and the poor — the very theme of inequality that recently moved both Pope Francis and President Obama to warn of its consequences.

Mr. Piketty — pronounced pee-ket-ee — grew up in a political home, with left-wing parents who were part of the 1968 demonstrations that turned traditional France upside down. Later, they went off to the Aude, deep in southern France, to raise goats. His parents are not a topic he wants to discuss. More relevant and important, he said, are his generation’s “founding experiences”: the collapse of Communism, the economic degradation of Eastern Europe and the first Gulf War, in 1991.

Those events motivated him to try to understand a world where economic ideas had such bad consequences. As for the Gulf War, it showed him that “governments can do a lot in terms of redistribution of wealth when they want.” The rapid intervention to force Saddam Hussein to unhand Kuwait and its oil was a remarkable show of concerted political will, Mr. Piketty said. “If we are able to send one million troops to Kuwait in a few months to return the oil, presumably we can do something about tax havens.”

Would he want to send troops to Guernsey, the lightly populated tax haven in the English Channel? Mr. Piketty, soft-spoken, barely laughed. “We don’t even have to do that — just simple basic trade policy, trade sanctions, would do the trick right away,” he said.

A top student, Mr. Piketty took a conventional path toward the French elite, being admitted to the rarefied École Normale Supérieure at 18. His doctoral dissertation on the theory of redistribution of wealth, completed at 22, won prizes. He then decamped to teach economics at the Massachusetts Institute of Technology before returning two years later to France, disappointed with the study of economics in America.

“My Ph.D. is mostly about pure economic theory because that was the easiest thing to do, and I was hired at M.I.T. as a young assistant professor doing economic theory,” he said. “I was young and successful at doing this, so it was an easy way. But very quickly I realized that there was little serious effort at collecting historical data on income and wealth, so that’s what I started doing.”

Academic economics is so focused on getting the econometrics and the statistical interpolation technique correct, he said, “you don’t really think, you don’t dare to ask the big questions.” American economists too often narrow the questions they examine to those they can answer, “but sometimes the questions are not that interesting,” he said. “Trying to write a real book that could speak to everyone meant I could not choose my questions. I had to take the important issues in a frontal manner — I could not escape.”

He hated the insularity of the economics department. So he decided to write large, a book he considers as much history as economics, and one that is constructed to lead the general reader by the hand.

He is also not afraid of literature, finding inspiration in the descriptions of society in the realist novels of Jane Austen and Balzac. Wealth was best achieved in these stories through a clever marriage; everyone knew that inherited land and capital was the only way to live well, since labor alone would not produce sufficient income. He wondered how that assumption had changed.

As he extended his work on France to the United States in collaboration with Emmanuel Saez, a professor of economics at the University of California, Berkeley, he saw that the patterns of the early 20th century — “the top 10 percent of the distribution was full of rental income, dividend income, interest income” — seemed less prevalent from the 1970s through the early 1990s.

“It took me a long time to realize that in effect we were returning slowly in the direction of the previous equilibrium, and that we were part of a long transitory process,” he said. When he started working on the issue in the late 1990s, “there was no way this could be understood so clearly — having 20 additional years of data makes a big difference to understanding the postwar period.”

His findings, aided by the power of modern computers, are based on centuries of statistics on wealth accumulation and economic growth in advanced industrial countries. They are also rather simply stated: The rate of growth of income from capital is several times larger than the rate of economic growth, meaning a comparatively shrinking share going to income earned from wages, which rarely increase faster than overall economic activity. Inequality surges when population and the economy grow slowly.

The reason that postwar economies looked different — that inequality fell — was historical catastrophe. World War I, the Depression and World War II destroyed huge accumulations of private capital, especially in Europe. What the French call “les trentes glorieuses” — the roughly 30 postwar years of rapid economic growth and shrinking inequality — were a rebound. The American curve, of course, is less sharp, given that the fighting was elsewhere.

A higher than normal rate of population and economic growth helped reduce inequality, along with higher taxes on the wealthy. But the professional and political assumption of the 1950s and 1960s, that inequality would stabilize and diminish on its own, proved to be an illusion. We are now back to a traditional pattern of returns on capital of 4 percent to 5 percent a year and rates of economic growth of around 1.5 percent a year.

So inequality has been quickly gathering pace, aided to some degree by the Reagan and Thatcher doctrines of tax cuts for the wealthy. “Trickle-down economics could have been true,” Mr. Piketty said simply. “It just happened to be wrong.”

His work is a challenge both to Marxism and laissez-faire economics, which “both count on pure economic forces for harmony or justice to prevail,” he said. While Marx presumed that the rate of return on capital, because of the system’s contradictions, would fall close to zero, bringing collapse and revolution, Mr. Piketty is saying the opposite. “The rate of return to capital can be bigger than the growth rate forever — this is actually what we’ve had for most of human history, and there are good reasons to believe we will have it in the future.”

n 2012 the top 1 percent of American households collected 22.5 percent of the nation’s income, the highest total since 1928. The richest 10 percent of Americans now take a larger slice of the pie than in 1913, at the close of the Gilded Age, owning more than 70 percent of the nation’s wealth. And half of that is owned by the top 1 percent.

Mr. Piketty, father of three daughters — 11, 13 and 16 — is no revolutionary. He is a member of no political party, and says he never served as an economic adviser to any politician. He calls himself a pragmatist, who simply follows the data.

But he accepts that his work is essentially political, and he is highly critical of the huge management salaries now in vogue, saying that “the idea that you need people making 10 million in compensation to work is pure ideology.”

Inequality by itself is acceptable, he says, to the extent it spurs individual initiative and wealth-generation that, with the aid of progressive taxation and other measures, helps makes everyone in society better off. “I have no problem with inequality as long as it is in the common interest,” he said.

But like the Columbia University economist Joseph E. Stiglitz (right), he argues that J Stiglitzextreme inequality “threatens our democratic institutions.” Democracy is not just one citizen, one vote, but a promise of equal opportunity.

“It’s very difficult to make a democratic system work when you have such extreme inequality” in income, he said, “and such extreme inequality in terms of political influence and the production of knowledge and information. One of the big lessons of the 20th century is that we don’t need 19th-century inequality to grow.” But that’s just where the capitalist world is heading again, he concludes.

Mr. Saez, his collaborator, said that “Thomas combines great perfectionism with great impatience — he both wants to do things well and do things fast.” He added that Mr. Piketty has “incredible intuition for economics.”

The last part of the book presents Mr. Piketty’s policy ideas. He favors a progressive global tax on real wealth (minus debt), with the proceeds not handed to inefficient governments but redistributed to those with less capital. “We just want a way to share the tax burden that is fair and practical,” he said.

Net wealth is a better indicator of ability to pay than income alone, he said. “All I’m proposing is to reduce the property tax on half or three-quarters of the population who have very little wealth,” he said.

Published a year ago in French, the book is not without critics, especially of Mr. Piketty’s policy prescriptions, which have been called politically naïve. Others point out that some of the increase in capital is because of aging populations and postwar pension plans, which are not necessarily inherited.

More criticism is sure to come, and Mr. Piketty says he welcomes it. “I’m certainly looking forward to the debate.”

READ onhttp://www.nytimes.com/2014/04/20/business/international/taking-on-adam-smith-and-karl-marx.html?ref=books

Dani Rodrik: Has sustained growth decoupled from industrialization?


April 9, 2014

The George Washington University, Washington DC–Growth Dialogue

http://www.growthdialogue.org/shared-views/dani-rodrikhas-sustained-growth-decoupled-industrialization

Dani Rodrik: Has sustained growth decoupled from industrialization?

Watch Prof. Dani Rodrik’s full presentation at the Symposium on Frontier Issues in Economic Growth.

Attracting Malaysian Talent Home is tough for Johan Merican


April 9, 2014

Malaysia struggles to woo Malaysian experts home due to ‘better life’ abroad–A Tough Job for Johan Merican

 by MD Izwan (04-08-14) @www.themalaysianinsider.com

TalentCorp CEO Johan Mahmood Merican says the agency has several incentives to make it easier for overseas Malaysians to come home, including tax exemptions on their cars. – The Malaysian Insider pic by Najjua Zulkefli, April 8, 2014.

TalentCorp CEO Johan Mahmood Merican says the agency has several incentives to make it easier for overseas Malaysians to come home, including tax exemptions on their cars.–  pic by Najjua Zulkefli, April 8, 2014.

Higher salaries, better professional opportunities and a comfortable life – these are the main reasons Malaysian professionals living abroad are reluctant to return to Malaysia, TalentCorp said.

According to its statistics, TalentCorp managed to bring back 2,500 Malaysians working abroad, but the figure is small when compared with a 2011 World Bank estimate that almost a million Malaysians are working outside the country.

TalentCorp has received almost 4,000 applications in the three years since it was established in 2011 to address the brain drain in the country.

“It is a combination of several factors. First, the quality of life is related to salaries, second, professional opportunities and third, a comfortable life, ” TalentCorp Chief Executive Officer Johan Mahmood Merican told The Malaysian Insider recently. However, the gap in quality of life is not too big when Malaysia is compared with other countries, he said.

“For example, the salaries in London are definitely high but we must increase their awareness about the quality of life after living costs are taken into account. Sometimes, the gap is not that big,” he added.

In terms of professional opportunities, Johan said Malaysia was still capable of offering the best opportunities as the country’s economic position was still good.

“In many other developing countries in the world, their economies are relatively slow but Malaysia’s is steadily progressing,” he said.

“The third factor, there are a lot of reasons for that. It’s true that there are some Malaysians who are worried about education, crime and the political scenario in the country,” he added.

The country which has the highest number of Malaysians wanting to come home is Singapore, followed by the United Kingdom, China, Australia and the Middle East.

According to a World Bank report, Malaysia’s Gross Domestic Product (GDP) was US$303.53 billion (RM995.43 billion) in 2012. Malaysia’s GDP represents 0.49% of the world’s economy.

“When they have been out of the country for too long, it will be hard for them to come home. At least, we appreciate their efforts by giving them incentives.”

The administration of Prime Minister Datuk Seri Najib Razak has targetted Malaysia to become a high-income nation by 2020 through Vision 2020, which was introduced by former Prime Minister Tun Dr Mahathir Mohamad.

As part of efforts to achieve the goal, Najib also introduced fiscal steps to reduce the country’s deficit, but that have affected the inflation rate.

Up till 2013, TalentCorp was allocated RM65 million, but it has received criticism over the huge allocation as it did not reflect in the number of talents brought home.

“TalentCorp is not only about bringing workers from overseas, we also have other programmes such as graduate employability and helping foreign talents,” Johan said.

The area in which most talents have decided to come back to is the business service sector, followed by oil and gas, finance, electronics, information technology and health.

“We support the Economic Transformational Programme (ETP) and not just overseas programmes. We help drive the ETP,” he said, adding that TalentCorp was in line with the government’s goal of achieving a high-income nation by 2020.

Johan also said that TalentCorp does not take on the role of a “recruitment agency” for the talents brought home.

“We do not operate like a recruitment agency because we are a government agency. We do not look for jobs for them; it is up to them to find jobs.However, we realise that Malaysians who have worked overseas for too long will not necessarily be used to the local professional culture so we are prepared to help them to get in touch with recruitment agencies or executives,” he said.

Realising that the move to bring back talent is not easy, Johan said TalentCorp has prepared several incentives to make it easier for them to return to Malaysia.

“When they have been out of the country for too long, it will be hard for them to come home. At least, we appreciate their efforts by giving them incentives.”

Among the incentives are tax exemptions on cars the applicants would like to bring back to Malaysia under the Return Expertise Programme (REP).Johan said it was not fair for others to judge TalentCorp’s work just based on allocations to the agency, as there were other activities that they take on.

“You cannot take a whole amount of allocation and divide it by one activity… we have other different activities.Maybe our activities hardly get any coverage, but we are managing talents in a different aspect,” he said.

In 2011, a World Bank Report revealed that Malaysia was experiencing a huge brain drain to other countries, with almost a million of the country’s professional workforce reported to be working overseas.

According to the report, the migration is caused by the imbalances of the New Economic Policy (NEP), with Indians and Chinese making the highest numbers.

The World Bank warned that if the situation was not addressed as soon as possible, it would slow down the economy and halt the country’s development.

Following the report, Putrajaya set up TalentCorp and introduced programmes to lure Malaysian talents from overseas. – April 8, 2014.

Controversial Muslim Thinker and Politics


February 23, 2014

Controversial Muslim Thinker sets the cat among the canaries, again

by Terence Netto@http://www.malaysiakini.com

COMMENT They say politics makes for strange bedfellows. It looks like religion also does the same. Consider thinker Kassim Ahmad’s ties to former Prime Minister Dr Mahathir Mohamad – on Islamic exegesis, the two are birds of a feather.

kassim thinkerThe Controversial Muslim Thinker

This is best understood in the context of Voltaire’s famous criticism of Christian belief and practice at the onset of the Enlightenment in the 18th century – that incantations can kill a flock of sheep if administered with a certain quantity of arsenic.

In other words, faith should not be blind and unexamined beliefs are for bovines, not homo-sapiens.

In 1986, Kassim published a book – ‘Hadis: Satu Penilaian Semula (Hadith: A Reappraisal)’ – that espoused a subversive idea.This was that certain bases of Islamic practice and belief cannot sustain critical scrutiny. The book proposed the Quran as sole basis for sound Muslim belief and best practices.

That view Kassim reiterated to a conference which reviewed his thought held last Sunday at the Perdana Leadership Foundation, a think-tank associated with Mahathir (right).

The former Premier officiated at the conference’s opening and days later, after controversy flared over what Kassim had said, allowed that Kassim was a thinker whose opinions are easily misunderstood.

Like the publication of his book 28 years ago, Kassim’s latest musings have caused a furore. Its magnitude can be gauged in the days to come as Islamic authorities mull action against him.

It’s a safe bet, though, that none of them will take him on in a debate because they know that Kassim is a formidable foe to joust with; he will not easily recant his views.

Kassim blames Anwar Ibrahim – the Education Minister in the mid-1980s – for squelching the debate that ‘Hadis’ was obviously intended to provoke.Till today, Kassim nurses an enduring antipathy towards Anwar for the turn of events following publication of Kassim’s book in early 1986.

The ironies in history

Although all this occurred 28 years ago, the passage of decades has not had a becalming effect on the visceral feelings the controversy evoked at that time.

As recently as the middle of 2012, Kassim remained choleric at the mention of Anwar’s name, denouncing the Pakatan Rakyat leader with a vituperation that was ugly to behold.

It is not clear that Anwar had anything to do with the banning of Kassim’s book or with foreclosure of the debate.What’s less incontestable is that had the book not been banned, matters to do with Islamic thought and understanding in Malaysia would plausibly have transcended the present moment where some peninsula Muslim Malaysians insist that the term ‘Allah’ is exclusive to them.

In one of those ironies in which history abounds, in the debate over the ‘Allah’ issue, Anwar (left) is not opposed to non-Muslim use of the term – provided it is not abused – whereas Mahathir is for prohibition of the term to non-Muslims.

Kassim’s position on the issue is not known, but judging from what can be deduced of the man’s intellect, it would be a huge surprise if he agreed with Mahathir’s stance.

There is a strong strain of the iconoclast in Kassim, evident from half a century ago when he suggested that Malay folklore was wrong to view Hang Tuah as a hero because the real hero was Tuah’s friend, Hang Jebat, whom Tuah had killed.

Because of his tendency to examine the received wisdom on a subject, it wasn’t surprising that Kassim, who tuned 80 last September, gave vent at last Sunday’s conference to views that were even more controversial than the ones he aired in his 1986 work.

In what was purported to be his final testament – rendered at the conference themed ‘Thoughts of Kassim Ahmad: A Review’ – the man who started his intellectual journey as a cultural iconoclast and doctrinaire socialist, invited Muslims to return to the teachings of the Islamic faith as revealed in the Quran.

He said that believers would find Quranic teachings to be cognate with natural law (undang-undang alamiah).Kassim also espoused the view that Muslims do not need, like he claimed Christians did, a “priestly caste” to know what God commands of them and to perceive those commands’ consonance with what natural law tells them.

He argued that the female practice of wearing a headscarf (tudung) was a wrong interpretation of the Quranic stricture against bodily exposure, claiming that hair on a woman’s head is not included in the ‘aurat’ that is required by the Quran to be covered. He said that head hair must be aired for health (natural law) reasons.

An interesting tack to take

Thus, he took an example from nature to elucidate a Quranic teaching, demonstrating in the process the supposed truth of his argument that sound interpretation of Quranic revelation would necessarily be found to be compatible with what natural law teaches.

This is an interesting tack to take and is at variance to the asharite (God is power/God is will) school of Islamic thought. The asharite has been the dominant school since the 12th century when it gained the upper hand over the mutazilite (God is also reason) school of Islamic interpretation.

Since the victory of the asharite school, Islam’s answer to what is called “the Socratic puzzle” has been emphatic.But, pray, what is the Socratic puzzle?

It is a question that is so abstruse, it gives philosophy a bad name: Is a good action good because it is approved by God? Or is it approved by God because it is good?

In other words, do the categories of good and evil, right and wrong, have an existence independent of the divine will?

To this, the answer of the Asharite school is: An action is good because it is approved by Allah.

The asharites hold that there is no independent criterion of morality outside the will of Allah. And since the Quran is an absolutely literal and accurate account of that will – indeed in a deep sense, the Quran itself actually incarnates that will – there is no independent criterion of morality outside the text of the Quran.

In other words, if the Quran says something that seems morally offensive, it is morality that is mistaken, not the Quran.

The Mutazilites are inclined to find an interpretation of the Quran that accords with what natural law teaches. This is because they believe that there is an objective moral order to the universe and that this is discoverable through reason. That is why the Mutazilities are called rationalists.

Because these are febrile questions of religious interpretation and philosophy, and apt to foment divisive and emotional effects on believers – Voltaire advised that discussion of complex religious questions be held behind closed doors and out of the hearing of servants – Muslim thinkers approach them with circumspection.

Now and then, one or the other of them saunters on to the turf and inevitable detonations ensue.

Last Sunday, Kassim Ahmad walked into a blast-prone area and set off subversive ripples of resonance. He is likely to enjoy immunity because he did it at the Perdana Leadership Foundation

Last year about this time, Ibrahim Ali (right) escaped a sedition rap for threatening to burn bibles after Mahathir offered extenuations on the Perkasa chief’s behalf, following former attorney-general Abu Talib Othman’s admonishing incumbent AG Abdul Gani Patail against dilly-dallying on pressing charges.

This time round, Mahathir’s extenuations on behalf of Kassim are likely to have intellectually more beneficent uses.

The irony is that Kassim – like the man he detests, Anwar Ibrahim – is not likely to think much of the argument that the term ‘Allah’ ought to be the exclusive preserve of Peninsula Muslims; more certainly, he will laugh Mahathir’s reservation of the term for Peninsula Malays, to scorn.Not just politics, religion, too, makes for strange bedfellows.

The Malaysian Consumer and the Fight against Inflation


January 21, 2014

The Malaysian Consumer and the Fight against Inflation

by Tan Sri Dr. Mahboob Sulaiman@www.nst.com.my

As a society, we too have a role to play in ensuring that inflation is controlled. Let us exercise our power, as consumers, to control unreasonable price increases by judicious spending and economising on our energy use as well as changing our consumption spending pattern.–Dr. Mahboob Sulaiman

THE interest on inflation is reactivated now with the Consumer Price Index (CPI) approaching  three per cent.

Dr Mahboob SulaimanMalaysians are used to price stability for a long time, except for a few years, such as in 1973/1974, 1998, and in 2008. The inflation in 1973/74 and in 2008 was caused by an increase in oil and rice prices at the same time.

Some agitators recently conducted a demonstration on the eve of this new year, using the rising prices as an issue to air their grievances.I wonder what would they do if the country was experiencing an inflation rate of eight to 12 per cent annually as is being experienced for many years in China and India, given the countries’ rapid economic growth.

Blaming the authorities alone for the price pressure reflects a poor understanding of market forces. There is a market involving producers and consumers out there whose total effect determines the prices of products. This is the famous Adam Smith’s invisible hand or the market forces. The government’s policy to control prices only covers essential goods and services, enforced especially during festive seasons.

Inflation and high prices are two different things; inflation is a rate of change in general price level. One can have low inflation despite prevailing high prices of goods and services or high inflation at low price levels. It is the rate of annual price increase that is defined as inflation. Nevertheless, high price increases will invariably be translated into inflationary pressures.

High prices can be caused by high level of aggregate demand (demand-pull factor) when the economy grows beyond its sustainable levels. Our current rate of economic growth is still below our growth potential of about six to seven per cent per annum. Hence we cannot say that our current inflation is caused by excessive demand. There are also other contributing factors, such as rising cost of production including high wages, high cost of imports, and supply shortages as well as market imperfection.

One factor that may also cause increase in price level is declining rates of exchange which result in rising cost of imports. The Malaysian ringgit declined recently, with the rising value of the dollar under the impetus of the tapering policy of the Federal Reserve which led to outflows of fund from the region back to the United States, thus strengthening the US dollar vis-a-vis other currencies.

Hopefully, the decline in the ringgit will spur increases in exports thus helping our balance of payments position again. An improved external demand will help the nation to increase industrial production and a higher rate of economic growth.

The current increase in price level has not pressured our central bank to undertake monetary policy measures, such as raising interest rates and initiating open market operations. The bank is therefore still monitoring the price development.

Inflationary expectations by consumers and suppliers may result in price increases, too, as the nation is deliberating on toll increases, wage increases, increases in local government assessment rates and revision in electricity tariffs. Suppliers may have also increased the prices of certain goods now that the government has raised fuel price (RON95) and reduced sugar subsidy.

Powerful supply chain organisations can indeed raise prices much higher than the expected increase brought about by the 20 sen increase in RON95 fuel price and doing away with sugar subsidy. Analysing the supply chain using the input-output technique, tells us that supplies account for the bulk of costs of products and services. Thus, market intermediaries have a lot to explain the price increases if the resultant price adjustment after subsidy rationalisation appears unreasonable.

As usual, we as consumers are again at the disadvantage with price increases because of our weaker position as well as the lack of information on price conditions to enable us to exercise our purchasing power effectively and contribute to price stabilisation. However, this should not be the case. Consumers must exercise their power to ensure suppliers do not willy-nilly increase prices.

A detailed and comprehensive study of the causes of the current high prices needs to be donenajib-razak1 immediately so as to enable an accurate policy prescription to be implemented.

If supply is the cause of price increase then policy prescription may include import liberalisation and reducing domestic supply bottlenecks to increase domestic production and supply. In such a case, the policy response to increase KR1M (Kedai Rakyat Satu Malaysia) outlets therefore appears quite right.

Given the above explanation, one should not jump into conclusion that public policies have failed to arrest price increases. As a society, we too have a role to play in ensuring that inflation is controlled. Let us exercise our power, as consumers, to control unreasonable price increases by judicious spending and economising on our energy use as well as changing our consumption spending pattern.

Of Parliamentary “APES” and Penchant for Con-Sultants


November 17, 2013

Of Parliamentary “APES” and Penchant for Con-Sultants

A Kadir Jasinby A Kadir Jasin

On June 27, I published a posting entitled Malaysian Parliament vs Animal Planet. On November 14, judging from media reports, the Dewan Rakyat was transformed from the more respectable Animal Planet into a mere zoo.

It was the climax of yet another uncivilised behaviour of our elected representatives, when the Opposition PKR member from Padang Serai, N. Surendran was suspended for six months for allegedly insulting Speaker Tan Sri Pandikar Amin Mulia outside the House on November 12.

How I wish the government of Prime Minister Mohd Najib Abdul Razak acts equally swiftly and decisively on the plights of the rakyat, like the plan by the Kuala Lumpur City Hall to hike assessment rates by as much as 200% or the spike in deadly shootings around the country.

It is interesting that the National News Agency, Bernama should use the term “allegedly” to describe the circumstance surrounding the Surendran’s suspension. Does this mean that the charges against the PKR member were never conclusively proven?

According to Bernama, the suspension motion, which was tablednancy-shukri-menteri-bn-pbb-sarawak by Minister in the Prime Minister’s Department Nancy Shukri (left) amid protest by members of the Opposition, was passed via block voting.

The Opposition questioned the legitimacy of the motion, triggering a heated argument, which lasted almost 90 minutes.

When the division was called by Deputy Speaker, Datuk Ronald Kiandee, 92 BN parliamentarians voted for the motion while the opposition representatives abstained.

On Tuesday, Surendran was given a marching order by Pandikar Amin for challenging his decision to reject an emergency motion he proposed over the alleged demolition of the extension to Sri Maneswarar Kaliyaman Temple extension in Jalan P. Ramlee, Kuala Lumpur.

The dissatisfied Surendran told a press conference outside the chamber that Pandikar Amin was bias and likened the Dewan Rakyat to the Zimbabwean Parliament.

They deserve no honour

I have no intention of honouring the bravado of these people, be they on the government or opposition bench.These people are not fit to be elected “wakil rakyat”. Sadly, over the years, we see more and more of these characters being elected to the august house.

I miss the gentler and more decorous days of the Parliament when members were more civilised, tolerant and more gentlemanly in their verbal exchanges.

As one former members of Parliament noted, those were the “jahiliah” days when liquor was served in the Parliament and some members took time off to play a round of poker.

Has the current breed of politicians lost the ability to debate with civility, flair and candour using powerful yet inoffensive terms and expressions? Or does this mean that the standard of the Malay language and the intellect of today’s YBs are so inadequate that they have resort to uncouth language and vulgarities when making their points?

Somebody should broadcast parliamentary debate in totality for the entire period of sitting so that the rakyat can judge for themselves who are humans and who are apes among the YBs. Maybe live telecast will force them to be more civilized and thoughtful.

It is puzzling that a temple issue should lead to expulsion. I am not saying that it was not an important issue, but no less important were debates on top government leaders and important people spending RM182 million last year alone on private jet travels.

Or more shocking is the revelation by the Finance Ministry that the Federal government had spent RM7.2 billion since 2009 to hire private consultants for national projects.

dilbert-consultants

It is clear that Mohd Najib as PM and Finance Minister loves private consultants despite the government having a whopping 1.4 million staff. This is not counting his special envoys and special advisers with ministerial status.

In response to question by the DAP MP for Kelana Jaya, Wong Chen, the ministry revealed a gradual rise in the bills for private consultancy firms from RM1.3 billion in 2009 — the year Mohd Najib became PM — to RM1.63 billion in 2010, RM1.8 billion in 2011, RM1.82 billion in 2012 and RM722 million from January to October this year.

In a damning indictment of the civil servants, the Finance Ministry said: “The capabilities of government researchers are limited in terms of their competency and human resources.”

If they are not good, sack them or train them. What’s the point of having a million over civil servants and paying them better salaries if Mohd Najib has to rely on outsiders and foreigners? Actually we can get free consultancy from such multilateral organisation as the World Bank and the Asian Development Bank if we want to.

As a footnote, I congratulate a former BN MP, who now chairs a statutory body, for telling two Ministers –Mustapha Mohamed and Idris Jala – in a meeting with journalists a few days ago to stop hiring foreign consultants. I would not ask if he dares saying that if he was still an MP.– kadirjasin.blogspot.com, November 17, 2013/www.themalaysianinsider.com.

Two University of Chicago Professors share Nobel prize in economics


October 14, 2013

Two University of Chicago Professors share 2013 Nobel prize in economics

Two Professors from the University of Chicago and a third American scientist this morning won the 2013 economics Nobel prize for research that has improved the forecasting of asset prices in the long term and helped the emergence of index funds in stock markets, the award-giving body said.

“There is no way to predict the price of stocks and bonds over the next few days or weeks,” The Royal Swedish Academy of Sciences said in awarding the 8 million crown ($1.25 million) prize to Eugene Fama, Lars Peter Hansen and Robert Shiller.

“But it is quite possible to foresee the broad course of these prices over longer periods, such as the next three to five years. These findings … were made and analyzed by this year’s Laureates,” the academy said.

Fama is the Robert R. McCormick Distinguished Service Professor of Finance at University of Chicago, and Hansen is the David Rockefeller Distinguished Service Professor in Economics & Statistics at University of Chicago, a center of economics Nobel prize winners. Shiller is a professor at Yale University.

The behavior of asset prices are key to decisions such as savings, house buying and national economic policy, the academy said.

“Mispricing of assets may contribute to financial crises and, as the recent global recession illustrates, such crises can damage the overall economy,” it added.

The economics prize, officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was established in 1968. It was not part of the original group of awards set out in dynamite tycoon Nobel’s 1895 will.

The University of Chicago previously claimed 10 Nobel laureates in economics among current and former faculty members, from Milton Friedman in 1976 to Roger Myerson in 2007.

Hansen said in 1995 that he appreciated the culture at the University of Chicago.  Unlike most universities, economists at the U. of C. are generalists, not specialists, he said.

“We resist divisions and sub-areas. There’s more of a generalized atmosphere and an emphasis on how far you can push economic analysis.”

Hansen is best known as the developer of the econometric technique called the generalized method of moments, or GMM, which is used to analyze complex economic models in numerous fields. It has been widely adopted where fully specifying and solving a model of a complex economic environment makes maximum likelihood estimation unwieldy.

In 2006 Hansen won the Nemmers Prize for work that applied economic theory to the actual operations of the economy and markets and for research on how best to come up with policy in an uncertain environment. At the time, three of the six winners in economics had gone on to win the Nobel Prize.

Eugene Fama, has been called the father of modern finance. He is best-known for research with long-time partner Kenneth French, a Professor of Dartmouth College, which shows that certain groups of stocks tend to outperform over time.

Known as the Fama-French “Three-Factor Model,” company size, style and market risk are now considered essential to employ in a diversified portfolio.

Robert Shiller, perhaps best known as a namesake of the S&P/Case-Shiller housing price index, currently serves as the Arthur M. Okun Professor of Economics at Yale University and is a fellow at the Yale School of Management’s International Center for Finance.

His research relating to the dynamics of asset prices, risk sharing, financial market volatility and on bubbles and crises have received widespread attention among academics, practitioners, and policymakers.

“A lot of people had told me they hoped I would win it, but I am aware that there are so many other worthy people that I had discounted it, so I would say no, I did not expect it,” Schiller told a news conference.

Reuters contributed

Pluralism: Condition of Humility and Protection Against Excess


October 2, 2013

Pluralism: Condition of Humility and Protection Against Excess

by Prof. Tariq Ramadan

http://www.themalaysianinsider.com

Tariq RamadanPluralism is a condition of humility and a protection against potential excess and Islam confirms this transversal teaching by synthesising the two dimensions

When John Locke wrote his Letter on Tolerance in 1689, he argued for the necessity to accept religious plurality (apart from atheism seen as unacceptable and dangerous). He meant to distinguish the authority of the State and that of the Church: Temporal power, the State, drew up laws and managed the social contract and civil peace between citizens, who must be free to choose their religion and dogmas.

Locke addressed the two powers and developed arguments from the standpoint of powers: The State must manage the citizens’ diversity and protect their individual and civil freedom, and the Church must also ­ inside civil society ‘tolerate’ other religions and recognise their individual freedoms. Tolerance is thus seen as a means to distinguish and restrict powers, which are sometimes merged and exclusive, and prone to excess.

A century later, Voltaire was driven by the same intention: The Treaty on Tolerance also sets out to resist power abuses and appeal to men’s conscience. It addresses the State, the church and God, so that all those instances of power may promote accepting differences and tolerance as a principle of humanity.

Its reflections and arguments are based on a conception of man and of human relationships devised and defended on the basis of demanding rationality: Here again, power abuses must be resisted and authorities must be sent a strong, well-argued message, based on the power of reason and common sense, in order to refuse intolerance and the ensuing wars, deaths and injustices.

Autonomous critical reason speaks out against absolute authority, its imposed dogmas, its blind certainties and human claims to the absolute. It means to remind men who have the power to take themselves for God or to act in God’s name that they are but human beings and that claiming to hold the only truth leads to unacceptable horrors and miscarriages of justice contrary to the messages of goodness that they claim to defend. Like Locke, Voltaire (together with Enlightenment philosophers) assails the citadel of a political and religious authority that must — from where it decides and acts —­ make the choice of tolerance.

In the primary rational, social, religious and political sense, power must learn to tolerate the other’s existence, to literally ‘suffer his presence’, and to put up with plurality.

What used to be an act of resistance in the face of powers (who can also be represented by the majority, the elite, wealth, etc) and a brave, determined appeal calling them to tolerance, takes on a new meaning and substance when what is involved is equal relationships, free human beings, citizens in civil society or even relationships between different cultures and civilisations.

Calling powers to tolerance consisted in asking them to measure their strength and limit their capacity for harm: This implied accepting a power play, a potential authority relationship such as could exist between the state and individuals, the police and citizens, the colonisers and the colonised. Deviances, misbehaviours and a few differences can be ‘tolerated’ — they are ‘suffered’.

But when the issue is no longer resistance and limiting powers, the positive dimension of tolerance is inverted: It becomes gratuitous generosity from those who dominate and hold political, religious and/or symbolic authority, the authority of number and/or of money. Tolerance is the intellectual charity of the powerful. On an equal footing, one does not expect to be accepted or tolerated: That others should ‘suffer’ one’s presence is insufficient for oneself, and unsound for them.

In relationships between free and equal human beings, between autonomous, independent nations or between civilizations, religions and cultures, one can no longer call for tolerance of others. On equal terms, what matters is no longer to concede tolerance, but to raise and educate oneself to respect.

Then, the disposition of the heart and mind is quite different. This begins with recognising the fact and necessity of the other’s presence in my own conception of the world. The earliest African and Asian traditions as well as Hinduism, Buddhism then monotheisms, explicitly or implicitly recognise the necessity of other ways: Either because they state that there are several ways of leading to the truth or because that presence influences and shapes my own way of conceiving my own relationship to my truth.

Pluralism is here a condition of humility and a protection against potential excess. Islam confirms this transversal teaching by synthesising the two dimensions. The verse Had God so willed, He would have made you a single community is echoed by others which reveal the essence and finality of this diversity: ‘Had not God checked some groups of people [nations, societies, religions] by means of others, the earth would have been corrupted and monasteries would have been pulled down as well as synagogues, churches and mosques.’

Diversity, balance of powers, indeed involve a risk of conflicts and strife. Yet, it is for all men a condition of survival and an education to measure and humility. Thus looking out to consider the world and societies as they are brings the conscience back into itself and compels it to reassess its own tendency to believe that its own truth alone is true: We are forever lured by the sirens of the dogmatic mind, with its haughty complacency, which determines that one’s relationship to others is only meaningful when one tries to convince them of one’s single truth. Holding a dialogue then consists in speaking, never listening: The other is the privileged scope of my proselytism. My truth has thus become a blind, blinding passion: It imprisons me; it was supposed to liberate me; an alienation.

An act of reason is therefore necessary, first of all, to teach us how to become reasonable. Recognising the diversity of paths and the equality of all human beings are the first two conditions of respect (through which the power play involved in the relationship of tolerance can be overcome). To this factual, objective recognition, one should also add a disposition of the mind: If I can tolerate and suffer the presence of what I do not know, I cannot respect others without trying to know them.

Respect, therefore, calls for an attitude that is not passive but active, and proactive, towards others: Being curious of their presence and their being and attempting to know them after recognising them. Recognition, active curiosity and knowledge bring our intelligence and our hearts into the universe of the other’s complexity: We can thus gain access to his principles, his hopes, his tensions, his contradictions, as well as the diversity of trends which run through his universe of reference. Tolerance can reduce the other to the simplicity of his presence; respect opens us up to the complexity of his being. As in a mirror, it means recognising the other to be as complex as oneself: He is the equal, the mirror, the question; the other in me and myself in him.

Yet, nothing is ever fully achieved. Rejection, intolerance, xenophobia, individual and institutionalized racism, missionary proselytism, colonising temptations, imposed truths and collective, passionate, if not hysterical and deaf complacencies will never stop threatening men, rich or poor, and societies, industrialised or not. Human beings will never be totally safe from that dark side of their humanity.

Spiritualities, philosophies and religions run through History to remind us of those fragilities, those vulnerabilities, those risks, they are so many reminders along the road, as their own excesses must also be. One should observe the world, and observe oneself, with the humility of those who feel and know, deep within themselves, how important it is to engage in a continuous, perpetually renewed education to humanity; ­to learn to listen and listen to oneself, everyday, always. This is a truth: Nothing is ever fully achieved, neither respect, nor love. – tariqramadan.com, October 2, 2013.

* Tariq Ramadan is Professor of Contemporary Islamic Studies at the Oxford University (Oriental Institute, St Antony’s College) and also teaches at the Oxford Faculty of Theology. He is Visiting Professor at the Faculty of Islamic Studies, (Qatar) and theUniversity of Malaysia Perlis; Senior Research Fellow at Doshisha University (Kyoto, Japan) and Director of the Research Centre of Islamic Legislation and Ethics (CILE) (Doha, Qatar).

McKinsey looks set to stay top of the heap in management consulting


September 26, 2013

Schumpeter

The future of the Firm

McKinsey looks set to stay top of the heap in management consulting

Let’s Sober Up, Malaysia (Important Posting)


September 16, 2013

malaysiaday13

Let’s Sober Up, Malaysia (Important Posting)(September 13, 2013)

http://malaysiafinance.blogspot.sg/

Finally, someone who can provide clarity to the foreign funds moving in and out Asia. It does not mean we should not be wary but need to put things in its proper perspective. I have added my take on the market capitalisation growth of the world’s top ten markets as another viewpoint that should further lend credence to the long term trend. Need to distinguish short term noise from long term concerto.

  Economics – Markets – Strategy” for Asia and the G3.    
Three steps forward…

Capital flows have always been a two-way affair.  When sentiment is strong, inflows push you up the mountain.  When it’s weak, they drag you out to sea. The fact that Western central banks put interest rates on the floor five years ago and kept them there has only amplified the action – first inward, as Asia’s V-shaped recovery took off in 2009 and 2010 and then outward, as the EU debt crisis erupted in 2011 and, more recently, as fears over Fed tapering have grown.  

We estimate that in the two quarters ending June, some US$138bn flowed out of the Asia-8.  Is that a lot?  Surprisingly, no.  Two years ago, $152bn flowed out when the European debt crisis erupted.  When Lehman collapsed five years ago, $350bn left the region, 2.5x more than the current ‘exodus’.  QE and its tapering make a sexy story but the fact is today’s outflows rank only third in the standings, and that’s just in the past five years.  

If all of this money is flowing out of the region, when does Asia run dry?  It doesn’t.  Today’s outflows underscore the fact that there have always been two types of inflow: short-run ‘hot’ money flows arbitraging differential rates and returns, and longer-term inflows seeking to profit from Asia’s strong growth.  The hot money is now going home – or at least this week it is.  The long-term money is staying put.  And the long-term money is the bigger force.  

Since the dotcom / hi-tech downturn ended in 2001, some $2.4 trillion of capital has flowed into the Asia-10.  About $500bn flowed out temporarily in 2008/09 and another $300bn has flowed out since September 2011.  Net, net, that’s $1.6trn of long-term capital that has stayed in Asia, riding out the various global crises of the past 12 years.  Three steps forward, one step back – for every dollar that comes in, 66 cents stay for the long haul.  As capital flows go, that’s a pretty good signal-to-noise ratio.  

Why is so much money coming to Asia?  That’s easy.  Asia is where the world’s growth is being generated.  And businesses want to be where the growth is. Think about it: Asia and the US are now about the same size – GDP in both regions is roughly $16 trn.  If the US grows at a 2.5% rate, it generates $400bn of new demand each year.  But Asia grows at a 6.25% pace, maybe a bit faster.  It generates $1000bn of new demand every year.  If you’re a businessman, do you want to invest where demand is growing by 4 cents per year or where it’s growing by 10 cents per year?  

Extend the thought to Europe.  Many are encouraged by the fact that Germany returned to positive growth in the second quarter.  That’s good news and a good reason to invest there.  But put it in perspective.  If Germany grew at a 1.5% rate for the next 47 years – a feat few think it will accomplish – it would double in size.  It would ‘add’ a new Germany to Europe’s economic map by 2060.  Asia, by contrast, ‘adds’ a new Germany every 4 years, right here in Asia.  Five years hence, it will take only 3.5 years for Asia to add a Germany.  By 2060, Asia will have put about 25 Germanys on the economic map.  Pretty staggering.

This is why long-term capital will continue to flow to Asia.  Businesses and investors want to be where the growth is.  Inflows will continue to flip-flop in the short-run and yes, Asia will make plenty of mistakes – the West has no monopoly on that.  But the shift in economic gravity is the biggest structural change underway in the global economy today.  Structural inflows will remain, and grow, long after today’s hot and sexy but ultimately short-term outflows have become a footnote to the bigger picture.  

David Carbon, for
DBS Group Research
September 12, 2013


10 biggest stock markets in the World by domestic market capitalization in 2005(USD bn)

1NYSE Group 13,632.3
2Tokyo Stock Exchange 4,572.9
3Nasdaq Stock Market 3,604
4London Stock Exchange 3,058.2
5Euronext 2,706.8
6Canadian TSX Group 1,482.2
7Deutsche Börse 1,221.1
8Hong Kong Exchanges 1,055
9BME Spanish Exchanges 959.9
10SWX Swiss Exchange 935.4

As of June 2013

1.  NYSE – Remember that it merged with American Stock Exchange and more critically Euronext after 2005. Hence their 2005 base should be 13,632.3 + 2,706.8 =  16,339.1. As of June 2013, its 14,000 which is 85.6%, a loss of 14.4%, largely due to European stocks devastating performance in recent years. (-14.4%)

2.  Nasdaq – June 2013 figure was 4,500 compared to 2005 figure of 3,604 … more reflective of the resilience of the US markets despite the 2008 sub prime debacle. (+24.8%)

3.  Tokyo Stock Exchange – Current 3,300 compared to 2005 figure of 4,572.9. Despite the massive surge over the last 12 months, it is still not enough to wipe out the debilitating balance sheet recession from the excesses in the 80s and early 90s. Abe still has to be more aggressive to reverse the course for Japanese stocks. (-28%)

4. London Stock Exchange – Current 3,396 compared to 2005 figure of 3,058.2. Safe to say, Thatcher’s insistence not to join the Eurozone has helped in a large way to allow them to rebuild faster than their neighbours. The government over the last 10 years have done sufficiently enough to propel London as a major and viable exchange for the world’s biggest companies, thus drawing a large number of international companies to their shores, hence the real figure for UK may be inflated but still significant to compare. (+11%)

5. HK Stock Exchange – Current figure 2,831 compared to 2005 figure of 1,055. Naturally HKSE also continued to benefit from continued listings of red chips from China, still a significant development and trend. (+168%)

6. Shanghai SE – It was not even in the top ten back in 2005 with just 295 bn. Now its at 2,547 bn. Seen in this light, it makes the HKSE figure even more credible. (+763%)

7. Toronto SE – Again, another that was nowhere back in 2005 with 1,144. Its current figure is just over 2,058 bn. Largely they have stayed strong thanks to almost none of their banks participating in the subprime mess. (+80%)

8. Deutsche Bourse – 2005 figure 1,221 and the current figure is 1,486 bn. Germany is already the most resilient among the EU countries so you can imagine how bad it was for the rest. More significantly, even Toronto has overtaken the German bourse in market cap. (+21.7%)

9. Australia SE – Current figure 1,386 bn while the 2005 was around 720. Benefited from huge China investments in commodities and mines, and they were shielded from the subprime mess. (+92%)

10. Bombay SE – 2005 figure was 380 bn and the current is 1,263 bn. Despite the massive correction for India over the last 6 months, it is still in pretty good shape overall. (+232%)

Now the REALLY INTERESTING PART, we should compare apples to apples …. since 2005 how has Bursa Malaysia fared compared to our neighbours, bring out the tissues.

2005 Market Cap                        2013 June Market Cap

Malaysia  184 bn       490 bn  (+166%)
Singapore  227 bn                  752 bn  (+231%)
Indonesia 77.6 bn     477 bn  (+514%)
Taiwan  433 bn                      754 bn  (+74%)
Shenzhen  125bn                    1,190 bn  (+852%)
Philippines  32.4bn    230 bn  (+609%)
Korea  459 bn                       3,051  (+564%)
Thailand  122 bn       408 bn  (+234%)

The way its going … the 3 highlighted countries lagged Bursa substantially in 2005. Indonesia looks likely to surge past Malaysia by end 2014 despite the recent massive correction there. Thailand has come up by leaps and bounds despite numerous vicious street protests, disquiet down south of Thailand and changes in government. Thailand looks set to over take Malaysia by sometime end 2015. Now the Philippines … soon Malaysia will be sending maids to the Philippines … fcukers!!! Maybe not now but look at the trend, I predict by 2018 the Philippines will bypass Malaysia if nothing changes.

Indonesia has really surged, you cannot just argue that it was from a low base because we are not really using figures from 20 years back. its only 8 years back. We have to look at why we lagged behind, has our growth stunted, have we maxed out? I mean, not just Indonesia, look at Thailand beating us by a comfortable 68%. Singapore is Singapore, fair enough. But just watch the Philippines.

We also cannot use the argument that we are maxed out, or that the best days are behind us, look at fucking Korea, they continued to post enormous productivity gains. I mean just Samsung stock alone, its market cap is 190 bn or 38% of Bursa Malaysia all stocks.

Something went very wrong over the last 10 years. We had no sub-prime crisis to speak of, and now we are talking of maybe even being part of the emerging markets sell down? We OBVIOUSLY did not invest well, we OBVIOUSLY had too much leakages.

You can either pooh-pooh these statistics as another angry commentator going ballistic or take the reality and DO SOMETHING CONCRETE about it because if we stay roughly the same, we will have the same end result over the next 8 years. Fuck the sloganeering … the problems are so much more deep seated.

p/s  some of our problems:

Malaysia's Debt to GDP Ratio


Ratio of public servants to total country’s population

Country
(%)
Malaysia
4.68
Hong Kong
2.3
Taiwan
2.3
Thailand
2.06
Korea
1.86
Phillipines
1.81
Indonesia
1.79
Singapore
1.5
Laos
1.24
Cambodia
1.18

What Is Economics Good For?


August 27, 2013

What Is Economics Good For?

Recent debates over who is most qualified to serve as the next chairman of the Federal Reserve have focused on more than just the candidates’ theory-driven economic expertise. They have touched on matters of personality and character as well. This is as it should be. Given the nature of economies, and our ability to understand them, the task of the Fed’s next leader will be more a matter of craft and wisdom than of science.

When we put a satellite in orbit around Mars, we have the scientific knowledge that guarantees accuracy and precision in the prediction of its orbit. Achieving a comparable level of certainty about the outcomes of an economy is far dicier.

The fact that the discipline of economics hasn’t helped us improve our predictive abilities suggests it is still far from being a science, and may never be. Still, the misperceptions persist. A student who graduates with a degree in economics leaves college with a bachelor of science, but possesses nothing so firm as the student of the real world processes of chemistry or even agriculture.

Before the 1970s, the discussion of how to make economics a science was left mostly to economists. But like war, which is too important to be left to the generals, economics was too important to be left to the Nobel-winning members of the University of Chicago faculty. Over time, the question of why economics has not (yet) qualified as a science has become an obsession among theorists, including philosophers of science like us.

It’s easy to understand why economics might be mistaken for science. It uses quantitative expression in mathematics and the succinct statement of its theories in axioms and derived “theorems,” so economics looks a lot like the models of science we are familiar with from physics. Its approach to economic outcomes — determined from the choices of a large number of “atomic” individuals — recalls the way atomic theory explains chemical reactions. Economics employs partial differential equations like those in a Black-Scholes account of derivatives markets, equations that look remarkably like ones familiar from physics. The trouble with economics is that it lacks the most important of science’s characteristics — a record of improvement in predictive range and accuracy.

Tucker Nichols

This is what makes economics a subject of special interest among philosophers of science. None of our models of science really fit economics at all.

The irony is that for a long time economists announced a semiofficial allegiance to Karl Popper’s demand for falsifiability as the litmus test for science, and adopted Milton Friedman’s thesis that the only thing that mattered in science was predictive power. Mr. Friedman was reacting to a criticism made by Marxist economists and historical economists that mathematical economics was useless because it made so many idealized assumptions about economic processes: perfect rationality, infinite divisibility of commodities, constant returns to scale, complete information, no price setting.

Mr. Friedman argued that false assumptions didn’t matter any more in economics than they did in physics. Like the “ideal gas,” “frictionless plane” and “center of gravity” in physics, idealizations in economics are both harmless and necessary. They are indispensable calculating devices and approximations that enable the economist to make predictions about markets, industries and economies the way they enable physicists to predict eclipses and tides, or prevent bridge collapses and power failures.

But economics has never been able to show the record of improvement in predictive successes that physical science has shown through its use of harmless idealizations. In fact, when it comes to economic theory’s track record, there isn’t much predictive success to speak of at all.

Moreover, many economists don’t seem troubled when they make predictions that go wrong. Readers of Paul Krugman and other like-minded commentators are familiar with their repeated complaints about the refusal of economists to revise their theories in the face of recalcitrant facts. Philosophers of science are puzzled by the same question. What is economics up to if it isn’t interested enough in predictive success to adjust its theories the way a science does when its predictions go wrong?

Unlike the physical world, the domain of economics includes a wide range of social “constructions” — institutions like markets and objects like currency and stock shares — that even when idealized don’t behave uniformly. They are made up of unrecognized but artificial conventions that people persistently change and even destroy in ways that no social scientist can really anticipate. We can exploit gravity, but we can’t change it or destroy it. No one can say the same for the socially constructed causes and effects of our choices that economics deals with.

Another factor economics has never been able to tame is science itself. These are the drivers of economic growth, the “creative destruction” of capitalism. But no one can predict the direction of scientific discovery and its technological application. That was Popper’s key insight. Philosophers and historians of science like Thomas S. Kuhn have helped us see why scientific paradigm shifts seem to come almost out of nowhere. As the rate of acceleration of innovation increases, the prospects of an economic theory that tames the economy’s most powerful forces must diminish — and with it, any hope of improvements in prediction declines as well.

SO if predictive power is not in the cards for economics, what is it good for?Social and political philosophers have helped us answer this question, and so understand what economics is really all about. Since Hobbes, philosophers have been concerned about the design and management of institutions that will protect us from “the knave” within us all, those parts of our selves tempted to opportunism, free riding and generally avoiding the costs of civil life while securing its benefits. Hobbes and, later, Hume — along with modern philosophers like John Rawls and Robert Nozick — recognized that an economic approach had much to contribute to the design and creative management of such institutions. Fixing bad economic and political institutions (concentrations of power, collusions and monopolies), improving good ones (like the Fed’s open-market operations), designing new ones (like electromagnetic bandwidth auctions), in the private and public sectors, are all attainable tasks of economic theory.

Which brings us back to the Fed. An effective chair of the central bank will be one who understands that economics is not yet a science and may never be. At this point it is a craft, to be executed with wisdom, not algorithms, in the design and management of institutions. What made Ben S. Bernanke, the current chairman, successful was his willingness to use methods — like “quantitative easing,” buying bonds to lower long-term interest rates — that demanded a feeling for the economy, one that mere rational-expectations macroeconomics would have denied him.

For the foreseeable future economic theory should be understood more on the model of music theory than Newtonian theory. The Fed chairman must, like a first violinist tuning the orchestra, have the rare ear to fine-tune complexity (probably a Keynesian ability to fine-tune at that). Like musicians’, economists’ expertise is still a matter of craft. They must avoid the hubris of thinking their theory is perfectly suited to the task, while employing it wisely enough to produce some harmony amid the cacophony.


Alex Rosenberg is the R. Taylor Cole Professor of Philosophy and chair of the philosophy department at Duke University. He is the author of “Economics — Mathematical Politics or Science of Diminishing Returns,” most recently, “The Atheist’s Guide to Reality.”

Tyler Curtain is a philosopher of science and an associate professor of English and comparative literature the University of North Carolina at Chapel Hill. He was recently named the 2013 recipient of the Robert Frost Distinguished Chair of Literature at the Bread Loaf School of English, Middlebury College, Vt.

A version of this article appears in print on 08/25/2013, on page SR9 of the NewYork edition with the headline: What Is Economics Good For?.

http://opinionator.blogs.nytimes.com/2013/08/24/what-is-economics-good-for/?_r=0

 

Can ASEAN Bloom for 50 Years More?


July 26, 2015

MY COMMENT: The future of ASEAN depends on the people of Southeast AsiaDin Merican (2). The question that we need to address is the issue of relevance of ASEAN in our daily lives, especially its capacity to promote regional economic integration and ensure that big power rivalry (between China and the US and no longer ideology) does not upset peace and stability in our region.

Right now I see ASEAN as an ineffective top driven organisation where there is more talk than action. Take case of the haze which is adversely affecting Malaysia and Singapore. Even human rights abuses in some member states are never discussed by ASEAN Leaders at their summit meetings. Perhaps, this is because of their own dismal record on human rights. There is also no development fund to speak of which can be used to provide funds to the new members of ASEAN. I am less optimistic about ASEAN than Dr Hamzah, given its track record so far. -Din Merican

Can ASEAN Bloom for 50 Years More?

by Dr BA Hamzah

BA HamzahThe Minister of International Trade and Industry, Dato  Seri Mustapha Mohamad, got me off-footed with his recent remarks on the lack of awareness among those surveyed by the ASEAN Secretariat (New Straits Times,19 July). On closer examination of the Report ‘Surveys on ASEAN Community Building Effort, 2012’, the situation is not that gloomy if we are thinking of celebrating ASEAN’s Golden Jubilee in 2017.

However, a centennial celebration for ASEAN in 2067 is a guess as wild as anybody can make. After all, predicting ASEAN’s future or destiny is a very delicate job even for an accomplished clairvoyant. William Shakespeare reminds us “it is not in the stars to hold our destiny but in ourselves”.

In “Vanished Kingdoms”, Professor Norman Davies of Oxford reminds us that power is transient. He writes, “Sooner or later all things come to an end. … All states and nations, however great, bloom for a season and are replaced.”

It is no small feat for ASEAN to have bloomed for almost fifty years; the League of Nations lasted only for thirty- nine years. Will ASEAN face the same destiny as the European Kingdoms in Norman Davies book or the League of Nations, in 2067? Your guess is as good as mine.

Some leaders are overtly obsessed with keeping the ASEAN experiment alive forever. As a product of the 1967 generation, like many, having enjoyed the peace dividends, I am appreciative of ASEAN. I was witness to the many crises in the region before the founding fathers summoned their morale courage to design ASEAN as regional political security architecture of peace in Southeast Asia.

The region went through crisis after crisis, some spilled over into neighbouring states. The Sukarno-inspired Confrontation against Malaysia, for example, forced some of us to join the military. The American war in Indochina has scarred in its proud history.

I have the impression that the successful ASEAN experiment to establish a political security community has lulled us, made us complacent and ignorant of a dark past in regional history. ASEAN was formed primarily for political and security reasons. Today, while acknowledging the value of political co-operation, the leaders put more emphasis on economic and cultural linkages.

Despite a successful experiment in regionalism, should present leaders continue to indoctrinate and compel the immediate generation to seduce the generations of 2067, for example, to keep ASEAN intact? Are we not being over presumptuous to suggest that what is good for the goose is also good for the gander?

Is it ethical to impose our values on them? Should the current generation decide on the destiny of ASEAN in 2067? Winston Churchill puts it elegantly when he said, “the empires of the future are the empires of the minds.” Of course, the minds of the future generations will have to determine, in this case, what they wish to do with ASEAN.

The Chinese have a saying; if you are planning for one year, plant rice; if you are planning for a decade, plant trees. If you are planning for one hundred years, invest in education. In Churchillian sense, education is about moulding critical minds. Education that broadens the minds of citizens is critical to the destiny of ASEAN. All ASEAN countries should educate, not indoctrinate, their citizens on the importance of ASEAN for regional security, trade and for cultural exchange.

Quo vadis ASEAN, in a new geo-political environment? The US, China, India and Japan under Abe-san, have returned to the region. The footprint of their rivalries is everywhere, in the South China Sea and in the Straits of Malacca.

In a transformed regional geo-political outlook, the strategic value of ASEAN has declined. With the big powers back in the region, competing for influence and primacy, and the proliferation of new regional security and economic institutions, ASEAN has lost its centrality and near monopoly over regional security.

Regional maritime security, for example, is now subject to very intricate power play between the external powers and client states. If leaders do not read the tea leaves properly, we will become pawns in big power games, once again.

The future of ASEAN in 2067 is for the generations to decide. They may wish to be part of the larger community like the East Asia Community. We can only hope they will decide wisely. They may wish to ponder over George Santayana’s dictum that “Those who do not learn from history are doomed to repeat it”.

 

 

 

Congratulations to Dean Barry Desker


July 18, 2013

Congratulations to Dean Barry Desker of The RajaratnamSAM_0358 School of International Studies, Nanyang Technological University, Singapore. This is a well deserved honour in recognition of his outstanding diplomatic and academic career. I join his colleagues and friends in the region and in Singapore in wishing him all the very best for the future.

You have to know Dean Desker to appreciate his considerable talents and warm personality. It was my privilege to have met and talked to him on regional and global issues. I value his insights and above all his humility. Thanks Ambassador Mushahid Ali for introducing me to Dean Desker a few years ago at the Asia-Pacific Roundtable organised by ISIS-Malaysia.–Din Merican

Ambassador Barry Desker, Dean of RSIS, Conferred Honorary Degree by University of Exeter

“Ambassador Desker’s skilful balancing of academia and policy-oriented work has clearly made the RSIS the leading research organisation in the region. Building that reputation from such a low base has taken enormous skill and the full use of his diplomatic training. The result is that he now leads what is not only the Asia-Pacific leading research think tank, but also one of the major powerhouses of policy development and research into international relations, terrorism, security studies, and the politics of the Asia Pacific region in the world. We are proud to be developing an association with RSIS, and I am personally proud to be able to salute and recognise the extraordinary contribution of this diplomat, thinker and leader.”– Professor Sir Steve Smith, Vice-Chancellor and Chief Executive, University of Exeter

Ambassador Barry Desker, Dean of RSIS, has been conferred the degree of Doctor of Laws, honoris causa, by the University of Exeter.

This honorary degree was conferred in recognition of his huge contribution to public life in East Asia and Singapore, and for his world-leading leadership and scholarship in the field of international relations.



Professor Sir Steve Smith (left) and Ambassador Barry Desker

Ambassador Desker received his degree from Baroness Floella Benjamin OBE DL, Chancellor of the University of Exeter, during a ceremony held at the University’s Streatham campus in the United Kingdom on 16 July 2013. Professor Sir Steve Smith, Vice-Chancellor and Chief Executive of the University of Exeter, delivered the oration.

In his oration, Prof Sir Steve, who is also a member of the RSIS Board of Governors, said, “Above all, we are recognising a man who since 2000, has taken a Singapore-based think tank to be a world ranking graduate school of international relations. As an external examiner at RSIS, I have had an opportunity to see this transformation first hand. Ambassador Desker’s skilful balancing of academia and policy-oriented work has clearly made RSIS the leading research organisation in the region. Building that reputation from such a low base has taken enormous skill and the full use of his diplomatic training. The result is that he now leads what is not only the Asia Pacific’s leading research think tank, but also one of the major powerhouses of policy development and research into international relations, terrorism, security studies, and the politics of the Asia Pacific region and the world.” Please click HERE to read the full oration.

In his acceptance speech, Ambassador Desker said, “My own institution, the S. Rajaratnam School of International Studies (RSIS) at Nanyang Technological University in Singapore, has had excellent ties with Exeter. Sir Steve Smith, the Vice-Chancellor, has been an external examiner, and is a member on our Board of Governors. As I was a newcomer to university administration, he served as a mentor and fount of wisdom in dealing with the challenges of managing faculty and building an institution which is a combination of a professional school of international affairs and a think tank. We have also had Exeter faculty as visiting professors.” Please click HERE to read the full speech.

8 Realities: Why the Malaysian Government should fund Higher Education


July 3, 2013

 MY COMMENT: This is a well written and thoughtful piece byDin Merican Anas Faizli. I thank him for sending it to me and with his permission I am sharing it with you. I personally believe that education of the right sort, that is one which recognises an individual’s natural aptitude, is an income enhancing and profitable undertaking. While I acknowledge the role of government as investor in education, I think it is up to us as individuals to decide whether we are prepared to go through the grind ourselves to get a degree or a professional/technical qualificaton at the tertiary level. Self development is a personal responsibility, not one for the state to decide.

That said, university education is not for everybody, that means we need to create polytechnics and technical institutes, as in the case of Germany, for those who have no aptitude for research and teaching.

Our industrialisation needs mechanics, techinicians, and nuts and bolts types, not just  researchers, academics, managers and bureaucrats. This is the real gap which our country must try to close. So, what our government can do is to allocate public funds for quality technical education for those who are unsuited for university education that Anas favours.–Din Merican

Anas8 Realities: Why the Malaysian Government should fund Higher Education

By Anas Alam Faizli

Education was institutionalized to formalize the process of knowledge acquisition and research in man’s quest for understanding. Earliest universities in the history of mankind namely Al-Azhar, Bologna, Oxford, Palencia, Cambridge and University of Naples (world’s first public university, 1224) have one thing in common; they were built by notable early world civilizations as institutions of research, discourse, learning, proliferation of knowledge and documentation. This contrasts largely from the role of universities today as institutions of human capital accreditation, qualification, and most unfortunately, business and profits.

Ibnu Khaldun, father of historiography, sociology and economics, in his work Prolegomenon (Muqaddimah) argued that the government would only gain strength and sovereignty through its citizens. This strength can only be sustained by wealth, which can only be acquired through human capital development (education), which in turn can only be achieved by justice and inclusiveness for all. Aristotle too proposed “Education should be one and the same for all.” A system that discriminates, in our case, based on household economic ability, can and will rile an unhealthy imbalance in the quality of the resulting labour force and society. These form the basis of our argument here.

 In America, the individual funds his higher education while many European countries have public-funded institutions of higher learning. The latter is the best for Malaysia. Our societal and economic progression (or digression) does not depend on any one factor, but on the interaction of economic, social and political factors over a long period of time. Let’s first look at some realities that we need to contend with to understand why the Malaysian government should fund higher education.

Reality #1: Society benefits from education

 We can never truly measure the immense positive externalities derived from an educated society. Outcomes of university education and research continuously found the progress of mankind. In developing Malaysia, higher education is an impetus for establishing a civic-minded society, highly skilled manpower and competitive value proposition for capital and production. Investing in education may cost the society tax Ringgits, but the consequences in failing to do so will be devastating. Walter W. McMahon (economist at University of Illinois) outlined the “private non-market benefits” for degree-holders. These include better personal health and improved cognitive development in their children. Alongside is the “social non-market benefits”, such as lower spending on prisons and greater political stability.

Reality #2: “Neither here nor there”

 Malaysia is neither here nor there, and education opportunity is a major contributing factor. Robert Reich, former U.S. Secretary of Labour and Professor at University of California@Berkeley, made a compelling argument that is very applicable to Malaysia. To attract jobs and capital, nations and states face two choices; one is to build a low-tax but low-wage “warehouse economy” competing on price, another is to compete on quality, by increasing taxes and regulation to invest in human capital for a highly productive workforce.

In Malaysia, wage growth caught up with productivity growth only up until the late 1990’s. Since 1996, we have been living in the “middle income trap”, stunted at the World Bank’s definition of upper middle income; neither high nor low income. In fact, for the past 10 years real wage growth has been negative. Having 77% of the Malaysian workforce with only SPM and below qualification is a structural barrier to us crossing over to the higher income group. The labour force is largely unskilled and unable to move their labour services up the value chain where higher salaries are paid.

Reality #3: Education is fundamental to a competitive value proposition

Another case for education is competitiveness for both FDI and outputs. On the FDI side, our factors of production, in this case labour, needs to be attractive enough. With a labour force that is neither highly skilled nor cheap, our value propositions dwarf next to the likes of Vietnam and Singapore. As a result, technology and automation service the lower-value processes replacing need for labour, while R&D and origination have not caught up due to lack of expertise. Malaysia has been the only country in the region facing net outflow in FDI since 2007.

 On the output side, our goal to move away from producing lower-value manufacturing and primary goods, into the higher-value services sector too have been held back by limited talent and capabilities. Lack of advanced education is one major factor causing this lack of competitiveness.

Reality #4: Efficiency driven economy versus Innovation driven economy

 A study released by the Global Entrepreneurship Monitor (GEM) categorizes Malaysia as an efficiency-driven economy, behind innovation-driven economies. We focus on improving existing processes, but we are not out there inventing new things where the big money is. Focusing on the latter is extremely important now more than ever for Malaysia, because we can no longer offer very cheap labour, land and factories to produce mass generic products competitively.

The number of researchers in Malaysia for each 1 million population is only 365 behind Japan’s 5,416 and South Korea’s 4,231. We are in dire need for more trained professionals and innovators, and we could have harvested them from talents that did not pursue tertiary education due to the lack of opportunities.

 Reality #5: Education is an investment

Like parents investing in their children’s future, the state must invest in the population for the future of the nation. An educated society is able to position themselves into higher standards of living characterized by higher income, production of high value goods and services, longer life expectancy, subscription to civic and moral values, political stability, existence of civil liberties and openness to change and development.

While highly developed nations like Denmark and the Netherlands invest 11.2% and 10.8% (respectively) of GDP in education, we invested only 4.8% last year (majority on infrastructure and emoluments!). To make matters worse, the education budget education is slashed from RM50 billion to RM37 billion this year! To get an idea of how counter-intuitive this is for a developing Malaysia, even Afghanistan (7.4%), Vietnam (7.2%) and Timor Leste (12.3%) spent more.

 Currently, about 80% of the bottom 40% income households are only-SPM qualified and below, while only 5% received higher education. The rest never made it to school at all. The reason is crystal clear; it is education that can lift households into higher income thus significantly reducing poverty and its consequences. If this group were to receive higher education, it is the state that ultimately benefits as social capital is returned from the household to the state in increased production and tax income. Social justice is served; while nobody is left discriminated or neglected from being given an opportunity to develop his or her own merits.

Reality #6: … with a Positive Net Return-on-Investment (ROI)

 Entertain this simple simulation: Consider a fresh graduate entering the workforce with a salary of RM2,500, working for 30 years with a modest increment of 5% a year. Upon retiring at the age of 55 years, he would have paid back at least RM290,000 to the government only in income taxes. Even after discounting, payback in taxes is significantly beyond the investment cost providing education.

 Reality #7: Education correlates with wealth and income

 Tertiary-educated individuals have an average of RM182,000 in wealth to their name, while SPM holders have only an average RM82,000 in net worth. Degree holders have at least 2.2 times the wealth of SPM leavers. But the tertiary education penetration rate for Malaysia stands at only 36.5%. This is only measured at point of enrolment (not completion)! Not only we are significantly behind “very high human development” nations’ average of 75%, we are also behind “high human development” nations’ average of 50%.

In contrast, 86% of Americans, 84% of Kiwis, 100% of Koreans, 99% of the British, 45% of Thais, and 38.4% of Turks are university-trained. As a result, the bulk of our workforce is unable to position themselves in higher-earning jobs. The bulk of our jobs involve the lower portions of the industry value chains. How are we then to move our economy into higher GNI territory, and inclusively move the majority of our population into higher income brackets? Current practice of relying on one-off mega construction projects will not ensure Malaysia move into high-income status, and stay there for the long run!

 Reality #8: Education will reduce income inequality

 Malaysia ranks as the third most unequal nation in Asia, based on a GINI coefficient of 0.4621 (World Bank). Using only GINI, a simple measure of dispersion between the richest and poorest in an economy, we can already see that there are structural problems with the kind of growth that we have been enjoying. A household that earns RM10,000 monthly and above is already considered the top 4% Malaysian households! 60% of the highest earning income households have at least one member that received tertiary-level education. But 60% of the lowest-earning households have only SPM-holders as their most qualified household member. Not coincidentally, only the top 20% income households in Malaysia have experienced substantial income growth. For the remaining 80% it has been moderate. The gap between the rich and poor has been consistently growing from year 1970 until today. Only non-discriminatory access to education for the bottom 40% will arrest the growth of this gap.

 America perceives that the benefits of tertiary-level education are enjoyed most by the individual himself, thus the individual funds his higher education. The Scandinavians believe that the government should pay for higher education. On one hand, we see a privately funded education system in America, and growing inequality between the relatively richer and poorer households. There is at least $902 billion (NY Federal Reserve) in total outstanding student loan debt in the United States today. In contrast, government-funded higher education Scandinavia ranks as most equal nations in the world. The apparent causal-effect relationship here is hard to dispel.

 We expect free access to education to allow inter-generational mobility and narrow this inequality gap. If we let economic disability become a prohibitive factor for education, relatively poorer households will never be lifted out of the low-income bracket.

 One graduate for every Malaysian family

 We need an education system that is inclusive, does not neglect academically-struggling yet vocationally-advantaged pupils, matches industry requirements, yet streams students into disciplines where they will excel most. Most importantly, the system must not allow students to find themselves at the point of entering the industry, handicapped with a student loan on their shoulders, only to realize that they are not employable.

Malaysia has progressed in many aspects by making primary and secondary education free. 100% of Malaysians finish at least primary 6 and 68% finish form 5. The current socio and economic condition in Malaysia now calls to make finishing form 5 legally compulsory and providing free and accessible tertiary education for all.

I  urge the government, non-governmental bodies, policy-makers, and lobby groups to move towards providing free tuition fees for higher education at all our public universities. Where public universities are unable to cater for surplus of qualified students, it is suggested that the same equivalent amount of tuition fee funding is to be provided for private universities in a staggered manner, so as to ensure education accessibility by all.

I also propose the target of one graduate in each of the 6.4 million Malaysian households to ensure inter-generational mobility; that is for at least one child of a self-subsistent fisherman or low-salaried factory worker to uplift the entire family into a higher income bracket. A graduate in each family will be the change-agent that ensures his generation improves the family; via a chain reaction multiplying effect, ultimately affecting the graduate’s surroundings.

Education is way too important for us to risk any mismanagement, oversight and underfunding. The generations that go through a robustly managed quality education system, or lack of them, will ultimately decide Malaysia’s direction and the society that we will live in. Only then we can fundamentally assure that our true north for a high income Malaysia is sustainable, inclusive and is enjoyed by all layers of society – not just for the Top 1%. Let us reflect what Nelson Mandela said for a better Malaysia! “Education is the most powerful weapon you can use to change the world.”

 *Anas Alam Faizli is an oil and gas professional. He is pursuing a post-graduate doctorate and is the founding executive director of Teach For The Needs (TFTN).

 ** Data and figures are derived from EPU, DOSM, HIS 2009, HDR 2011, World databank and BNM. For details, please refer BLINDSPOT (http://www.facebook.com/blindspot.msia)


Foreign Direct Investment and National Security: United States and Japan


July 3, 2013

ANALYSIS

Number 219 July 2, 2013
East West Center Asia Pacific Bulletin

Foreign Direct Investment and National Security: United States and Japan

By Rikako Watai

The United States and Japan are the first and third largest economies in the world respectively, and major recipients of inward foreign direct investment (FDI). However, FDI from competitor states can raise national security concerns, as was the case in the United States concerning FDI from Japan during the 1980s through to the 1990s. Economic security, akin to national security, is prioritized by countries throughout the world as is evidenced by the Security Exceptions of the 1948 General Agreement on Tariffs and Trade (GATT) that preceded today’s World Trade Organization (WTO) charter. However, national security has never been defined either in the United States or in Japan.

The only legal reference found on this subject is from US Supreme Court Justice Hugo Black, who in his 1971 concurring opinion on the Pentagon Papers, wrote that national security is a “broad, vague generality.” Any attempt to adopt regulations on FDI based on national security is coupled with ambiguity and interpretations that vary both in the United States and Japan.

The US Approach

The call for new regulations in the United States concerning FDI began to gain momentum in 1987 when Fujitsu, a Japanese computer company, tried to acquire Fairchild, an American semiconductor company. Fujitsu withdrew the acquisition plan when it faced severe objections from the Reagan administration. This culminated in the enactment of the Exon-Florio Amendment (Exon-Florio) in 1988. Exon-Florio empowered the president to stop foreign takeovers if they were perceived to pose a threat to national security. The new law did not contain a clear definition of national security and due restraint was exercised. In only one case was an acquisition blocked, when in 1990 the China Aero-Technology Import & Export Corporation (CATIC) tried to purchase the aircraft parts manufacturer MAMCO. However, in a number of other instances, foreign governments and companies voluntarily renounced their plans before been officially blocked, as in the case of Fujitsu-Fairchild.

Exon-Florio was amended in 2007 during President George W. Bush’s administration to the new Foreign Investment and National Security Act (FINSA). This was, in part, a response to the failed attempts by the Chinese company CNOOC to acquire the US oil company Unocal in 2005, and Dubai Ports World to manage six US ports in 2006. Both attracted attention because of national security concerns.

President Barack Obama, citing national security concerns, used his power under FINSA in September 2012 when he blocked the Chinese-owned US company, Ralls Corporation, from acquiring wind farm projects located close to a US Navy training facility in Oregon. This was the first time since the blocking of CATIC in 1990 that a president exercised his power to stop a foreign acquisition. Ralls subsequently filed a lawsuit in US Federal Court but most of the claims were dismissed because FINSA has a provision that actions by the president shall not be subject to judicial review. Since this decision, US government officials have made it clear that there have been no policy changes regarding FDI coming into the United States.

Furthermore, the Ralls case has highlighted problems within FINSA, specifically regarding due process. The president clearly has broad discretion in exercising his power under FINSA, but any presidential decision has to be open to accountability, explanation and transparency-the fundamental elements of the rule of law. The on-going Ralls case continues to attract attention from foreign investors and its outcome could influence future FDI into the United States, as will the outcome of the bid by the Chinese company Shuanghui International to purchase Virginia-based Smithfield Foods.

The Japanese Approach

Beginning in the 1990s, foreign-affiliated companies began entering the Japanese economy in growing numbers. While this is a good move for the economy as a whole, it raises a number of questions related to national security. Japan’s approach initially was to regulate FDI based on the 1949 Foreign Exchange and Foreign Trade Act (FEFTA). While this law contained provisions for controlling FDI, Japanese authorities preferred to utilize a mechanism known as “administrative guidance.” This informal practice came under criticism from foreign investors for creating a regulatory regime that lacked legal grounds. In response to these criticisms, rules under FEFTA were revised in 2007-the same year as FINSA -for the purpose of promoting international investment while also ensuring national security, and were patterned on the Exon-Florio review mechanism that created FINSA.

The new regulations introduced a list of designated industries important to Japan, and foreign investors are required to give the government prior notice of their plans to purchase one of those designated industries. In such cases, when a foreign acquisition is deemed to be problematic from the perspective of national security, the first course of action is for the Minister of Finance, or the minister with jurisdiction over the industry in question, to issue a recommendation to the parties calling for a specific change or suspension. If the parties fail to abide by the recommendation, an order is then issued to enforce the specific changes or suspend the transaction. Such an order was issued in 2008 citing national security concerns in a case involving a share purchase of Electric Power Development Co., Ltd. (J-Power) by the London-based Children’s Investment Fund (TCI). Unlike FINSA, it was possible to challenge the order, but TCI decided not to bring the case to the Japanese courts.

Future Reforms Required

The critical issue is how to balance the legitimate demands of national security with free trade and FDI, but citing opaque national security concerns for justifying protectionist measures clearly obstructs the GATT-WTO premise of free trade.

Both the United States and Japan can do more to refine their regulations regarding FDI by making the process more accountable. In the case of the United States, producing a public list of industries that will be subject to strict scrutiny for FDI would be a good start, somewhat along the lines of what Japan has done.

For its part, Japan has to acknowledge that foreign takeovers of Japanese companies that are not on the list of designated industries are completely exempt from giving prior notice to the government. Therefore, the list has to be precise and not ambiguous. Regulation of FDI will always be a policy challenge, and in order to realize the full potential of market globalization countries will have to be more transparent in communicating to foreign investors when national security concerns will prevail over free trade.

About the Author

Rikako Watai is a Japan Studies Visiting Fellow at the East-West Center in Washington and Professor of Law at Keio University Law School in Tokyo. She can be contacted via email at rwatai@gmail.com.

The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

The Asia Pacific Bulletin (APB) series is produced by the East-West Center in Washington.

APB Series Editor: Dr. Satu Limaye, Director, East-West Center in Washington
APB Series Coordinator: Damien Tomkins, Project Assistant, East-West Center in Washington

Rough-Edged Atomic Pioneer


May 29, 2013

NY Times: Books of The Times

Rough-Edged Atomic Pioneer

‘Robert Oppenheimer: A Life Inside the Center,’ by Ray Monk

By Janet Maslin (05-27-13)

Ray Monk had begun work on his J. Robert Oppenheimer biography in 2005, when Kai Bird and Martin J. Sherwin’s “American Prometheus” was published. That book, billed as “the first full-scale biography” of Oppenheimer, the theoretical physicist, gave Mr. Monk good reason to worry. It covers scientific, historical, moral, political and personal aspects of Oppenheimer’s life, conveying his arrogance, brilliance, self-destructiveness and lady-killing charisma. What gaps remained for Mr. Monk to fill?

R OpThe introduction to Mr. Monk’s “Robert Oppenheimer: A Life Inside the Center” cites at least one of them: physics.

“One would never know from reading Bird and Sherwin’s book how much of Oppenheimer’s time and intellectual energy was taken up with thinking about mesons,” Mr. Monk writes sniffily, noting that the subatomic particle does not even appear in Bird and Sherwin’s index. Mr. Monk’s own book mentions “Thirty Years of Mesons,” a lecture delivered by Oppenheimer in 1966 to the American Physical Society. And according to his index, Mr. Monk gives the meson its due on at least 21 out of 695 pages.

This is a strange way for Mr. Monk to compete. He is a professor of philosophy, with excellent books about Ludwig Wittgenstein and Bertrand Russell to his credit. And he is not a great explicator of physics, merely a not-bad one. Would anyone seriously interested in Oppenheimer seek out a biography for this?: “What, really, is an electron? A particle? A wave? Could it possibly be both? Might it possibly be neither? How should one, if indeed one should at all, picture an electron and its movements?”

It’s also odd that Mr. Monk (right) adopts a vaguely atomic metaphor to describe Ray MonkOppenheimer’s life. His book appeared in England under the main title “In the Centre,” as if Oppenheimer were a nucleus and not a person. Time and again he hits that analogy hard, emphasizing the importance of logistics in Oppenheimer’s personal and intellectual life.

It’s true that he played the crucial role in secret atomic research conducted in Los Alamos, N.M., and that he would never escape central responsibility for creating the atomic bomb. But Mr. Monk takes a needlessly mechanistic approach to a man who has seemed much more interestingly human in other, keener studies.

This lengthy book does aspire to be more comprehensive than earlier volumes. Before Oppenheimer even makes his entrance into Mr. Monk’s narrative, much has been said about the German-Jewish tradition into which he was born, the privilege that allowed him to be so aloof and the Ethical Culture beliefs that shaped his family and education. Mr. Monk also writes at length about anti-Semitism and the kinds of Jews who practiced it, with Oppenheimer among them.

As part of his overall arrogance and superciliousness, Oppenheimer allowed himself to be treated as the antithesis of a Jewish stereotype. He grew from, in his own words, “an unctuous, repulsively good little boy” into such an urbane prodigy that Harvard never bothered to discriminate against him. A quota system applied to Jews in 1922, when Oppenheimer arrived there.

In the earlier, formative chapters, which are better than the book’s treks over the best-known, most public part of Oppenheimer’s adult life, Mr. Monk also illustrates how easily Oppenheimer’s snobbery trumped anybody else’s.

“Instead of 5,000 keen, intellectually alive, well-read young men who have come here to think out ideas and to learn the ideas of others,” he complained about his fellow Harvard students, “I find 5,000 tawdry yokels, yanked from fat farms and snoring small towns, to bellow at ball games.”

Nonetheless, Mr. Monk believes Oppenheimer was intimidated by the broad sophistication he found at Harvard and later Cambridge. Not until he arrived at Göttingen University in 1926, at the age of 22, did he feel free of academic elitism, in a place without “the weight of 700 years of tradition bearing down upon it.”

RO with EinsteinBy this point in his book, Mr. Monk has begun to explain quantum physics and drop the names of the heavyweights. Here is a book that ticks off the reactions of Einstein, Planck, Heisenberg, Born and Dirac to Schrödinger’s “wave mechanics,” and shows how remarkably smoothly Oppenheimer insinuated himself into those ranks.

The 1927 “On the Quantum Theory of Molecules” which he co-wrote with Max Born, may not have been one of Born’s greatest hits, but it became one of Oppenheimer’s better-known works. Without Mr. Monk, many readers interested in Oppenheimer’s life might not have known that at all.

Mr. Monk does a strong job of explaining how Oppenheimer, with unwanted assistance from Nazi Germany, helped shift the center of theoretical physics from Europe to California (he taught at both Berkeley and Caltech). That shift leads the book to Los Alamos during wartime, though it is notably more colorless than other accounts of the guarded community there. The familiarity continues through the bombings of Hiroshima and Nagasaki, and the conscience-searing effects on Oppenheimer of his breakthroughs in the science of mass destruction.

Mr. Monk gives very detailed accounts of F.B.I. surveillance of Oppenheimer and those around him. And he replays Oppenheimer’s familiar, contorted, much-dramatized testimony to the Atomic Energy Commission hearings in 1954, which stripped him of his security clearance and branded him a risk to national security.

The remainder of Mr. Monk’s book describes Oppenheimer’s relatively glamorous years leading the Institute for Advanced Study in Princeton, N.J., the ongoing debate about his reputation, and the growing infrequency of his appearances as a public figure. “Thirty Years of Mesons” notwithstanding, he withdrew into a life that is only sketchily explained here.

It is typical of Mr. Monk’s distanced view of his subject that he writes this, in conclusion, about Oppenheimer’s wife and two children: “Oppenheimer loved Kitty, Toni and Peter, but he was never able to be the reliably affectionate husband or father they needed him to be. The problems he had as a child forming close bonds with other people had remained with him throughout his life.” Though Oppenheimer left behind nearly 300 boxes of papers, Mr. Monk says they contain “remarkably little that gives away anything of an intimate nature.” That’s hard to believe. Other biographers have seen Oppenheimer at closer range, in living color.

A version of this review appeared in print on May 28, 2013, on page C1 of the New York edition with the headline: Rough-Edged Atomic Pioneer.

http://www.nytimes.com/2013/05/28/books/robert-oppenheimer-a-life-inside-the-center-by-ray-monk.html?ref=books

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