Malaysia’s Greatest Crisis: Loss of National Pride and Unity

 

May 13, 2019

by Murray Hunter

Malaysia’s Greatest Crisis: Loss of National Pride and Unity

Love him or hate him, Mahathir Mohamed during his first stint as prime minister was able to instill a great sense of national pride and unity.

Mahathir went on a massive infrastructure drive. Most Malaysians were proud of the Penang Bridge that finally linked the island with the mainland. The North-South Highway project changed the nature of commuting up and down the peninsula. Kuala Lumpur International Airport (KLIA) was built and the development of Putra Jaya gave the country a new seat of administration.

Mahathir’s fait accompli was the building of the KLCC towers in central Kuala Lumpur, which were the tallest in the world at the time. These buildings are now the country’s major icon. Langkawi became a must holiday place for Malaysians. He brought elite Formula One motor racing and built a special purpose circuit for the event. He promoted the Tour de Langkawi as a local version of the Tour de France. He spared no expense on building massive new sporting complexes at Bukit Jalil to host the Commonwealth Games in 1998.

When the member nations of ASEAN abandoned the idea to build a regional car, Mahathir went alone, picking up old technology from Mitsubishi, creating the Proton Saga for better or worse although the national car project has been roundly criticized for losing hundreds of millions of dollars and costing more in terms of consumer lost opportunity.

Nonetheless, Malaysia became an Asian Tiger and Mahathir himself became an outspoken leader internationally. The country was proud of what it had achieved.  He knew the value of national symbols. The slogan Malaysia Boleh (Malaysia Can) was often heard along with the waving of the Jalur Gemilang (stripes of glory – Malaysian Flag) at public displays of national pride and unity.

The Barisan Nasional was a working government coalition that symbolized national unity through the make-up of the cabinet and its true multi-ethnic flavor. Ministers like Samy Vellu from the Malaysian India Congress and Ling Liong Sik from the Malaysian Chinese Association had high public profiles.

Although Mahathir was labeled as an ultra-conservative Malay, he worked with anyone who could help him fulfil his vision. Businessmen like Vincent Tan, Robert Kuok, Lim Goh Tong, Ananda Krishnan, and Tony Fernandez all had very close relationships with Mahathir. Malaysia Inc. was more important to Mahathir than Malay supremacy.

That’s now 30 years ago. The prime casualty has been national pride and unity. The generally positive perception of the Mahathir era drastically changed when he abruptly sacked his deputy Anwar Ibrahim from office in 1998. The accusations and conviction of Anwar for sodomy polarized the population. The goodwill that Mahathir had built up over more than 25 years in public life was put into question.

Although it was his intention to eliminate his nemesis Anwar from politics, he made sodomy a household word in a conservative society, taking luster away from his legacy.  He was painted by the Anwar propaganda machine and the alternative media as a tyrant with millions of dollars hidden away in foreign banks. In addition, two years of headlines and court reports about Anwar’s sodomy trial took away a sense of innocence, showing Malaysia’s ‘dark side’ with TV pictures showing a stained mattress being carted into and out of court every day on which Anwar was convicted of performing sodomy.

Under weak successors, belief in government further faltered. Respect for national leaders took another hit with Mahathir’s successor Ahmad Badawi painted as someone who slept on the job and enjoyed a luxurious lifestyle while many suffered economically. Badawi was painted by the PKR propaganda machine as corrupt. The dealings of his son-in-law and political adviser Khairy Jamaluddin were portrayed as corrupt nepotism.

Mahathir engineered an ungraceful exit for Badawi, replacing him with Najib Razak in 2009. The Najib premiership was tainted from the outset with rumors of murder and corruption. Najib’s wife Rosmah also became an object of ridicule, bringing respect for the institution of government to an all-time low.

However, it’s not just the corruption of politicians that destroyed respect for Malaysian institutions. The rakyat (people) have always wanted to believe in royalty. Even with stories about royal misdoings, there is no real talk of abolishing the monarchy. Whenever a member of one of the royal families acts in the interests of the rakyat, there has always been public praise and support. However, when members of a royal family act against the interests of the rakyat, the social media react.

Stories have been circulating for years about the misdeeds of Johor Royal Family. The current spat between Tunku Ismail, the Johor Crown Prince, commonly known as TMJ and Mahathir is extremely damaging for the royal institutions. Only the sedition act, a de facto lese-majeste law, is protecting the institution from much wider criticism.

Royal decorations and titles, VVIP service in government offices and special treatment for some citizens over others, shows a muddled Malaysia still clinging to the vestiges of feudalism. These artefacts are doing nothing to unite the country, a hangover from the old days of colonial class distinction.

However, the most powerful source of destruction for national pride and unity is the ketuanan Melayu (Malay Superiority) narrative which has become much more extreme. One of the basic assumptions is that bumiputeras — indigenous peoples – are the rightful owners of the land. From the point of view of the ketuanan proponents, land is not seen as a national symbol and non-Malays are excluded. This is a great barrier to developing any sense of national pride and unity.

The gulf between Malay and non-Malay has widened dramatically over the last two generations as Islam has grown into a major aspect of Malay identity. Citizens once celebrated their diverse ethnicities in harmony. Decrees made in the name of Islam now discourage this. No longer are Hari Raya, Chinese New Year, Deepavali and Christmas shared Malaysian experiences.

The way of life has become Islamized to the point where there is little place for other religions and traditions. Food, dress codes, entertainment, education, the civil service, government, police and the military are all Islamized.

Shared apprehensions about what Malaysia will be have caused the Chinese to close ranks. The influence of Ketuanan Melayu in government policy excludes non-Malay participation in many fields like education, civil service and the military, etc. The younger generation of Chinese today tend to see themselves as Chinese first and Malaysians second. Chinese schools promote language and a strong sense of Chinese culture over a Malaysian identity as a mass defence mechanism.

The New Economic Policy, put in place in 1969 after disastrous race riots as an affirmative action program for the majority Malays, has also done a disservice to those it was designed to help. The thesis of Mahathir’s book The Malay Dilemma was that Malays were basically lazy and needed help from the government is the faulty grounding assumption. The NEP is actually an attack on Malay self-esteem.

Rather than offering something spiritual, Islam has become a doctrine of conformity, where particular rights and rituals must legally be adhered to. Failure to do so in the case of not fasting during Ramadan can lead to punitive legal action.  Any views outside narrow social norms lead to heavy criticism. Just recently the Islamic authorities (JAKIM) in Selangor started investigating a discussion forum on women’s choice about wearing the hijab. Not just freedom of discussion is stifled, but also the right to be creative.

Islam has buried the principles of Rukun Negara (national principles), the supposed guiding philosophy of the nation. Rukun Negara was once a symbol of national pride and unity but has almost totally been replaced by a Doa (or prayer) before public events. A sense of nation has been sacrificed for the Islamization of public gatherings.

Today we see much less flag-waving during the Merdeka season. There are more divisional narratives on all ethnic sides. There is disappointment with the political system. Islam is seen by many as something overpowering rather than emancipating. People feel they need to conform to be accepted in society.

National pride and unity are at their lowest ebb since independence, where after 30 years of education the younger generations of Malays see Islam as more important than nationalism. Chinese and Indians are apprehensive about what Malaysia is turning into. Even the Orang Asli – the original inhabitants of the peninsula before the arrival of ethnic Malays from Indonesia — and non-Muslim indigenous people of Sabah and Sarawak identify as second-class.

Malaysia has travelled far away from the aspirations of Tunku Abdul Rahman when the Jalur Gemilang was raised for the first time over a free Malaya in 1957. Malaysia’s economic prosperity is relatively declining in the region and the nation is increasingly strangled by the need to conform. Malaysia appears to be a ship without a rudder, its reform agenda locked away under the Official Secrets Act.

The possibility of racial violence festering once again cannot be overlooked. Divisive narratives are being pushed until one day an unknown tipping point could be reached. The strong sense of social conformity, the exclusion of a national sense of ownership to all, the current totalitarian nature of authority and ketuanan Melayu narratives are a very dangerous mix.

Murray Hunter is a regular Asia Sentinel contributor. He is a development specialist and a longtime resident of the region.

Malaysiaopinionpremium

Liberalisation and empowerment the path to Malaysian prosperity

March 25, 2010

25 March 2019

Author: Editorial Board, ANU

https://www.eastasiaforum.org/2019/03/25/liberalisation-and-empowerment-the-path-to-malaysian-prosperity/

It’s nearly a year since the Malaysian people overwhelmingly cast aside the domineering, divisive and corruption-riddled government of Najib Razak for an alternative led by Mohamad Mahathir that promised renewed focus on the people’s interests. The new Pakatan Harapan government undertook to restore good governance, raise the bar for ministers and civil servants, recover embezzled funds and deliver them back to Malaysians as cost of living relief.

Translating rhetoric into action has thus far proven an uphill battle for an inexperienced government accustomed to life in opposition. It’s struggling to turn the vision into concrete reforms, as it tries to navigate a hostile upper house and entrenched vested interests. Progress has been confined to a handful of easy wins and the multiplication of committees to continue decades-old debates about well-understood policy failings. Malaysians are becoming restless for the government to deliver on the promise of a ‘New Malaysia’ that secures livings standards regardless of ethnicity.

Efforts to deconcentrate centralised power structures and break up state monopolies are central to reinvigorating the economy. This will enable more effective governance and help tackle endemic corruption. Malaysia’s Federal Government commands over 88 per cent of total government revenue and expenditure (the share is closer to 50 per cent in federations like Australia and the United States), leaving almost 170 states and local authorities with limited resources to address local needs. Imperious policymaking from the administrative capital of Putrajaya coupled with non-elected local governments bedevil the effective delivery of local services including law enforcement, education and healthcare.

This week’s lead article by Wing Thye Woo argues that ‘[g]rowth requires state governments that are empowered to plan and implement their own development strategies’. This would require a significant shift from the highly political allocation of development finance that penalised opposition-led states under the former government.

Government-linked corporations (GLCs) dominate the Malaysian economy and that needs to change. GLCs command a majority share of market capitalisation and key sectors of the economy including natural resources, utilities, construction and finance. Policies that reinforce GLC dominance stifle innovative and dynamic small and medium enterprises and competitiveness.

As Woo says, ‘GLCs may perform well in theory, but they don’t in practice — officials inevitably use them for political patronage and personal corruption. GLCs are political creatures, not economic instruments … Downsizing the state-related sector through privatisation is necessary for economic efficiency, political accountability and income equality’.

The government has acknowledged the problem but has been tentative in its approach to this critical reform. Its first substantive policy announcements and budget provided a major setback, reinforcing the role of GLCs in ethnic Malay development strategies and increasing government dependence on GLC dividends. It’s unclear whether the government now has the clout and political fortitude to pursue a privatisation and competition agenda.

Decentralisation is more than just government ownership and power-sharing; it encompasses a shift in the mentality of government from one underpinned by heavy-handed direction to one of empowerment. This requires the creation of institutional and regulatory environments that empower people to shape the policies that affect them, private business and entrepreneurship to fuel the engine room of economic growth, and all levels of government to deliver an enabling environment in which private actors flourish.

Empowerment means replacing ethnic discrimination with inclusive approaches to policy making, lifting up all low-income households. It means constructing a tax and transfer system that reduces rather than perpetuates inequality and cost of living pressures, positively reshaping the social contract between taxpayers and government. And it requires liberating the education system from the mechanistic, dictatorial, one-size-fits-all approach that has prioritised a one-eyed conception of nation-building over the development of inquisitive and adaptable minds.

Effective governance starts with a recognition that meaningful reforms may not please everyone but if done well can benefit all. It requires the strength of conviction to stay the course in the face of interest group pressures, avoiding discouraging U-turns like abandoning intentions to sign the United Nations International Convention on the Elimination of All Forms of Racial Discrimination. It entails more than a solitary sugar tax to raise funds for development and social welfare when the tax revenue share of GDP is a third of the OECD average. And it requires delivering substantive reforms to education in the light (or in spite) of next month’s special task force report.

The government’s recent by-election defeat in Semenyih provides a wake-up call that its support among middle-class Malaysians depends on improving its performance not on disparaging its predecessor. That means harnessing the electorate’s heightened expectations towards charting a more prosperous course for the economy, governance and for the Malaysian people.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

 

Decentralisation the best bet for Malaysia’s growth

24 March 2019

Author: by Dr. Wing Thye Woo, Sunway University

Malaysia’s burgeoning middle class has high expectations for future economic development. But the nation won’t escape the ‘middle-income trap’ and won’t have socially-inclusive growth under current government policies. A range of reforms that deliver decentralised decision-making is needed to build the knowledge-led economy to propel Malaysia to the next level of development.

Malaysia’s current policy framework has its roots in the 1970 New Economic Policy (NEP) and its socio-political counterpart ‘Ketuanan Melayu’ (Supremacy of Malays). NEP has succeeded in building a large Malay middle class that is informed, skilled and confident about its identity. But it’s also well aware that these two policies rooted in the past are not capable of transforming Malaysia into a developed nation.

To meet these aspirations, reform is urgently needed in three key economic areas. Each area requires a common reform component: the careful entrenchment of decentralised decision-making.

First, the state’s administrative structure inhibits innovative policymaking and prevents effective oversight. The federal government is much larger and more cumbersome than state governments and has disproportionate power.

Contrasting budgets and spending power reveal the imbalance between federal and state governments. The federal government has legal authority to impose income and sales taxes. But state governments must rely on land-related transactions and fees on small-ticket items like hawker licenses for independent revenue. The provision of most public services is done through branches of federal ministries operating at the state level.

State expenditure is determined by fiscal allocations from the federal government to state governments, and the amounts allocated depend on political considerations. Under the former Barisan Nasional (BN) government, opposition-controlled states received budgetary allocations that were proportionately much smaller than BN-controlled states. State governments are banned from borrowing to finance development projects, and that means they are unable to raise revenue to build the infrastructure needed to clear production bottlenecks in local industries.

Growth requires state governments that are empowered to plan and implement their own development strategies. Effective decentralisation requires each state government to have its own civil service. States will also need much larger shares of tax revenue, based on factors like developmental stage and tax revenue contribution. They should also be allowed to borrow to finance local infrastructure projects — with the commitment that there will be no federal bailouts — and be invested with significant responsibilities that are currently held by federal ministries.

The second key task is reforming government-linked corporations (GLCs). GLCs are crowding out the private sector, reducing economic dynamism. They also enable corruption that increases income inequality.

GLCs may perform well in theory, but they don’t in practice — officials inevitably use them for political patronage and personal corruption. GLCs are political creatures, not economic instruments.

Competition between GLCs and private firms is intrinsically unfair and harmful for overall growth. No matter how inefficient GLCs are, they can always count on government bailouts. They undermine economic dynamism by buying up their more efficient private competitors. Worse still, they prevent the development of a dynamic Malay business community by pulling capable Malays entrepreneurs away from starting private businesses and into cosy, life-long GLC jobs.

Downsizing the state-related sector through privatisation is necessary for economic efficiency, political accountability and income equality. The only two considerations in choosing buyers should be the size of the bid and the promotion of industry competition. A well-prepared and transparent privatisation process is more important than a speedy one.

The third key economic reform task is diversifying and expanding the banking system. The financial sector’s monopoly structure damages economic performance and worsens income inequality by suppressing the operations of small and medium-sized enterprises (SMEs).

The 1997 Asian financial crisis convinced the Malaysian government that the banking system would be less prone to crisis if regulators could more easily monitor them. The result was the forced consolidation of smaller banks into 10 big banks in 2000.

This action made state investment companies the controlling shareholders in most commercial banks, effectively creating a state-owned banking monopoly. These banks are slow in adopting better payment practices and providing new financial products, shoddy in their treatment of small retail customers, and biased in lending towards GLCs. The small number of banks and the extent of state control in the largest banks are to blame.

One serious defect of the bank consolidation was that Malaysian SMEs began experiencing difficulties in getting capital from the large banks, replicating the international experience that SME financing comes mostly from small and medium-sized banks. In response, the Malaysian government established the state-owned SME Bank in 2005. But the SME Bank is not meeting the sector’s capital needs. It also has the highest non-performing loan ratio in the banking industry. The slow growth of the SME sector means new Malay bus­­­inesses are not emerging and the distribution of income is worsening.

Reforming the banking sector will mean allowing private small and medium-sized banks to exist again, reducing the government’s bank share holdings, and removing restrictions on foreign banks and their activities.

The NEP is essentially ‘Ketuanan Centralisation’ (Supremacy of Centralisation) in the economic sphere, manifesting as ‘Ketuanan Federal Government’ in governance, ‘Ketuanan GLC’ in production, and ‘Ketuanan Monopoly Bank’ in finance.

NEP cannot mobilise the entire brain-power of Malaysia for knowledge-creation because it prevents entrenchment of excellence in socio-economic institutions, and induces brain drain and capital flight. For Malaysia to escape the middle-income trap, ‘Ketuanan Centralisation’ must be purged from the public policy framework to make way for knowledge-led growth.

Wing Thye Woo is President of the Jeffrey Cheah Institute on Southeast Asia and Director of the Jeffrey Sachs Center on Sustainable Development at Sunway University and Professor of Economics at the University of California at Davis; he holds adjunct academic positions at Fudan University and Chinese Academy of Social Sciences.

 

 

Mourning the Passing of Economist Alan Kruger

March 20, 2019

Normally this newsletter would be concerned with events in the wider world. But right now I just have to write about the shocking death — reportedly by suicide — of my former Princeton colleague, the economist Alan Krueger, at the age of 58.

I thought I knew Alan reasonably well and never saw a hint that something like this might be coming. But people’s lives often feel very different from the inside than they look on the outside.

What I can talk about is Alan’s work and why it mattered so much to other economists, myself very much included. For his research arguably did more to change how we view the economy than that of any other modern economist.

Alan’s most influential, paradigm-shifting work was his 1992 study with David Card on the effects of minimum-wage increases.

Before Card and Krueger, most economists just assumed that raising the minimum wage leads to lower employment. But Card and Krueger realized that this was a proposition you can test. Their initial study compared employment in New Jersey and Pennsylvania before and after New Jersey raised its minimum wage. And they found no adverse effect on employment — if anything, a small rise in New Jersey relative to its neighbor.

His study opened a new frontier in economic research. Economics is always bedeviled by the lack of controlled experiments; there are so many things going on in the economy that it’s hard to tell what’s causing what. But unilateral state wage hikes amount to natural experiments that tell you far more than standard economic methods.

Furthermore, this was a method that could be replicated many times, and has been over the years, right up to the recent round of minimum wage increases in a number of cities. And the preponderance of the results have confirmed Card and Krueger’s initial finding: raising minimum wages has far less negative impact on jobs than standard economics would have predicted.

This has implications that go far beyond minimum wages themselves. What Card, Krueger and the research that follows tell us is that labor markets are a lot more complicated than we thought, that market power matters a lot and that there may be much more room for public policy to raise wages in general than Econ 101 would have it.

This paper alone would secure Alan Krueger’s reputation as one of the greatest labor economists ever. But he did far more, on everything from growth and the environment to the effects of computers on wages — and he was a public servant too. He will be sorely missed.

 

 

Why Economics Must Get Broader Before It Gets Better

March 9, 2019

Why Economics Must Get Broader Before It Gets Better

Mar 8, 2019

By Mohamed A. El-Erian

https://www.project-syndicate.org/commentary/mainstream-economics-must-learn-from-others-by-mohamed-a–el-erian-2019-03

Even as the public’s skepticism toward their profession has grown, economists have continued to ignore increasingly obvious flaws in their analytical frameworks. A discipline long dominated by “high priests” must now adopt a more open mindset, or risk becoming irrelevant.

L-R: Stigltz- Hayek- Sowell-Keynes- Sen-Schwartz-Sachs- Friedman

NEW YORK – The economics profession took a beating after most of its leading practitioners failed to predict the 2008 global financial crisis, and it has been struggling to recover ever since. Not only were the years following the crash marked by unusually low, unequal growth; now we are witnessing a growing list of economic and financial phenomena that economists cannot readily explain.

Like Queen Elizabeth II, who famously asked in November 2008 why nobody had seen the crisis coming, many citizens have grown increasingly skeptical of economists’ ability to explain and predict economic developments, let alone offer sound guidance to policymakers. Some surveys rank economists among the least trusted professionals (after politicians, of course, whose trust economists have also lost).

A solid economic training is no longer regarded as a must-have for candidates for top positions in finance ministries and central banks. This marginalization has further weakened economists’ ability to inform and influence decision-making on issues that relate directly to their expertise (or what they would call their comparative and absolute advantage).

The profession owes its deteriorating reputation largely to excessive reliance on its own self-imposed orthodoxies. With more openness to interdisciplinary approaches and the broader use of existing analytical tools, particularly those offered by behavioral science and game theory, mainstream economics could start to overcome its shortcomings.Three recent developments underscore the urgency of this challenge. In the 12 months between the World Economic Forum’s 2018 and 2019 annual gatherings in Davos, those in attendance went from celebrating a synchronized global growth pickup to worrying about a synchronized global slowdown. Notwithstanding the deterioration in European growth prospects, neither the extent nor the speed of the change in consensus seems warranted by economic and financial developments, which suggests that economists may have misdiagnosed the initial conditions.

A second area of concern is monetary policy. Professional economists still have not spoken up clearly enough about the challenges facing the US Federal Reserve’s communication strategy, despite the fact that even slight misfires, such as occurred in the fourth quarter of last year, can trigger severe bouts of financial instability that threaten growth. Instead, they have simply continued to embrace the contemporary view that greater Fed transparency is always a good thing.

We have come a long way since the era of former Fed Chair Alan Greenspan’s “Fedspeak” (or, as he put it, “mumbling with great incoherence”). But that raises a new problem: illusionary precision. The Fed now follows every policy meeting with a release of statements, minutes, transcripts, blue-dot plots, and a press conference, signaling to markets a level of sophistication that is scarcely realistic in a world of fluidity and heightened uncertainty.

Rather than simply going along with the view that more is better, economists should be urging the Fed to adopt an approach more like that of the Bank of England, which emphasizes scenario analyses and fan charts. Economists could also be doing more to inform – and perhaps even influence – the Fed’s ongoing review of its policy frameworks and communications strategy. After all, the economics literature on asymmetrical information suggests that greater input from economists outside of the Fed is both appropriate and necessary for ensuring an optimal policy outcome.

A third area of concern is the Sino-American trade conflict, which is more controversial, owing to its political nature. So far, the vast majority of economists have trotted out the conventional argument that tariffs (real or threatened) are always bad for everyone. In doing so, they have ignored work from their own profession showing how the promised benefits of trade, while substantial, can be undermined by market and institutional imperfections. Those who wanted to make a productive contribution to the debate should have taken a more nuanced approach, applying tools from game theory to distinguish between the “what” and the “how” of trade warfare.

These are just three recent examples of how economists have dropped the ball. In addition, economists are struggling to explain recent productivity developments, the implications of rising inequality, the impact of persistently negative interest rates in the euro-zone, the longer-term effects of other unconventional monetary policy measures (amplified by the European Central Bank’s latest policy pivot), and the sudden slowdown in European growth. They also failed to foresee the Brexit saga and the political explosion of anger and alienation across the West in general.

None of this is a huge surprise, given the profession’s embrace of simplistic theoretical assumptions and excessive reliance on mathematical techniques that prize elegance over real-world applicability. Mainstream economics has placed far too much analytical emphasis on the equilibrium condition, while largely ignoring the importance of transitions and tipping points, not to mention multiple-equilibria scenarios. And the profession has routinely failed to account adequately for financial links, behavioral-science insights, and rapidly evolving secular and structural forces such as technological innovation, climate change, and the rise of China.

All of this should tell economists that there is plenty of room for improvement, and that they need to expand the scope of their analysis to take into account human interactions, distributional effects, financial-economic feedback mechanisms, and technological change. But this cannot just be about devising new analytical models within the field; economists also must incorporate insights from other disciplines that the profession has overlooked.

A discipline long dominated by “high priests” must now adopt a more open mindset. That means acknowledging and addressing unconscious biases, not least by making a concerted effort to improve inclusion and diversity within the field. It also means focusing more on inter-disciplinary approaches and distributional effects, and less on the purity of mathematical models, average conditions, and just the belly of distributions. Such structural changes will require more and better intellectual and institutional “safe zones,” so that analytical disruptions can be managed and channeled in productive directions.

Without significant adjustments, mainstream economics will remain two steps behind changing realities on the ground, and economists will be risking a further loss of credibility and influence. In an era of concern about climate change, political upheavals, and technological disruption, the shortcomings of mainstream economics must be addressed posthaste.

 

Mohamed A. El-Erian, Chief Economic Adviser at Allianz, the corporate parent of PIMCO where he served as CEO and co-Chief Investment Officer, was Chairman of US President Barack Obama’s Global Development Council. He previously served as CEO of the Harvard Management Company and Deputy Director at the International Monetary Fund. He was named one of Foreign Policy’s Top 100 Global Thinkers in 2009, 2010, 2011, and 2012. He is the author, most recently, of The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.

COMMENTS

Keynesian economics works very well in understanding the last recession. The shock was very large, so large that interest rates hit the zero lower bound. What Keynesian economics says needs to be done then is fiscal stimulus. A little bit of that was done, but never enough. Resistance to it from many economists, who should have known better, drowned out the warnings of economists like Paul Krugman, who warned all along that what was being done was far too little. And when that proved right, far too many economists pinned the blame for the failure on what stimulus there had been instead of on the lack of adequate stimulus, and began preaching austerity. With economists speaking with such a divided voice, it is hard to blame politicians much if they steered a course somewhere in the middle. But that course was a disaster. Long years of unnecessary suffering were the result.

The only country to really apply Keynesian economics was China. It quickly implemented a stimulus plan that was 15% of it GDP (vs. ~2% elsewhere). The result was that it nipped the recession in the bud and continued its rapid growth.

 

• Rick Puglisi  Mar 8, 2019

   

  The biggest mathematical problem they have is declaring an equal sign in algebra to be causation rather than correlation. Ridiculous conclusions like trade deficits are “caused by” low savings is one example. It is like saying a car moves because smoke comes out of the exhaust pipe. They are correlated only. Once incentives (i.e. behavioral) are put on the lhs of the equation you get Trade Deficits cause by stealing profits to maintain political control financed by state banks or central banks.

  As for the Fed, they don’t have the guts to tell the US govt to balance trade and announce that they will not be complicit it another bubble caused by low rates and excessive deficits. Accountability? Don’t count on it.

 

• Michael Public  Mar 9, 2019

  The only antidote to the correlation-causation problem is to perform what is called by the IT industry AB testing. Create a hypotheses and test how it works with a control group. I would like to see more of this scientific approach by governments and their economists at a macroeconomic level.

• Mike Robinson  Mar 8, 2019

  But there’s another critical aspect here, relative to 2008: “CRIME.”

  In the years leading up to 2008, financial crime was rampant. Critical protective legislation such as the Glass-Steagall Act was dumped. Trading in “derivative securities” went wild, and when bets went bad they were shoved into the banks, so that governments would have to “bail them out” as “too big to fail.”

  The result was an explosion in the number of currency-units in circulation, and the papering-over of the consequences of these willfully criminal acts without doing anything to punish the wrongdoers or to reform the things which they exploited. The crimes did not stop and still haven’t stopped. Instead, they’re presented as though they were “the new normal.”

  I think that economists routinely overlook the “crime” factor – the simple fact that people will steal when given the opportunity, and that overseers and “enforcement” authorities can easily be in-cahoots. The events of 2008 were principally the consequence of criminal activity, and the so-called “quantitative easing” response was to let the criminals avoid punishment while cashing-in all their chips. “Crime DID pay.” For them. But it meant that everybody else … lost, and are still losing.

 

 

 

 

The AI Road to Serfdom?

February 23, 2019

by Robert Skidelsky

https://www.project-syndicate.org/commentary/automation-may-not-boost-worker-income-by-robert-skidelsky-2019-02

Estimates of job losses in the near future due to automation range from 9% to 47%, and jobs themselves are becoming ever more precarious. Should we trust the conventional economic narrative according to which machines inevitably raise workers’ living standards?

Estimates of job losses in the near future due to automation range from 9% to 47%, and jobs themselves are becoming ever more precarious. Yet automation also promises relief from most forms of enforced work, bringing closer to reality Aristotle’s extraordinary prediction that all needed work would one day be carried out by “mechanical slaves,” leaving humans free to live the “good life.” So the age-old question arises again: are machines a threat to humans or a means of emancipating them?

In principle, there need be no contradiction. Automating part of human labor should enable people to work less for more pay, as has been happening since the Industrial Revolution. Hours of work have fallen and real incomes have risen, even as the world’s population increased sevenfold, thanks to the increased productivity of machine-enhanced labor. In rich countries, productivity – output per hour worked – is 25 times higher than it was in 1831. The world has become steadily wealthier with fewer man-hours of work needed to produce that wealth.

Why should this benign process not continue? Where is the serpent in the garden? Most economists would say it is imaginary. People, like novice chess players, see only the first move, not the consequences of it. The first move is that workers in a particular sector are replaced by machines, like the Luddite weavers who lost their jobs to power looms in the nineteenth century. In David Ricardo’s chilling phrase, they become “redundant”.

.But what happens next? The price of clothes falls, because more can be produced at the same cost. So people can buy more clothes, and a greater variety of clothes, as well as other items they could not have afforded before. Jobs are created to meet the shift in demand, replacing the original jobs lost, and if productivity growth continues, hours of work can fall as well.

Notice that, in this rosy scenario, no trade unions, minimum wages, job protections, or schemes of redistribution are needed to raise workers’ real (inflation-adjusted) income. Rising wages are an automatic effect of the fall in the cost of goods. Provided there is no downward pressure on money wages from increased competition for work, the automatic effect of technological innovation is to raise the standard of living.

This is the famous argument of Friedrich Hayek against any attempt by governments or central banks to stabilize the price level. In any technologically progressive economy, prices should fall except in a few niche markets. Businessmen don’t need low inflation to expand production. They need only the prospect of more sales. “Dearness” of goods is a sign of technological stagnation.

But our chess novice raises two important questions: “If automation is not confined to a single industry, but spreads to others, won’t more and more jobs become redundant? And won’t the increased competition for the remaining jobs force down pay, offsetting and even reversing the gains from cheapness?”

Human beings, the economist replies, will not be replaced, but complemented. Automated systems, whether or not in robot form, will enhance, not destroy, the value of human work, just as a human plus a good computer can still beat the best computer at chess. Of course, humans will have to be “up-skilled.” This will take time, and it will need to be continuous. But once up-skilling is in train, there is no reason to expect any net loss of jobs. And because the value of the jobs will have been enhanced, real incomes will continue to rise. Rather than fearing the machines, humans should relax and enjoy the ride to a glorious future.

Besides, the economist will add, machines cannot replace many jobs requiring person-to-person contact, physical dexterity, or non-routine decision-making, at least not any time soon. So there will always be a place for humans in any future pattern of work.

Ignore for a moment, the horrendous costs involved in this wholesale re-direction of human work. The question is which jobs are most at risk in which sectors. According to MIT economist David Autor, automation will substitute for more routinized occupations and complement high-skill, non-routine jobs. Whereas the effects on low-skill jobs will remain relatively unaffected, medium-skill jobs will gradually disappear, while demand for high-skill jobs will rise. “Lovely jobs” at the top and “lousy jobs” at the bottom, as LSE economists Maarten Goos and Alan Manning described it. The frontier of technology stops at what is irreducibly human.

But a future patterned along the lines suggested by Autor has a disturbingly dystopian implication. It is easy to see why lovely human jobs will remain and become even more prized. Exceptional talent will always command a premium. But is it true that lousy jobs will be confined to those with minimal skills? How long will it take those headed for redundancy to up-skill sufficiently to complement the ever-improving machines? And, pending their up-skilling, won’t they swell the competition for lousy jobs? How many generations will have to be sacrificed to fulfil the promise of automation? Science fiction has raced ahead of economic analysis to imagine a future in which a tiny minority of rich rentiers enjoy the almost unlimited services of a minimally-paid majority.

The optimist says: leave it to the market to forge a new, superior equilibrium, as it always has. The pessimist says: without collective action to control the pace and type of innovation, a new serfdom beckons. But while the need for policy intervention to channel automation to human advantage is beyond question, the real serpent in the garden is philosophical and ethical blindness. “A society can be said to be decadent,” wrote the Czech philosopher Jan Patočka, “if it so functions as to encourage a decadent life, a life addicted to what is inhuman by its very nature.”

It is not human jobs that are at risk from the rise of the robots. It is humanity itself.

Robert Skidelsky, Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics, is a member of the British House of Lords. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999.

Mahathir Using Economic Council to Edge Anwar Out in favour of Azmin Ali?

February 16, 2019

February 15, 2019

192

By: Yusoff Rawther

A glance at the newly-announced lineup of Malaysia’s Economic Action Council (EAC) poses more questions than answers. It was formed to respond and take action in addressing economic issues. Objectives include stimulating economic growth, ensuring fair distribution of wealth and improving the well-being of the people as well as focusing on issues related to cost of living, labor, poverty and home ownership.

What is its relevance? It sounds eerily like a cabinet within a cabinet, and at a transitionary period, it looks like a redundant idea that will prove to be merely a political tool.

In less than a year since assuming the premiership, the 93-year-old Mahathir Mohammad has flip-flopped on various issues, most obviously his firmly stated assurance in May 2018 that the victorious Pakatan Harapan coalition would not be accepting turncoats from the losing United Malays National Organization.

Yet, along with the announcement of the creation of the economic action body,  Mahathir happened to embrace seven former UMNO MPs into his own Parti Pribumi Bersatu, an act of betrayal to the people of Malaysia. UMNO was thoroughly discredited as a party corrupt to its very roots – by MPs who were kept loyal to the previous premier, the disgraced Najib Razak, by outright bribes.

Anwar Ibrahim has been unceremoniously left out from the EAC, an indication that Mahathir is once again vying to divert as much power and attention towards the lesser known and underperforming Minister of Economic Affairs, Mohamad Azmin Ali, the former chief minister of Selangor and an ambitious pretender for the leadership of the coalition.

Aside from the fact that the council’s existence shows failure on behalf of the prime minister to appoint qualified people to the cabinet, if we are to accept the premise that the council should exist, the right thing to do is to invite the premier-in-waiting to be a member in a move to demonstrate your confidence in your designated successor to the voters as well as giving Anwar a role to play in contributing to the agenda set forth in the EAC’s charter. Malaysians should beware lest Mahathir smuggles old failings into the mix whilst our attention is held elsewhere.

The political heavy lifting was done by Anwar, who from his prison cell pulled a lax opposition and the complaining class into the fight alongside his supporters to create the conditions for change. Conditions that proved vital in the overthrow of the Barisan Nasional regime.

It is evident that something more than elections are necessary to create a genuine new dispensation of sustainable democratic good governance.

 Creating the EAC and sidelining the PM-in-waiting is not a good indicator of that. Authoritarian rule is not just about figureheads. They use power th to maintain themselves is institutionalized and embedded in deep structures of privilege that corruptly deliver a nation’s bounty into the hands of a chosen few.

If Anwar Ibrahim is the icon for democracy, then Mahathir is the icon and spokesperson of the embedded structures of inequity.

As the principal architect of genuine reform,  to sweep aside the structures of authoritarian control and the inequity they beget, Anwar’s reform agenda seeks to eliminate  corruption, cronyism and nepotism, the elements of a bygone era.

It is the diligence and energy Anwar applies to promoting an alternate vision of good governance, one and of a free and competitive Malaysian economy and harmonious, multiracial society that  made him an important voice not only in Malaysia but around the world. Anwar has spent his career speaking for and articulating an alternative agenda of politics.

As a Deputy Prime Minister during the Asian Financial Crisis I988, Anwar came very close to dismantling the Mahathirist version of crony capitalism when he decided to implement an IMF style austerity program, suspend big-bulge infrastructure investment, and force big businessmen to take care of their own debts.

Anwarnomics promises to do away with state-backed racism. It promises to be inclusive, rules-based and competition-driven with a large, well-funded social safety net and he has reiterated time and again the need for uncompromising reforms.

Here are some of the things he has advocated for, long before the formation of the EAC:

Malaysia’s economic policies should be inclusive and to dismantle obsolete policies such as the New Economic Policy. Positive.

• discrimination policies must be based on freedom, justice, and equity.
• A sustainable economy is not one that is mainly driven by consumer spending fueled by high level household debt. “We cannot build a better life for our people if they need two to three jobs just to make ends meet. That is bad economics… even worst social policy.”
• Affirmative actions taken must be based on needs.
• It is important to enhance investment, trading and economic ties with China and India which are the engine of growth for global economy.
• Social protection and poverty eradication remain central to the effort to ensure a better life for all.
• Greater transparency and public participation is key in ensuring efficiency of social programs, to identify dubious programs, reduce duplication and waste of resources.
• Economic policies to lure foreign direct investment must not neglect any region or community in the country. It is not a zero-sum game. If we choose to embark on pro-market reforms, it should not be an excessive capitalistic notion ignoring the plight of poor and marginalized.

Given the facts, it is only fair to question Mahathir’s  motives  in creating the EAC while failing to include the next Prime minister.

Malaysia is rich in resources and possibilities. Change will require more than just elections, it requires dismantling the institutional structures of inequity, most of all it will depend upon building the strength and capacity of civil society, the plethora of organizations and associations by which ordinary people hold their governments to account.