Sunday, September 6, 2009

Is China de-industrialising countries like Malaysia?

The postulation by Jorg Mayer and Adrian Wood as to whether China's continued ascendancy as an industrial powerhouse and "factory to the world" is causing developing countries to de-industrialise is relevant.

Another way to look at it is that China's production prowess is the catalyst to hasten the urgent attempt to shift Malaysia from a manufacturing- and export-dependent economy into a services economy. How this will happen is open to debate. The delivery and, quality of, Malaysian education is at issue. For, how do we shift from one economic level to another without laying the foundations? The services sector, even more than the manufacturing sector, depends very much on human resources. Poor quality human resources are likely to kill any ambitions in the services sector.

In any event, the other question is how long the "de-industrialisation" phenomenon will last? Will it be permanent? We may take some mixed comfort from Mayer & Wood's concluding remarks:

China’s opening was a one-off event, which caused a step change in the comparative advantage of other countries. In contrast, its rapid growth, based on accumulation of more skills, capital, and modern technology, is a continuing event, and one whose effects will change with the passage of time. Thus far, China’s growth has mainly amplified the effects of its opening, raising both its supply of labour-intensive manufactures and its demand for primary products. Over the longer-term future, this rising demand for primary products will continue, but China’s accumulation of skills will move it out of labour-intensive manufacturing, tending to increase the size of this sector in other developing countries, rather than reducing it as the country’s opening initially did.

The above conclusion suggests that China's magnitude is cutting a large swathe through developing economies and disrupting traditional developmental economics. The socio-political and socio-economic impact has already been felt for over a decade.

We, in Malaysia, are certainly feeling it. We need China's money and we need China's consumption of our commodities. We also need the Chinese to visit with us and spend some money during their visit. Against that is our having to close certain industries that are in direct competititon with Chinese manufacturers.

I hope Malaysian economic managers are continuing to examine Malaysia's comparative advantages over the span of at least 20 years. That would be proper economic planning.

We may count some small blessings that we are ahead of the Africans and Latin Americans in many aspects of economic development so that the disruptive effect of China's industrial prowess has less impact. But, we cannot ignore the fact that it does have an impact.

Read Mayer & Wood's joint paper, Has China de-industrialised other developing countries?


hishamh said...

Bro de minimis,

The paper is too focused on China - it would be a much stronger argument (and much more interesting in terms of finding alternative development paths) if they look at historical de-industrialisation generally.

For example, would it be true to say that the rise of the Tiger economies contributed to the de-industrialisation of Japan? And that Japan contributed to the de-industrialisation of the US?

But those points don't detract from the urgency that Malaysia must find a new growth pattern.

de minimis said...

bro hishamh

Agreed. The usefulness of this academic analysis is that it serves as an important compass for Malaysian economic managers to ratchet-up the urgency of improving key factors that affect Malaysia's future economy. The most important of all, if I may say, is the quality of education and training of human resources. A "rusty" education and training pipeline will have a deleterious effect on any economic goals that are set.

hishamh said...

You'll like this paper then :)

de minimis said...

I do,I do :D

walla said...

Allow a couple of flinty remarks?

The education imperative is dire. It is not just to turn the boat around on our education policies so that our undergraduates will be trained better to fit into more relevant jobs so that they can do more globally valued tasks that underpin a higher-income services sector which is the perceived antidote to de-industrialization.

The government will also have to arrest the absolute decline in the quality and relevance of the lecturers, teachers, trainers and instructors, almost all of whom come from graduates of our present local education system.

So our situation is actually blind leading blind in a self-suffocating cocoon.

But how does one break the mold when the policies encourage only status-quo and the mind is locked into localization wherever it concerns education and training?

Even in premier cluster schools, intelligent students are skipping classes because they have given up on their teachers. There is a prevailing mismatch between the background of the teacher's training and the subject being taught. An administrator is pushed to teach say sejarah just because it is figured she could enthuse the students because she talks a lot; she may but the students still don't. While that is happening, a trainee teacher is put to teach maths but there is no connectivity to the students who are bored to tears from being completely puzzled by what the teacher is trying to say. The perambulations of the headmistress outside the classes as they carry on does nothing whatsoever to alleviate the roots of the problem.

The side-effect of all that is that household income is reduced by more spending on tuition. Which frays the tempers of the neighbors of the tuition centers when parents drive up and clog up roads to wait for the classes to end.

This is a vicious circle of the first magnitude. As school teachers see more tuition centers mushrooming, they will wonder why they are still sacrificing their time when they can get better pay outside with the result they will be demotivated resulting in further decline which will then tar the vocation lower which will then only attract weaker teaching applicants. As parents find that their children are getting better education from tuition centers, their faith in the national education system will reach its nadir. In telco terms, churn will increase. With that, divides will widen, productivity of the national education system will nosedive and tensions will increase as some will see the disintegration and thus clamor for integration but others will see the falling standards and thus clamor for their own non-national solutions.

Meanwhile educationists, academicians, parents and employers continue to await with bated breath on developments of the last sagacious hintings that the system will soon be re-studied with view to another revamping. That is, after the next by-elections.

How can all this possibly be happy and healthy in the context of national relevance, what more competitiveness?

Any policy change for education targeting students directly will take at least a decade to see effect. But before even that can happen, there has to be policy changes to re-groom and re-work the educators who will be delivering the teaching service. Who will be re-training those trainers? And if those trainers are being retrained, who will be meanwhile teaching the students who will all face another set of examinations, not that these are of any standards to shout about?

walla said...

With all the damage done so far ever since the Razak DG of education arbitrarily changed the word 'main' to 'sole' for the medium of instruction, those two sequential changes are going to be impossible to achieve in the time which this country has before de-industrialization dents the economy in a massive blow. In one of the links below, this hollowing out process was already noted for Malaysia since 2001. The changes are therefore at least two decades plus eight years late. With other countries racing ahead on knowledge, multiply that time gap by two. Which means all should already have woken up on the very day we had shouted merdeka.

The issue of finding panaceas for de-industrialization of our country pertains not just to educational matters and the hidden challenge of training the trainers or finding the trainers to train the trainers.

De-industrialization also means we make less for our own needs. Which means we have to import more in order to maintain the same modest lifestyles. Not everyone can turn cellulose acetate from palm waste into digital paper.

If we have to import more, we need new income sources. It is hard to find them even if we scour the entire country from top to tip.

But equally pertinent is the fact that our ringgit has been weakening over the years. Only the recent financial meltdown has prevented it from falling faster than the currencies of more advanced countries but it has indeed been failing faster than those of some others in Asia.

However there is little space for grace. The cost of Lurpak unsalted butter has jumped by eighty percent in just a few years. For instance.

So we will have a balance of payment problem as well when de-industrialization hollows out the manufacturing sector. We may even become so poor that we can't buy what is needed to maintain basic comforts in the modern era.

What is needed right now is not for people to postulate that they will be taking yet another piece of real estate whatever it costs just so as to re-entrench the same policy machines that had denuded our national competitiveness, a term which of course every right-minded soul has already translated as the living future of their children and grandchildren.

You know that sentiment for a fact by just sensing the seething cynicism of the parent who had written to the press asking for a clear and present definition of what was meant by 'soft landing' for the backflow transition of the medium of instruction - so that he could take steps on his own to do the right and proper things for his children.

Yet again there is one other factor. Somewhere in the near future it is not inconceivable we will reach a cusping point. It is cusping and not tipping only because it will be wider and more saddle-shaped. One may surmise that cusping point will form when we reach some national limit in knowledge - about everything - and that most unnatural phenomenon will happen at the maximum of something else - the point when the young won't know what will hit them when the next tsunami beyond de-industrialization comes.

Oil revenues provided some buffer before. It won't be able to again and we have already exhausted why.

walla said...

Within the federal government we already see problems. The process has become pulling someone from x to place in y; there is a dearth of the right people to run things. The legacy and renewal problems are entrenched. The recurring problems of government administration are about organizing the right implementation and sustaining the whole activity. We have unfailingly shown we fail in that department. When the human capital aspect of that is weak, accountability will also be weakened in order to hide failures, misappropriations and other ilks of emerging economies. When accountability is weakened, transparency will be ignored, reinforcing blind-leading-blind which thus spreads from the education sector into the legislation and executive sectors. Meaning the backbone of this country.

If one doesn't make the right paradigm shift about leadership sourcing, then how will real changes and massive improvements be made in order to dig all of us out of the big pit we are in? Does anyone in his right mind think that the Chinese, for instance, won't be doing something about the price they have to pay (RM50+) for 5kg of cooking oil from this country (RM13.35-14.70)? For instance.

One fears it won't be just de-industrializing our manufacturing sector alone we have to worry about. Indonesia has replaced us in oil palms. What's to prevent African or Latam states from replacing us in other non-industrial commodities that we have increasingly been dependent on for our economic survival?

We still have tourism? Locating a penal colony (thieves) on offshore (money) Labuan, perhaps? How about the malay hoteliers who grit in anger against the way the middle-eastern's behave on locals and let their taps run in their rooms to flood the plush carpets.

This country needs champions of change. Not lemmings of looking-good's. But looking at how even a simple thing like legislating hump-locating is not done which of course leads to six humps on one small stretch of road, that too will be impossible to achieve as it requires no stretch of imagination that we will soon achieve the most remarkable record in the world, befitting appropriate placement in the Guinness Book of Records. The humpiest nation on this planet.

Indeed those humps may even bump up our national competitiveness placing although they do nothing to stop snatchings and homicides.

I rest my case, your Honor, but that's because stomach is growling, lips are parched, hands are trembling and Saya Juga Wanita (like the avatar?)is coming on tv (or was it already shown last nite? time is the only thing that changes in this country).