Four fallacies of the 2nd Great Depression

November 30, 2013

Four fallacies of the 2nd Great Depression

NOT SCIENCE: The truth of many economic propositions depends on people’s expectations

Lord SkidelskyTHE period since 2008 has produced a plentiful crop of recycled economic fallacies, mostly falling from the lips of political leaders. Here are my four favourites:

THE Swabian Housewife. “One should simply have asked the Swabian housewife,” said German Chancellor Angela Merkel after the collapse of Lehman Brothers in 2008. “She would have told us that you cannot live beyond your means.”

This sensible-sounding logic currently underpins austerity. The problem is that it ignores the effect of the housewife’s thrift on total demand. If all households curbed their expenditures, total consumption would fall, and so, too, would demand for labour. If the housewife’s husband loses his job, the household will be worse off than before.

The general case of this fallacy is the “fallacy of composition”: what makes sense for each household or company individually does not necessarily add up to the good of the whole. The particular case that John Maynard Keynes identified was the “paradox of thrift”: if everyone tries to save more in bad times, aggregate demand will fall, lowering total savings, because of the decrease in consumption and economic growth.

If the government tries to cut its deficit, households and firms will have to tighten their purse strings, resulting in less total spending.

As a result, however much the government cuts its spending, its deficit will barely shrink. And if all countries pursue austerity simultaneously, lower demand for each country’s goods will lead to lower domestic and foreign consumption, leaving all worse off.

THE government cannot spend money it does not have.This fallacy, often repeated by British Prime Minister David Cameron, treats governments as if they faced the same budget constraints as households or companies. But governments are not like households or companies.

They can always get the money they need by issuing bonds.But won’t an increasingly indebted government have to pay ever-higher interest rates, so that debt-service costs eventually consume its entire revenue?

The answer is no: the central bank can print enough extra money to hold down the cost of government debt.

This is what so-called quantitative easing does. With near-zero interest rates, most western governments cannot afford not to borrow. This argument does not hold for a government without its own central bank, in which case it faces exactly the same budget constraint as the oft-cited Swabian housewife. That is why some eurozone member states got into so much trouble until the European Central Bank rescued them.

THE national debt is deferred taxation.According to this oft-repeated fallacy, governments can raise money by issuing bonds, but, because bonds are loans, they will eventually have to be repaid, which can be done only by raising taxes. And, because taxpayers expect this, they will save now to pay their future tax bills. The more the government borrows to pay for its spending today, the more the public saves to pay future taxes, cancelling out any stimulatory effect of the extra borrowing.

The problem with this argument is that governments are rarely faced with having to “pay off” their debts. They might choose to do so, but mostly they just roll them over by issuing new bonds.

The longer the bonds’ maturities, the less frequently governments have to come to the market for new loans. More important, when there are idle resources (for example, when unemployment is much higher than normal), the spending that results from the government’s borrowing brings these resources into use.

The increased government revenue that this generates (plus the decreased spending on the unemployed) pays for the extra borrowing without having to raise taxes.

THE national debt is a burden on future generations. This fallacy is repeated so often that it has entered the collective unconscious.

The argument is that if the current generation spends more than it earns, the next generation will be forced to earn more than it spends to pay for it. But this ignores the fact that holders of the very same debt will be among the supposedly burdened future generations.

Suppose my children have to pay off the debt to you that I incurred. They will be worse off. But you will be better off.

This may be bad for the distribution of wealth and income, because it will enrich the creditor at the expense of the debtor, but there will be no net burden on future generations.

The principle is exactly the same when the holders of the national debt are foreigners (as with Greece), though the political opposition to repayment will be much greater. Economics is luxuriant with fallacies, because it is not a natural science like physics or chemistry. Propositions in economics are rarely absolutely true or false. What is true in some circumstances may be false in others. Above all, the truth of many propositions depends on people’s expectations.

Consider the belief that the more the government borrows, the higher the future tax burden will be.

If people act on this belief by saving every extra pound, dollar, or euro that the government puts in their pockets, the extra government spending will have no effect on economic activity, regardless of how many resources are idle.

The government must then raise taxes and the fallacy becomes a self-fulfilling prophecy.

So how are we to distinguish between true and false propositions in economics? Perhaps the dividing line should be drawn between propositions that hold only if people expect them to be true and those that are true irrespective of beliefs.

The statement, “If we all saved more in a slump, we would all be better off,” is absolutely false.We would all be worse off. But the statement, “The more the government borrows, the more it has to pay for its borrowing,” is sometimes true and sometimes false.

Or perhaps the dividing line should be between propositions that depend on reasonable behavioural assumptions and those that depend on ludicrous ones.

If people saved every extra penny of borrowed money that the government spent, the spending would have no stimulating effect. True. But such people exist only in economists’ models.– Project Syndicate/

Political Polemics: a threat to National Unity

November 30, 2013

Political Polemics: a Threat to National Unity

by Razali Ismail@

Razali IsmailPOLITICAL polemics — the art of using the power of words to maliciously and divisively influence public opinion over contentious issues — functions unlike spirited debates and honest discourse that enhances the public sphere and work towards the negotiation of common understandings.

The former drives vindictive wedges between groups and individuals, and retards any advance towards integration of ideas and acceptance of differences.

From time immemorial, it has been strategically used to the advantage of a few; to enflame emotions and unqualified support that run counter to any sense of logic or rationality.

Recently, we saw the power of polemics that nearly brought the United States to the brink of collapse. We also saw how polemics can be used to sway long-held sense of tolerance to one of intolerance like the banning of the building of minarets in Switzerland.

Political polemics are successful because people are intrinsically insecure. The tendency to prepare for the worse as a survival instinct or “negativity bias” is fully exploited, as it preys upon our emotions and fears.

At home, our multicultural context is fertile ground for polemics. Despite efforts at strengthening national unity, boiling resentment over what has been perceived as increasing marginalisation of interests along ethnic lines fueled political polemics.

Successive waves of disputes over the past decade and recent polemics on democracy, human rights, intra and inter ethnicity, the call for a clean and fair elections and a more equitable distribution of economic wealth have started to shake the harmony and tranquillity that many have worked tirelessly to transform into reality.

Some factions that claimed to champion enshrined privileges and entitled rights can tilt the country towards unwelcome extremes and develop fault lines that cut across religious, cultural, and ethnic boundaries.

However, polemics in and of itself is not totally divisive. It can also play a positive role in resolving differences and conflicts. The key lies in reviewing disruptions as focal points for drawing collective energies together to confront a common enemy or cooperate towards a mutuality of interests. The critical element is winning mainstream acceptability.

This is why political polemics today poses such a difficult conundrum.

On the one hand, judiciously exercised, carefully applied and effectively employed, polemics can be used to transform a minority opinion into a common cause, bring together diverse groups into a united front and animate whole populations into collective action, like what Sukarno did for Indonesia and Tun Dr Mahathir Mohamad did for us.

But even with the best of intentions, and especially when lacking the appropriate restraint and prudence, the intrinsic appeal, persuasive muscle and formidable presence of polemics has the potential to bring about strife and ruin just as much or reinforce uncommon ties under shared convictions and beliefs.

While we worked hard to make sure that our nation enjoys a measure of security, stability and prosperity by careful implementation of workable and effective socio-cultural policies to recalibrate structural imbalances and redress systemic inefficiencies, we are aware of the polemics that tend to negate every positive action that we take.

Few countries, especially those with largely homogenous populations, will understand or appreciate the complexities of leading culturally diverse nations like ours and the sacrifices we made to stay on course.

The growing concern is how recent developments will affect the younger generation, especially Bumiputera youths who seem resistant to government efforts and policies related to freedom of expression, freedom of association and affirmative economic action like the New Economic Policy.

Given this polemics of resistance, can we rival other countries in the region that are well on their way in fortifying their own economies to attract foreign investments and ramp up production for competing in both the Asean and wider global economy?

The polarising polemics and acrimonious debates today present themselves more often than not as disruptive forces. Unfounded allegations of corruption in the government, for example, have tainted our image and impaired our ability to inspire confidence among foreign investors.

These challenges are further compounded by the presence of social media that has exponentially magnified the power of polemics. We are no longer afforded the luxury to sensibly mull over their implications, to carefully confirm their veracity, and to reasonably evaluate their arguments.

More has to be done to strengthen the spirit of enterprise and the penchant towards hard work among the younger generation — qualities that have always been there irrespective of their cultural backgrounds — to further hone their technical competencies, harness their inborn potential and encourage them down the path of self-improvement and global competitiveness.

In the face of uncompromising realities of the international marketplace, we cannot allow ourselves the luxury of welfare dependencies that lull us into a false sense of security and complacency.

We must go back to our roots that inform our culture of the values of moderation that have been cultivated over centuries of intermingling and interaction, that continue to guide our relations as the natives of this region.

The most salient elements of these principles may have been articulated by our Prime Minister, Datuk Seri Najib Razak, when he introduced the notion of a Global Movement of Moderates to the General Assembly of the United Nations three years ago.



Pakatan Rakyat get your act together

November 30, 2013

MY COMMENT: Pakatan Rakyat(PR) has done well in thedato-din-merican last elections, although it lost Kedah and was unable to take back Perak, and win in Negri Sembilan and Terengganu. To its credit, PR has shown in Penang and Selangor that it can govern prudently, but admittedly much more work needs to be done if PR is to take Putrajaya in GE-14. It is not going to be easy since UMNO-BN is equally determined to remain in power.

Anwar Ibrahim was the glue that brought PKR, DAP and PAS together in 2008. GE-12 is now history but for the first time since Independence the country had a strong opposition capable of taking reins of power from UMNO-BN in Putrajaya. Credit is due to Anwar.

Unfortunately, after 5 years of Pakatan Rakyat, it would appear that the de facto PKR leader has apparently lost his influence with PAS and DAP as a result of his own political fumbles, the most famous being the “September 16″(2008) episode which diminished Anwar’s credibility .

Internal PKR politics got the better of him, especially his close partnership with Azmin Ali. Anwar’s open criticism of Tan Sri Khalid Ibrahim is counter-productive. The Menteri Besar of Selangor is a very competent and outstanding administrator. Criticisms against him are, therefore, politically motivated. He is now being made to appear as a liability to PKR. The reality is that Khalid Ibrahim is an asset since he has managed the affairs of his state well. 

Anwar has also mishandled Sabah and the consequences are obvious to all of us. PKR Sabah is in shambles and if PR is to take Putrajaya, something drastic must happen. It is tough to revive PKR but given the UMNO-BN’s control  over Sabah and Sarawak, thanks to both Musa Aman and Taib Mahmud, PR may have to depend on DAP. Frankly, I am not sure if DAP can do it on its own.

Murray’s comment that “PKR has shown itself to be opportunistic, with little in the way of its own thought-out ideological-based policies” is valid. Some commentators told me recently that PKR has become a twin sister of UMNO culture-wise. I agree that PKR has no ideology to speak of today. It, in fact, lost its ideological verve with the retirement of Dr. Syed Hussin Ali who I admire a lot.  PKR today, as I see it, is no longer driven ideals of democracy, justice, and good governance.

PR must refocus and work towards being a true multidimensional coalition speaking with one voice on issues and policies, no longer one that is driven by one man’s ambition to become Prime Minister. –Din Merican

Pakatan Rakyat get your act together

by Murray Hunter@

PR urgently needs good strategists whose opinions are listened to. PR must advance from being a one-man crusade to becoming a true multidimensional coalition with a wide and varied intellectual input and consistent message.–Murray Hunter

The general election is almost six months behind us where the narratives of Malaysian politics have been defined.

pr3The Pakatan Trio

Pakatan Rakyat (PR) may have won the popular vote in the last election, leading some to believe that the opposition coalition is owed a moral mandate. However, under a first-past-the-post electoral system, the game is about winning seats, not aggregate votes.

PAS has ruled Kelantan for many years in the social and cultural contexts of the state and has shown it understands the aspirations of the Kelantanese.

Khalid Ibrahim and Lim Guan Eng–Success Story in Selangor and Penang

Khalid IbrahimSelangor has been prudently run as a corporation by Parti Keadilan Rakyat’s Tan Sri Abdul Khalid Ibrahim, and Penang’s finances have been restructured with great fiscal skill, where industrial investment has been revived through relentless promotion by DAP’s Lim Guan Eng.

However, even with these achievements, Pakatan does not have the pedigree needed to form a federal government.Many inconsistencies and weaknesses within Pakatan exist. As a multidimensional party, PAS does not speak with a unified voice.

DAP has shown its failure to provide ideologically sound and loyallim-guan-eng candidates for political office, causing the downfall of one state government. The coming DAP party elections in Penang show the mad scramble for positions of influence among party stalwarts.

To date, PKR has shown itself to be opportunistic, with little in the way of its own thought-out ideological-based policies. In fact, some of its views, like the one on salary hikes for politicians, are even contradictory.

The culmination of these problems, the failure to take tactical initiatives and electoral blunders have cost Pakatan Rakyat the grand prize of Malaysian politics –the Federal Government.

Prime Minister Datuk Seri Najib Razak has been grossly unappreciated for his job of holding the line for UMNO in the recent election. He was written off before the election by many pundits, who expected great losses.

Many felt there was a real possibility of Terengganu and Negri Sembilan falling to PR. Perak was expected to be won back by PR. However, Najib held these states and wrested back Kedah as well.

GE-13: Najib’s strategic brilliance or Anwar’s blunders?

We will never be sure whether it was Najib’s strategic brilliance or Anwar’s blunders that resulted in the final result.

The defeat for PAS in Terengganu in 2004 and the recent return of Kedah to Barisan Nasional (BN) indicate that voters won’t accept incompetence by any PR government, although they may not apply the same standard to BN. The Kedah win, led by former Prime Minister Tun Dr Mahathir Mohamad’s son, Datuk Seri Mukhriz Mahathir, will be difficult to reverse in the next election.

Sabah Politics badly handled by PKR

PR, particularly PKR, has made a major blunder in Sabah. PKR wants to run candidates under its own banner rather than work with the existing opposition forces in the state, leading to a number of three-cornered fights.

cm-musa-amanAs a result, the opposition is divided into a number of groups, which played straight into the hands of UMNO strong man and Chief Minister Datuk Seri Musa Aman, allowing UMNO to dominate the state’s political landscape.

This cost the opposition forces four federal and eight state assembly seats. In addition, PKR itself seems to be disintegrating in the state where between eight and 12 leaders have quit the party over the last few days.

Sarawak: Taib Mahmud’s Bastion

Although DAP has made inroads into the towns of Sarawak, the rural regions of the state remain the bastion of Tan Sri Taib Mahmud’s Parti Pesaka Bumiputera Besatu (PBB)-dominated government. PR appears to have grossly underestimated the political mastery and respect Taib carries in the rural heartlands of Sarawak.

Taib has the qualities of a leader, rather than the administrativeTaib Mahmud mould of many other national leaders, making him a strong adversary. It’s not the work of PR that has made small inroads into PBB support, but rather the work of Radio Free Sarawak and other independent local activists.

In Sabah and Sarawak, it is difficult to see where PR can make future gains unless it can change its understanding of the political dynamics of both states. From the people’s perspective, this maybe even more difficult as PAS, PKR and DAP are considered by many as “peninsula-centric”, as DAP supremo Lim Kit Siang said in a recent blog posting.

Sabah and Sarawak are mathematically critical in deciding which side of politics forms the federal government.In the last election campaign, PR focused on preaching to the converted. This didn’t win new voters. The inroads into Johor were good for PR, but city campaigns with perhaps the exception of Anwar’s daughter, Nurul Izzah Anwar in Lembah Pantai where she was challenged by the then UMNO Federal Territories minister Datuk Seri Raja Nong Chik Zainal Abidin were wasted efforts.

If the Pakatan leaders had not run the mass rallies in Johor, conveying a syok sendiri or chauvinist manner, the UMNO rhetoric after the election may have been much more conciliatory and inclusive than the current divisive narrative coming out of the party.

PKR –A Dynasty

Many perceive PKR to be a dynasty with husband, wife and daughter holding high-profile positions. This is one reason the Azmin Ali influence is so strong within the party, to the point of being bitterly divisive. His recent comments over the pay increase announced for Selangor lawmakers make Azmin look more like an opposition leader in Selangor than a member of the government.

There is more to Azmin’s antics than just naked ambition. He has a point that many in the party agree with. One Sabah PKR leader Jelani Hamden upon his resignation from the party a couple of days ago said that there was too much central control. This is a rift that could paralyse the party, particularly when the rank-and-file members are needed on the ground during elections.

The current disagreement about how funds in Selangor should be utilised shows the policy malaise of PKR. There is also a wider dimension to policy issues where PR has not been able to deal with the issue of hudud and an Islamic state. The concept of an Islamic state is ill-explained. The issue could have been easily resolved through adopting the concept of governance through Islamic principles rather than going all out for an Islamic state.

The best advantage for UMNO is for PAS to continue focusing on hudud. For as long as PAS promotes hudud, UMNO will stay in power.

It’s time for the PR to eradicate “ego” from the coalition leadership and make a serious attempt to regroup under a new guard for the next election.

To do that would shed the usual suspects of PR to allow a new vanguard of politicians to emerge, who are younger and more energetic than BN. This doesn’t mean that the old guard of Anwar Ibrahim, Lim Kit Siang and Karpal Singh withdraw totally but rather, give others “room to move” in the generational transition.

Anwar should stand aside

The best thing for PKR might be Anwar declaring that he had no more ambition to become PM and stand aside. This would go a long way in winning over voters who mistrust his intentions. As long as Anwar clings to the hope of one day becoming PM, PR is doomed to remain in opposition. The myth that Anwar is a vote winner must be overturned. His immense international popularity doesn’t equate to winning new voters here.

When looking closely at PAS, there is an almost perpetual struggle going on between the ulama and the professionals, technocrats,  Anwaristas and other progressives within the party. Occasionally, members of the ulama in PAS will make pronouncements, which lead to many voters developing a fear of the party because of its interpretation of Islam. This costs PAS votes as Malays tend to be moderate relative to many other Islamic societies.

This, however, has generally been kept in check by leaders like Datuk Nik Aziz Nik Mat and Mat Sabu over the last few years.

According to PAS Research Director Dr Dzulkefly Ahmad, PAS needs to woo the Malay youth and women voters. The youth vote is growing massively and changing the dynamics of elections and PAS currently only holds around 40% of the Malay vote, being only 35% among women. UMNO’s powerhouse during elections is UMNO Wanita. If PAS is going to grow its electoral support, it must connect with women and the younger generation.

PAS losing grip in the Rural Heartland

At present, PAS is good at preaching to the converted. However, its electoral support in the Malay heartland is on the decline. This electoral decline lost Kedah and failed in enabling PR to retake Perak. Even in the stronghold of Kelantan, PAS lost six seats although it continues to govern the state. Ironically, PAS won in multi-ethnic areas as a beneficiary of the PR coalition. PAS needs to make up this deficit if PR is to have any chance of taking over the federal government.

PAS also needs to inspire the multiethnic electorate to maintain its support. Hudud is not going to help with any of these demographics.

Many mistake hudud for Islam because of PAS insistence on the issue. Sometimes, PAS mistakes being Arabic for being Islamic, which frightens many voters, particularly the urban Malay youth. People don’t vote for PAS because of Islam, but rather their dislike for BN. A vote for PAS is not necessarily a vote for the ideals of the party.

The PAS philosophy that has been so successful in Kelantan cannot be translated nationally. The long rule of Nik Aziz can be considered an extraordinary example of a leader who had special qualities and was able to appeal to the emotions and aspirations of the Kelantan people. PAS’s success in Kelantan has little national correlation.

With the Terengganu and Kedah losses, PAS still has to prove that it can govern.

NajiboThe rumours of PAS-UMNO talks, fuelled by a recent meeting between Kelantan MB Datuk Ahmad Yakob and Najib, continue to undermine and bring insecurity to PR, especially when at the closing of the recent PAS general assembly, President Datuk Abdul Hadi Awang did not rule out the possibility of discussions.

As we have seen, policy has little to do with who governs. It’s about emotion and sentiment. It’s not about exposing corruption and incompetence, but rather making people in rural Malaysia understand the differences between political parties and government.

Otherwise, BN will always be the government and PR the opposition. It’s also about realising that those who will decide who will form the next government in Putrajaya are not the middle-class professionals in the cities but pakcik and makcik in the rural areas. PR lost rural votes in Perak, much of Johor, Pahang, Terengganu, Negri Sembilan, Perlis, Sabah, Sarawak and Kedah in the last election.

Many political analysts in Westminster systems would argue that governments lose elections rather than oppositions winning them. However, the Malaysian context may be different where the opposition needs to win the confidence and trust of the rural electorate.

The Rural Factor in Malaysian Politics

The major problem here is that most rural people don’t know any other type of government. Issues such as the separation of party and state are difficult for many to understand. One of the beliefs that many Malays hold is that opposing UMNO is opposing the government. Many rural people have been brought up with the belief that only UMNO can protect their religion, way of life and against Chinese economic domination.

The Hudud Issue–Advantage UMNO

As mentioned, PAS hasn’t sold Islam well in a multicultural society with the hudud issue. Part of the reason UMNO has returned to the ultra-Malay narrative and taken a strong “Islamic” stance is its feeling that it must compete with PAS to show it is the party with the best credentials to look after “Malay interests”.

Consequently, the current hudud law project has isolated Islam from the wider concept of Tawhid. Islamic proclamations and the strong stances we are witnessing are not benefitting the progression of Islam within Malaysia. If PAS presented a more balanced Islamic world view, Umno would have much greater room to move into the middle ground.

The PR agenda has a massive influence on the behaviour of the government. If PR was truly concerned about the consequences of its own political rhetoric, the leadership may consider changing approach, which no doubt would also benefit them electorally.

Anwar’s “September 16” and Twitter message on election night that “PR has won the election” are not constructive. Many perceive Anwar to be driven by ambition, hate and a sense of revenge. His pledge to retire if PR didn’t win the election has lost him credibility.

There is a segment of the population who have become disillusioned with PR over a number of issues. Anwar’s antics, internal struggles, a potential political dynasty, lack of policy direction, and basic mistrust are keeping PR from winning the federal election. If PR wants to win, they must take a hard inward look, rather than blame their loss on phantom voters.

Blaming others is just too easy, rather than recognising one’s own shortcomings. If DAP state assemblyman Hee Yit Foong didn’t defect, the PR Perak government may have run its full term. If the former Kedah Chief Minister did things differently, the last election result may have been different. If PKR left Sabah politics to the Sabahans and admitted Sabah parties into the coalition, great inroads would have been made.

Within the current stance, victory for PR at the next election looks bleak. PR members need to go back to the drawing board and return to the electorate with consistent and united policies and most of all learn how to engage rural communities.

It is, therefore, not the alternative media that will be most important but the rural village committees, which is still the proven secret weapon of BN.

In politics, it doesn’t matter what foreigners think of the present Malaysian Government or Anwar for that matter. It doesn’t matter whether there is electoral fraud or not. Elections are not about the moral high grounds or even what the majority wants. What matters is knowing the land you are playing on and wining the competition by the existing rules. Otherwise, a tired and scandal-laden government would have long been tossed out of office.

No Shadow Cabinet

In Malaysia the winner takes all. Without any shadow cabinet, PR is not an opposition, but rather a bunch of non-government members of parliament. BN representatives in the Senate are asking better questions than PR are asking in the lower house.

Unlike the post-2008 election period, the Malaysian electorate appears to be “burnt out” and has given up expectation and yearning for change. It’s now suppressed. This is where BN is likely to make up lost ground next election as the wave of change has reached the peak and will gently subside.

PR urgently needs good strategists whose opinions are listened to. PR must advance from being a one-man crusade to becoming a true multidimensional coalition with a wide and varied intellectual input and consistent message. – November 30, 2013.

The Economics of John Kenneth Galbraith

November 29, 2013

kevin-kim-s-glog-john-kenneth-galbraith--sourceJohn Kenneth Galbraith

stephen_dunn1I am halfway through Steven P. Dunn’s book, The Economics of John Kenneth Galbraith: Introduction, Persuasion and Rehabilitation (Cambridge; Cambridge University Press, 2011). It is an excellent book on this much maligned economist, whose books like The Industrial State, The Affluent Society, American Capitalism:The Concept of Countervaling Power, The Great Crash, 1929, Economics and The Public Purpose, among others, are classics.

I recommend Dunn’s book to those who seek to understand Economics as a social science and JKG’s criticism of  “imitative science” (economics is not physics!). And here is why.–Din Merican

The Economics of John Kenneth Galbraith

Cambridge University Press

9780521518765 – The Economics of John Kenneth Galbraith – Introduction, Persuasion, and Rehabilitation – By Stephen P. Dunn


Though economic analysis and general reasoning are of wide application … every change in social conditions is likely to require a new development of economic doctrines.

Alfred Marshall (1920: 37)

If there were justice in the world, John Kenneth Galbraith would rank as the twentieth century’s most influential American economist. He has published several books that are among the best analyses of modern US history, played a key role in midcentury policymaking, and advised more presidents and senators than would seem possible in three lifetimes. Yet today, Galbraith’s influence on economics is small, and his influence on US politics is receding by the year.

J. Bradford DeLong (2005: 126)

Stephen P. Dunn on JKGIn the tributes and obituaries that followed John Kenneth (Ken) Galbraith’s death on April 29, 2006, much was made of his long and varied career, as well as his closeness to power. John Kenneth Galbraith was a distinguished Harvard economist, an accomplished diplomat, a political activist, a confidant and adviser to presidents, a memoirist and novelist, and one of the best-selling economic writers of his time. The conventional reflection noted his colorful life, celebrated his mordant wit and prose, yet generally castigated his theorizing as being obsolete. This is a major travesty. Galbraith was one of the leading progressive intellectuals of the post-World War II period who, though part of the establishment, was happy to point out its self-serving interests and convenient myths.1 But he was more than just a gadfly. He was an original theorist whose contributions are now so widely assimilated that their lasting force is easily overlooked.

Indeed, in the days and months that followed his death, and for a long time before, little serious reflection has been given to Galbraith’s enduring contributions to economic theorizing. Nobel prize-winner Paul Krugman’s (1994: 13–14) comments in Peddling Prosperity perhaps capture the standard mainstream assessment of Galbraith:

Although Galbraith is a Harvard economics professor … he has never been taken seriously by his academic colleagues, who regard him as more of a “media personality”. The contrast between public and professional perception became particularly acute in 1967, when Galbraith made a grand statement of his ideas about economics in The New Industrial State, a book that he hoped would come to be regarded as being in the same league as John Maynard Keynes’s General Theory or even Adam Smith’s Wealth of Nations. The book was rapturously reviewed in the popular press, but it met with indifference from the academics. Galbraith’s book wasn’t what they considered real economic theory. Not incidentally, the academics were right in believing that The New Industrial State could be safely ignored.

What is remarkable about such comments, however, is that Paul Krugman2Krugman himself seems to be evolving into a Galbraithian. Over the last twenty years, Krugman has increasingly moved into the space once occupied by Galbraith.2 In Peddling Prosperity, for example, Krugman (1994) attacked “supply siders” and “strategic traders.” In The Return of Depression Economics, Krugman (2008c) heralded the return of Keynesianism. In The Conscience of a Liberal, Krugman (2007) argued that “movement conservatism” has defended and driven inequality, exploiting cultural and racial divisions to its advantage. And throughout he has attacked the misleading fictions promulgated by textbook economics.

This is a conscience that Galbraith would have applauded. Over the course of his major trilogy – The Affluent Society (1958a), The New Industrial State (1967a), and Economics and the Public Purpose (1973a) – Galbraith developed a system of thought that attempted to shed light on many contemporary concerns such as: the overproduction of private goods and the underproduction of public goods; the increasingly superfluous nature of much technical innovation directed at socially irrelevant commodities; the failure of economic growth to ameliorate enduring social problems; the uneven distribution of government expenditure, reflected in excessive spending on the military and other forms of social infrastructure, e.g. roads, to the relative neglect of others, e.g. parks, cultural activities, environmental protection, mass transit, and public housing, which are all public goods whose very legitimacy is hotly disputed; the increasingly skewed income distribution between different sectors and personnel; the enduring distinction between the high-wage and low-wage industries; the unresponsiveness of the modern corporation, governments and international institutions to public pressure and opinion; the problems of economy-wide coordination; and the continuing fear of inflation as opposed to deflation. Many of these concerns remain pressing today.

Indeed Krugman’s discussion of contemporary issues in his New York Times column increasingly echoes Galbraith’s analysis of the new industrial state (Duhs, 2008). Krugman’s analysis of contemporary events is increasingly Galbraithian in orientation, concentrating on the major anxieties of our time. Krugman, like Galbraith before him, increasingly focuses on the divergence between the interests of the conservative and corporate elite and the wider public interest in his analysis of: the soaring wealth of the rich and rise of inequality; the bias of the tax system toward the affluent; the rise in obesity and the role of the large food corporation in promoting the consumption of high-fat, energy-dense foods; the need for the good society to deliver a universal health insurance model; the manipulation by oil and automobile companies of governments and popular opinion, obfuscating understanding and limiting global response to the threat of climate change; Enron and their fabrication of the 2001 Californian energy crisis; Iraq, Halliburton, and the cozy relationship between the military industrial complex; the obsession with increased growth at the expense of happiness; and the cronyism of the Bush administration. All are anxieties similar to ones that Galbraith analyzed. What is more all can be explained by Galbraith’s theoretical framework.

Stigler, Friedman and JGKStigler, Friedman and JKG

Nevertheless, in the conventional wisdom, the assessment continues to be that Galbraith’s analysis, as exemplified by The New Industrial State, has not come to pass. It was either wrong in its time (Solow, 1967; Gordon, 1968, 1969; Demsetz, 1974; Friedman, 1977) or it is wrong for our times (Krugman, 1994, 2008c; McCloskey, 2007). Either way, The New Industrial State has been eclipsed and Galbraith must therefore be unceremoniously consigned to the dustbin of history.

A journey through economic time

The standard view is that Galbraith painted a picture of an autonomous bureaucracy that manipulated consumers and society, unfettered by either competition or shareholders. This view has since been eclipsed by the return of the market. Paul Krugman, for example, has suggested that the academics who rejected The New Industrial State were right, arguing that:

History has not treated the book kindly. Galbraith began it in self-conscious imitation of Adam Smith’s memorable description of a pin factory, with an account of the 1964 launch of the Ford Mustang. Starting from that example, he argued that technology was pushing us inevitably into an age of ever greater dominance by giant corporations. These corporations would be able, through market research and advertising, to predict and indeed control demand for their products; they would be run by technocratic managers who would be increasingly independent of the stockholders who nominally owned the companies. And like the automobile companies, they would be virtually immune to the vagaries of market forces.

Need it be pointed out that none of this was remotely on target? The role of giant corporations in the US Economy has been shrinking, not rising, for the past two decades, with the great bulk of the job growth among smaller firms. Many of our biggest companies – from Sears to IBM – have been spectacularly unable to get consumers to buy their wares. Those supposedly autonomous managers, far from being able to ignore stockholders, now live in terror of buyouts from investors willing to promise stockholders a higher return. And nobody, least of all the auto companies, has been insulated from the market. (Krugman, 1994: 13)3

Galbraith’s economist son, James Galbraith (right) (2008a: 115),james-galbraith2 also appears to agree with this assessment: “When my father published The New Industrial State in 1967, the great industrial enterprise seemed a stable, even permanent, and largely self-stabilizing element of the postwar American scene … But the system of large organizations as my father described it was far less stable than it seemed. Already in the 1970s, it began to suffer the intrusion, on its home markets, of a competing system: the rising industrial colossus of Japan.” In one sense both Krugman and James Galbraith are right. The unchanging dominance of the large firm projected in The New Industrial State does appear to have been challenged by the information revolution and the emergence of new large and growing firms such as Wal-Mart, Samsung, Toyota, Honda, Nissan, Sony, Google, Vodafone, Apple, and Microsoft, to name but a few.4

This assessment also appears to have been accepted by Galbraith himself. In the fourth edition of The New Industrial State, he conceded that he “did not see the development of the foreign, most notably the Japanese, competition to which [the corporation] would be subject … No one can doubt that in our older industries this competition has substantially impaired the certainty and effectiveness of the planning process” (Galbraith, 1967a: xxxi–xxxii). Similarly, in an important symposium in the American Economic Review on “The New Industrial State after twenty years,” Galbraith (1988: 375) remarked that: “There have also been some important microeconomic developments that I did not foresee. In 1967, my view was, in some measure, of a closed American-dominated corporate structure extending its reach internationally by way of American multinational or transnational enterprises. I did not foresee the invasive thrust into this structure by Japan and other countries. This, to put it mildly, has introduced a new element, substantially beyond the influence and control of the firms of the corporate or planning system.”

This seems to suggest that Galbraith must be appraised in his time and that his analysis is irrelevant for our times. Indeed James Galbraith argues that his father’s analysis represents an analysis of the postwar world of that time and should be considered on those terms:

my father’s vision of an economy dominated by large national corporations as of 1967 was not an error. The mid-century was as he said it was. Nor was it a glance at an interlude between two eras when free markets actually prevailed. It was instead the portrait of a way-station, a stage in the evolution of the world business system. The postwar dominance of the large American industrial corporation counterbalanced by government and organized labor was a fact … It was simply not a permanent fact … What some interpreted as showing up the failings of a book is more fairly seen as a process of fundamental change, of evolution and of decay, and especially the redistribution of the power in the industrial system itself. (James Galbraith, 2008a: 117)5

The facts, however, are not as clear-cut as Krugman and others would lead us to believe. Technology, the coping stone of The New Industrial State, is even more important today than in the midcentury. It is one of the decisive factors in national success. This is why another famous Harvard professor, Michael Porter (1990: 638), acknowledges that: “The quality of human resources must be steadily rising if a nation’s economy is to upgrade.” And it is clear that the large firms that are largely responsible for the research and development that drives technological development no longer dominate national economies, but instead now straddle the global economy (Porter, 1990; James Galbraith, 1998).

JGK and KittyJohn Kenneth Galbraith and Kitty

General Electric, BP, Toyota, Shell, Exxon Mobil, Ford, Volkswagen, Chevron, Siemens, Nestlé, BMW, IBM, Pfizer, Johnson & Johnson, and Proctor and Gamble continue to dominate the world stage. Large firms that continue to dominate the motor, oil, food, pharmaceutical, electrical, and telecommunications industries, controlling major flows in trade and production – something we discuss below in chapters 7, 8, and 11 below. Similarly those industries that have delivered strong economic performance and investment over time – the computer, chemical, aircraft, missile, pharmaceutical, photo, and electronics industries – are also the most technologically advanced and invariably supported by state spending (James Galbraith, 1998: 117–32). Of course the wider financial turbulence of the world economy makes the position of large firms more precarious. But there is no doubt that the dominance of large firms continues to characterize modern economies. This at least deserves further reflection.

As we shall see, the emergence of what is referred to as “global competition,” can also be reinterpreted through the lens of American Capitalism, The New Industrial State, and Economics and the Public Purpose. Although many commentators and economists argue that the massive increase in global merger and acquisition activity reaffirms the ascendancy of the market, it also exemplifies the changed nature and dynamics of competition in modern economy that Galbraith identified. Competition in the modern economy has been transformed from price competition into other forms of competition such as advertising, mergers and acquisitions, product innovation, as well as the development of new sources of countervailing power. For Galbraith the competition which characterizes the modern economy is markedly distinct from the “perfect” competition depicted and predicted by the conventional wisdom.

Galbraith’s analysis of the firms’ focus on growth more than ever characterizes the competitive process and the modern economy, as exemplified by the exponential rise in the numbers of mergers and acquisitions (see chapters 7, 8, and 11 below). And much of the talk of global competition also reflects the emergence of new corporate sources of countervailing power. Much of global competition has been driven by the consolidation of the “buy-side” of various global markets, as exemplified by the rise and rise of the retail power of Wal-Mart (see Reich, 2009). This reflects Galbraith’s (1952a: 119) thesis in American Capitalism that “in the typical modern market of a few sellers, the active restraint is provided not by competitors but from the other side of the market by strong buyers.”

What is more, although we have undoubtedly witnessed a rise in the number of small firms over the 1980s and 1990s, this should not be interpreted uncritically as reflecting the increased intensity of global competition. The outsourcing of production, which has reinforced the dominance and position of the large firms that span the global economy, has driven much of this trend. As I highlight below, one of the implications of Galbraith’s approach to the firm is that it encompasses subcontracting and market relationships, as well as internal operations that are more clearly under the control of the large corporation (Cowling and Sugden, 1998a, 1998b, 1999; Dunn, 2001a, 2001c, 2008a). Consistent with Galbraith’s (1973a) bimodal view of the modern economy, the planning system continues to dominate and exploit the market system, at home and abroad (see chapters 5, 7 and 8 below).

This means that focusing on the traditional boundaries of the firm, relying on conventional measures of concentration, results in an under-appreciation of the power and influence of the modern technostructure. By narrowly focusing on the rise in the number of small firms, we overlook the actual increase in scope of the large firm’s influence and power. We underestimate both the extent of its control of production and the subsequent degree of concentration and influence of the multinational enterprise (Cowling and Sugden, 1998b; Cowling, Yusof, and Vernon, 2000; Cowling and Tomlinson, 2005; Granovetter, 1998; Klein, 1999). As Reich (2009: 216) remarks, this “is especially true under supercapitalism, when companies are quickly morphing into global supply chains.” Domestic and overseas outsourcing, which in the conventional wisdom is interpreted as a response to global competition, that is reducing the scope and influence of the firm, can instead be viewed as consolidating the power of the technostructure. The subcontracting relationships of the large, brand-managing firm consolidate its global power and reach (cf. Klein, 1999).

Similarly the rise of Japanese and Asian competition, of the rise of Toyota, Honda, Nissan, Mitsui, Mitsubishi, Sony, and Hitachi, can be also viewed as consistent with Galbraith’s (1967a) thesis in The New Industrial State, even if this was something that he did not himself recognize.6 Cowling and Tomlinson (2000), for example, note that the entrance of large Japanese firms onto the Global Stage reflected their productive and technological virtuosity, as well as the state support provided to them by the Ministry of International Trade and Industry (MITI).7 The modern Japanese corporation led to the emergence of a new affluent Japanese society which, towards the end of the postwar period, was approaching saturation point for its products in its domestic economy. It therefore required new outlets to buy its products (cf. Galbraith, 1973a: 180–91). As Cowling and Tomlinson (2000: F367) record: “Initially, surplus production could be satisfied through exporting to Western markets, a policy that resulted in consistently large trade surpluses. However, the threat of retaliatory trade barriers, especially from the United-States, threatened future export growth and, in response, the larger Japanese firms considered the transnational option.”8 This is consistent with Galbraith’s (1973a) analysis of the transnational firm, considered in Economics and the Public Purpose – something we explore in chapter 8 below. What is more, it is important to note that such a Galbraithian analysis of the emergence of Japanese competition does not rest on the view that Japanese capitalism was a new and superior brand, but rather argues that it reflects the dynamics of the modern firm predicted by the New Industrial State.9

The large firms that characterize the planning sector of the economy also continue to spend vast sums on advertising and lobbying, which has become increasingly sophisticated and targeted at eliciting the required consumer and legislative response (Packard, 1957; Gunter and Furnham, 1992; Hawkins, Best, and Coney, 1998; Heath, 1995, 1996; Weinstein, 1994; Dawson, 2003). This process has never been perfect, nor is it determinate, as Galbraith himself acknowledged. But, notwithstanding such imprecision, there is now an increasing recognition that the tobacco, pharmaceutical, oil, automobile, and food industries seek to manipulate public policy and the consumer in a manner that is consistent with Galbraith’s hypothesis (Anderson and Dunn, 2006; David, 2006; Monbiot, 2000, 2006, 2007; Krugman, 2005a, 2005c; Sample, 2007; Stiglitz, 2006; Klein, 1999; Glantz et al. 1996; Shamasunder and Bero, 2002; Moynihan, 2003a; Moynihan et al., 2002; Angell, 2004; Avorn, 2004; Goozner, 2004; Greider, 2003; Abramson, 2004; Moynihan and Cassells, 2005; Petersen, 2008; Lang and Heasman, 2004; Patel, 2008; Mayo and Nairn, 2009). Similarly there have been renewed attempts at testing Galbraith’s thesis. Lamdin (2008), for example, presents an important econometric analysis that shows that, consistent with the Galbraithian thesis, advertising and credit both have economically and statistically significant positive influences on consumption. I explore these issues below in chapters 7, 8, 9, and 11.

galbraith1and Medal of FreedomJKG and Medal of Freedom

Finally it is far from clear that the modern firm is now effectively policed by investors and stockholders alike (Stiglitz, 2003; Bebchuk and Fried, 2004). The widely acknowledged explosion in chief executives pay – something we examine below – raises urgent questions regarding the ability of financial markets and their associated institutions to provide effective governance and oversight of the modern firm – be they banks, energy companies, or large motor companies. This is part of what Galbraith (2004: 27) referred to as “innocent” fraud:

This fraud has accepted ceremonial aspects: one is a board of directors selected by management, fully subordinate to management but heard as the voice of the shareholders. It includes men and the necessary presence of one or two women who need only a passing knowledge of the enterprise; with rare exceptions, they are reliably acquiescent. Given a fee and some food, the directors are routinely informed by management on what has been decided or is already known. Approval is assumed, including for management compensation – compensation set by management for itself. This, not surprisingly, can be munificent … Legal self-enrichment in the millions of dollars is a common feature of modern corporate government. This is not surprising; managers set their own compensation.

What is more, the accepted practice of linking CEO pay to stock market valuations as opposed to underlying corporate cash flow – to the strength of the underlying business – can drive more serious failures in corporate governance (Bebchuk and Fried, 2004). Stock prices, which are driven by sentiment, convention, and “irrational exuberance,” can be inflated and manipulated by “serious” fraud (Forelle and Bandler, 2006). The collapse of Enron and the wrongdoing of WorldCom, Qwest, Tyco, and Xerox provide prima facie evidence of the inability of modern financial systems to police effectively large and complex corporations. As James Galbraith (2008a: 124) highlights:

What they exposed was the complete incapacity of the financial markets to oversee from the outside the inner workings of a complex financial structure. In every case – Enron, Tyco, WorldCom, and the others – financial market pressures encouraged fraud … Each such collapse was initially rewarded, not punished, by the financial markets. In no case did the financial markets detect the fraud. Quite to the contrary, the markets converted the fraudulent enterprise into a performance standard by which other corporations in the same field were to be judged. Nor did any large accounting or auditing firm blow the whistle; again to the contrary, all the major frauds had their books cleared by reputable accountants. Nor did the ratings agencies, then or later, intervene.

Such “serious” frauds raise important questions about shareholders’ ability to prevent managers in “their” corporation from pursuing dubious and illegal strategies. And although recent moves have been taken to improve accounting honesty, increase surveillance and strengthen regulation, the recent sub-prime meltdown and global economic crisis point to the continuing difficulties in effectively policing the modern corporation.10 The technostructure of the financial services industry appears to have run amok with little effective oversight from boards, banks, regulators, or governments alike. Such considerations reinforce Galbraith’s insight that the complexities of modern technologies and firms make it extremely difficult to monitor the activities of the modern army of managers, technical specialists, lawyers, accountants, public relations professionals, and marketing managers, as long as an acceptable level of earnings is posted and projected to the wider financial community (cf. Williamson, 2008).11 Modern management is not insulated from the wider financial system. But it not effectively policed by it either. This much is clear. And it must be acknowledged as such.12

© Cambridge University Press

BOOK REVIEW: Singapore, ASEAN and the Cambodian Conflict 1978-1991

November 28, 2013

BOOK REVIEW: Singapore, ASEAN and the Cambodian Conflict 1978-1991

Ang Cheng Guan, Singapore, ASEAN and the Cambodian Conflict 1978-1991

Singapore: NUS Press, 2013. Pp. vi, 186pp; bibliography, index.

N TarlingReviewed by Nicholas Tarling.

A new book from the productive Ang Cheng Guan is always welcome, and it is to be hoped that his new role in the S. Rajaratnam School of International Studies does not stop the flow that has continued despite his commitments at Singapore’s National Institute of Education. The book, begun under the supervision of the late Ralph Smith, have focused on Indo-China, and in a sense make up for the gaps in the international history that Professor Smith was unable to complete.

More recently, Ang has turned to Lee Kuan Yew’s strategic thought, utilising the extensive material that has charted the always interesting and often penetrating insights into international and regional relations offered by Singapore’s long-term leader. In the new book he brings these two streams of research together. It is notable in two ways, historiographical and historical, it might be said.

The first is indeed the remarkable fact that it exists. It began, as Ang tells us, when he was given access to the archival records of Singapore’s Ministry of Foreign Affairs (MFA) in order to write

an official account of Singapore’s role in the resolution of the Cambodia problem. It was initially meant to be a classified historical record for internal use but the author was pleasantly surprised to be given permission to publish it with minimal redaction. (p. 3)

Unlike some other official histories, the book references particular documents by their title and author. The documents are supplemented by the results of the interviews Ang carried out, but the main novelty is the ability to use and quote documents.

As Ang says, the archival records of all the other players remain closed. Those of the US and the UK will no doubt be opened, the latter more quickly as it shifts from a 30-year to a 20-year rule. The archives of the Southeast Asian countries, by contrast, are ‘very unlikely’, as Ang puts it, to be ‘made accessible to the public’ (p. 3). The present reviewer has on more than one occasion pointed out the drawbacks of that. It has meant that, where it relies on documents, the historiography has been dependent on documents from other archives.

Singapore-ASEAN-CambodiaOne reads about foreign policy from the reports of foreign ambassadors, and learns what they gathered or were told. The making of policy, the consideration of objectives and means, is still somewhat a matter of surmise. And it is not merely a matter of what one clerk said to another.

Ang clearly thinks it unlikely that Singapore has set a precedent that its neighbours will follow. What they will think of it remains to be seen. One is led to wonder why the work was commissioned and why its publication was then allowed. Perhaps it was commissioned as a means of developing of the ‘human resources’ of the MFA by example.

The book indeed alludes to Lee’s determination to upgrade the Ministry and offers some account of the process. And maybe publication was approved because it demonstrated Singapore’s determination to succeed and its ability to punch above its weight when well-trained and well-directed personnel devoted themselves to it.

If it was in a measure celebratory, it is true that Singapore did play a significant role in the resolving the ‘problem’, and Ang’s account is important as a contribution to history as well as a remarkable item of historiography. Even an historian who accepts the ‘Westphalia’ system as the best of a bad lot, such as the present reviewer, could not help at the time welcoming the Vietnamese invasion of Cambodia and the destruction of the appalling Khmer Rouge (KR) regime.

But it was, of course, of concern to ASEAN as a threat to the essentially Westphalian principles on which the organisation was based, and of particular concern to its smallest member. ‘The principle involved’, as S.R. Nathan put it, ‘was that no foreign military intervention should be allowed to overthrow a legally constituted regime. If that principle was violated, it would create a dangerous precedent’ (p. 5).

The book in a sense is an account of Singapore’s endeavour to preserve that principle. That involved, for example, intensive lobbying at the UN in order to avoid the removal of the representation of Democratic Kampuchea, and there Singapore enjoyed remarkable success.

It also involved extensive diplomacy designed to diminish the dominance of the discredited but still powerful KR, diplomacy that included not only Sihanouk and the Khmer parties but China and members of ASEAN. Over time, as shifts occurred both within Vietnam and among the great powers, Singapore’s role diminished. Others were taking up the cause.

The book also increases our understanding of the working of ASEAN, which itself, perhaps unsurprisingly if not necessarily, has a very unenthusiastic attitude to public documentation. As Lee put it in 1980,

an unspoken commitment to support the majority view, whatever the results of any bilateral dialogue, will keep ASEAN together. We are in consensus that ASEAN countries share common long-term objectives.’ (p. 75)

Though divergence increased, it was never complete. ASEAN’s diplomatic success, said Bilahari Kausikan, the MFA’s Permanent Secretary, ‘overshadowed the actual stagnation in progressing ASEAN’s professed goals as set out in the Bangkok Declaration’ (p. 168). But surely its success gave it the confidence to pursue an even more ambitious diplomacy in the globalisation of the 1990s.

Ang’s new book is as full of nuggets as his previous works. Sometimes they are rather difficult to uncover, and, though this book concludes with a masterly summary, he does not always help us. And maybe NUS Press should have deployed more forcefully the copy-editing battery that it fires at the typescripts of your reviewer.

Nicholas Tarling is a Fellow of the New Zealand Asia Institute.

Wisma Putra: Singapore envoy says no plans to harm Malaysia

November 27, 2013

Wisma Putra: Singapore envoy says no plans to harm Malaysia

by Boo Su-Lyn (11-26-13)

After being summoned over espionage allegations, the Singapore High Commission has assured Malaysia that the neighbouring island republic does not intend to harm its allies, the Foreign Ministry said today.

Ong KYForeign Minister Datuk Seri Anifah Aman also said that Singapore High Commissioner Ong Keng Yong (left) has promised to clarify such claims to Wisma Putra as soon as possible after conveying Putrajaya’s concerns to the Singaporean government.

“The High Commissioner also assured us that Singapore has no intention to do any harm to its partners,” Anifah said in a statement released by his office today.

“Singapore also values its excellent ties with Malaysia as evidenced by active collaboration between the two countries in many areas,” he added.

Anifah said that Malaysia’s Foreign Ministry Secretary-General Datuk Othman Hashim had met Ong today in Wisma Putra and made it clear that surveillance on Malaysia infringes the country’s sovereignty, as well as individual privacy.

“Such activities are certainly not done amongst partners and closeAnifahAman neighbours like Malaysia and Singapore when both sides are cultivating mutually beneficial strategic and strong partnership. The reported spying activities have caused considerable anger and disappointment amongst Malaysians,” said Anifah.

Singapore daily, Straits Times, today reported Ong denying knowledge that his country’s government had helped facilitate American-Australian espionage in the region.

“We have no interest in doing anything that might harm our partners or the friendship between our two countries,” Ong was quoted saying.

Top secret documents leaked by US intelligence whistleblower Edward Snowden showed that Singapore, which was once a part of Malaysia before breaking off in 1965, is a key partner of the “5-Eyes” intelligence group led by the United States, which was revealed to have tapped telephones and monitored communications networks in Kuala Lumpur.

In a report by Australian media group Fairfax Media yesterday quoting Dutch daily NRC Handelsblad, it was revealed that Singapore, which is one of the US’ closest allies, is a key “third party” providing the ring – comprising the US, the United Kingdom, Canada, Australia, and New Zealand – access to Malaysia’s communications channel.

In August, Fairfax had reported that the Singaporean intelligence is a partner of Australia’s electronic espionage agency, the Defence Signals Directorate, to tap the SEA-ME-WE-3 cable that runs from Japan, via Singapore, Djibouti, Suez and the Straits of Gibraltar to Northern Germany.

This access was allegedly facilitated by Singaporean telecommunication operator Singapore Telecommunications Limited (SingTel), which is owned by Singapore government’s investment arm Temasek Holdings.

According to Fairfax, Malaysia and Indonesia had been key targets for both Australian and Singaporean intelligence even since the 1970s, since most of Indonesia’s telecommunications and Internet traffic goes through the island city-state.

Australian newspaper the Sydney Morning Herald reported last month that Australia’s intelligence agency was using its diplomatic missions in several Asian countries, including Malaysia, to intercept phone calls and internet data.

The report cited information disclosed by Snowden, saying that signals intelligence collection occurs at Australia’s High Commissions in Kuala Lumpur and Port Moresby in Papua New Guinea, as well as at its embassies in Jakarta, Bangkok, Hanoi, Beijing and Dili in East Timor.

The former National Security Agency (NSA) contractor had previously revealed a top secret map showing 90 US electronic surveillance facilities worldwide, including in American embassies in Malaysia, Indonesia, Thailand, Cambodia and Myanmar, that bug phones and monitor communications networks.

No such facilities, however, are located in Singapore, the United Kingdom, Australia, New Zealand and Japan, according to the map dated August 13, 2010.–-The Malay Mail Online