Friday, December 31, 2010

HAPPY NEW YEAR 2011

It is tempting to gaze into the crystal to see what one hopes 2011 will be like. Well, less racial nonsense will be a very good thing. 

No prayer in the world will prevent excessive politicking from occurring in Malaysia. But, unlike straightjacketed places like Singapore or China, Malaysia has a vibrant democratic ethos. So, politics or, even the excess of it, is something we will all have to accept.

That is not a bad thing if there is sufficient civility and a large dollop of good sense.
pix from here.

I, for one, am very proud of our great nation.

No, it's not just because I cheered myself hoarse in both legs of the Suzuki AFF finals where our young Harimaus broke valiant Indonesian hearts.

And, it's not just because my firm's order book for 2011 looks damn promising.

It's because Malaysia has weathered the results of the 2008 General Elections very well in spite of the sea-change from BN's loss of it's two-thirds majority.

Yes, there has been a lot of unsatisfactory tactics and blatant cheating. Yes, corruption still needs to be tackled even more firmly. Yes, street crime is still a source of great concern for all Malaysians.

These are challenges that we shall have to face.

It is the job of the Loyal Opposition to throw brickbats. Equally, it is the job of the Party in Government to counter the brickbats and swing some of its own. That's democracy. 

As citizens, it will be for each of us to dutifully support any leader who argues for stronger audits of the governance of the Federal Centre and each of the States.

Above all else, to my mind, we must be the most vigilant about the Local Governments whose incompetence, bad planning and sheer abuse and neglect, has caused each and every one of us to suffer from traffic jams, poor road maintenance, non-functioning traffic lights, unlit street lights and the list goes on. We, the ratepayers, must hold those buggers running the Local Governments to account.

For, in the final analysis, the average citizen's most frequent contact with the GOVERNMENT is at the Local Government level.

Have a good New Year celebration, Malaysia.

Saturday, December 25, 2010

MERRY TROPICAL CHRISTMAS 2010

MERRY CHRISTMAS 2010

pix from here

My seasons greetings to all Malaysians who are celebrating Christmas. To the rest of Malaysia and elsewhere, I wish you happy holidays.

I thought a tropical Christmas picture will balance out the news of winter chills and airport closures in the Northern Hemisphere. 

Tuesday, December 21, 2010

Ronald Coase turns 100

Many blogger buddies may be piqued to learn that part of Ronald Coase's work, if properly applied by Rais Yatim's Ministry, would have prevented much of the criticism levelled at the Minister, the Ministry and the Commission that regulates telecommunications in Malaysia.

Read Coase's description of his work in this area (emphasis added by me):

"I made a study of the Federal Communications Commission which regulated the broadcasting industry in the United States, including the allocation of the radio frequency spectrum. I wrote an article, published in 1959, which discussed the procedures followed by the Commission and suggested that it would be better if use of the spectrum was determined by the pricing system and was awarded to the highest bidder. This raised the question of what rights would be acquired by the successful bidder and I went on to discuss the rationale of a property rights system." 

I stumbled onto Ronald Coase's considerable corpus of work on economics and law when I was pursuing postgraduate academic studies. 

Coase is best known for the following work which I have embedded links to Wiki:


The problem of social cost; and, most especially (to me)

Economic analysis of law aka Law and Economics.

More to the point, Coase's work is extremely helpful when we try to evaluate the costs and benefits of government regulation. Malaysia can certainly use Coase's methodology when deciding on economic policy and regulations within the context of fair economic competition. But, this is not the time and place to discuss the matter. This post is about honouring Coase and his contribution to our understanding of the economics of commercial transactions and government regulations for which he was awarded a Nobel Prize in Economics.

Coase, born on 29th December 1910, will turn 100 next week. An amazing longevity achieved by an amazing mind.
Ronald H. Coase
The Schumpeter column of The Economist has rightly honoured the man who was born in the United Kingdom and, since 1951, resided in the United States.

Coase was awarded the Nobel Prize in Economics in 1991. I offer you his autobiography written by Coase himself in 1991 on the occasion of the Nobel Prize award:

Monday, December 13, 2010

Zhuge Liang as a Tragic Hero

Don't mind me. It's just me squirrelling away some acorns during my period of hibernation...


Sourced from here. An essay by AshleyTerra. 

A star falls to announce the death of Zhuge Liang, one of the most beloved characters of Three Kingdoms. At first glance, the attraction seems obvious: he is popular because he is a hero with a whole slew of victories. In fact, he is so successful and skilled that many, including C.T. Hsia, consider him the main hero of Three Kingdoms (31). As a scholar hero, he kills opponents "with the tip of his tongue, or, better, of his brush" instead of a sword and is both "daring and courageous… in court and council" (Ruhlmann 161). However, this interpretation fails to provide a satisfactory explanation because the novel is filled with successful heroes, like Zhao Zilong, who never gains the same adoration. When one takes a look at the historical Zhuge Liang, one would find that he was "simply a prominent figure to whom one might feel varying proportions of admiration or disgust… as toward any other influential person in public life" (Henry 604) despite all his successes in his lifetime. It was only after his death that popular sentiment turns to adulation, beginning in the area where he died (Henry 608). This gives the necessary clue to suggest that it was not Zhuge Liang's successes as a scholar hero that endeared him to the public, but rather the tragic nature of his heroism as a Confucian hero.

Friday, December 3, 2010

Borowitz slays me

Here's the headline from the satirical, political lampooning, take-the-Mickey-out-of-politicos, Borowitz Report....

U.S. Orders Diplomats to Stop Telling Truth Until Further Notice

WASHINGTON (The Borowitz Report) – In the first major policy fallout from the WikiLeaks disclosures, the State Department has ordered all U.S. diplomats to “cease and desist telling the truth until further notice.”
“We are working overtime to try to make sure that leaks like these don’t happen again,” Secretary of State Hillary Clinton told reporters.  “But until we’ve got the leaks plugged, it’s incumbent on all our diplomats to put on their lying caps.”

Secretary Clinton noted that since many US diplomats are major political donors with long careers in the business world, “this shouldn’t be a reach for them.”

But for those career diplomats who came up through the Foreign Service, the State Department will be holding a series of “truth avoidance seminars,” led by executives of Goldman Sachs.

Additionally, Secretary Clinton said, the State Department would install on all diplomats’ computers new software called CandorShield™, which automatically translates truthful language into a less embarrassing truth-free version.

For example, she explained, the software would translate the phrase “two-faced weasels” into “trusted Pakistani allies” and would delete all references to French President Nicolas Sarkozy as “Monsieur Shorty Pants.”

Elsewhere, Interpol issued this statement about its pursuit of WikiLeaks founder Julian Assange: “We will find Julian Assange, and then we will hire him.”

Wednesday, November 24, 2010

Facebook Shares Get Sliced Into Derivatives as Value Surges

Don't mind me. I'm just putting this up as a resource. But, since I'm at it, I may as well say what I think in the deep recesses of my vacuous mind.

I'm endlessly fascinated and, at the same time, repulsed, by the numbers of ways in which equity, equity-type, financial, and financial-type products can be derived and derived upon derive from a basic equity or debt instrument.

Here we have another derivative product. It is linked to a super-duper company, Facebook. 

This report is from Bloomberg:

Facebook Inc.’s surging valuation is spurring shareholders to slice and dice their stock, giving investors everywhere from Silicon Valley to Wall Street a chance to bet on the company.

Laffer Curve + Irish Implosion

To me an interesting article begins with an anecdote. So, Chris Farrell's piece on Arthur Laffer and his Curve, weaved with supply-side economic thinking as lead-ins to the current Irish economic crisis is, most certainly, an interesting article.

Basically, the point is that reduction of taxes a'la Ireland, is not a panacea to the challenges of managing an economy. But, then again, what policies are ever permanent? Of course, Farrell is dealing with the current set of economic challenges in the Western world - dealing with an era of tax cuts and deregulation - and witnessing the sheer and wanton abandon with which financial institutions failed to apply common sense and risk management principles.

Let me not get carried away.

I will just tease you with the opening lines of Farrell's piece. Then you can click on the "read more" to, well, read more:

It may be the most famous dinner in economic history. Arthur Laffer was a professor at the University of Chicago. In December 1974 he dined at the Two Continents Restaurant in Washington, D.C., with Donald Rumsfeld, chief of staff to President Ford; Dick Cheney, Rumsfeld's deputy; and Jude Wanniski, associate editor at The Wall Street Journal. According to Wanniski, Laffer grabbed a napkin and pen and sketched out the Laffer Curve, illustrating the trade-off between tax rates and tax revenues. In a few more years the tax-cut philosophy dubbed supply-side economics would dominate fiscal policy under President Ronald Reagan.

Microfinance Dominates Indonesian Shariah-Compliant Loans

The trend of microfinance products gaining traction in populous nations like Indonesia will have positive results for their economy. I've been a fan of microfinance for some time now. My previous blogposts on this will bear me out. 

However, as always, the caution is always on the mode of delivery. The Grameen model is the ideal one. I'm not sure how Indonesia is doing the delivery of microfinance products. But, if banks are the ones providing the delivery of microfinance products one key feature of the Grameen model will certainly be absent. This is the feature of community-guarantee, where five borrowers who are known to each other will collectively guarantee and vouch for each other. This feature has been, in my view, crucial in reducing the rate of defaults in microfinance loans. 

The absence of this feature has been my concern about Malaysian-based microfinance products.

Tuesday, November 23, 2010

Simplify

In tandem with my hesitant entry into microblogging, I have also decided to ditch the claustrophobic feel of the library template to go for absolute simplicity. No more frills.

Microblogging on the fly

Alas! The pressures of time and commitments have caught up with me in recent months. I have had to resort to using the social media to maintain some semblance of a presence in the blogosphere.

So, as you may have noted, I have created a Twitter sidebar so that I can still do some micro jottings.

I approach this new feature with much trepidation because 140 characters in Twitter may not look pretty for someone who is used to 1,000 word excursions. Needless to say, my blogging history has not prepared me at all for the haiku-like requirements of Twitterdom.

Thursday, November 4, 2010

HAPPY DEEPAVALI 2010

HAPPY DEEPAVALI TO ALL HINDUS IN MALAYSIA AND ELSEWHERE. And, happy long weekend to the rest of Malaysia. Be safe.

The name Diwali is a contraction of the word "Deepavali" (Sanskrit: दीपावली Dīpāvali), which translates into row of lamps. Diwali involves the lighting of small clay lamps (divas) (or Deep in Sanskrit: दीप) filled with oil to signify the triumph of good over evil. Source: Wikipedia
pix from here.

Tuesday, November 2, 2010

Ted Sorensen

Every leader needs a good speechwriter and alter ego. He had two close confidantes with whom he could bounce ideas and receive advice - the kind of advice that is free of any sycophancy. John F. Kennedy was lucky. He had Bobby and Ted.

There was Robert F. Kennedy. Bobby was the enforcer who could run interference to deflect JFK from any political danger.

Then, there was Ted Sorensen, who died yesterday. With Sorensen's passing, the mythical Camelot of the Kennedy Presidency has lost its final link.

I have done a post sometime ago in the eve of Barack Obama's presidential inauguration where I focused on styles of speaking between JFK and Obama. I highlighted Sorensen's crucial role in preparing and drafting JFK's seminal Inaugural Adress in 1961.

I am too involved in project work to pen down my own thought and words about my own feelings on the matter of Sorensen's passing. Instead, I refer you to the most excellent eulogy of sorts from the Boston Globe:


Of the courtiers to Camelot's king, Theodore C. Sorensen ranked just below Bobby Kennedy. He was the adoring, tireless speechwriter and confidant to President John F. Kennedy, whose term was marked by Cold War struggles, growing civil rights strife and the beginnings of the U.S. intervention in Vietnam.

Soaring rhetoric helped make Kennedy's presidency a symbol of hope and liberal governance, and the crowning achievement for Sorensen, who died Sunday, was the inaugural address that was the greatest collaboration between the two and set the standard for modern oratory.

With its call for self-sacrifice and civic engagement -- "Ask not what your country can do for you, ask what you can do for your country" -- and its promise to spare no cost in defending the country's interests worldwide, the address is an uplifting but haunting reminder of national purpose and confidence, before Vietnam, assassinations, Watergate, terrorist attacks and economic shock.

But to the end, Sorensen was a believer.

He was 82 when he died at noon at Manhattan's New York Presbyterian Hospital/Weill Cornell Medical Center from complications of a stroke, his widow, Gillian Sorensen, said.

Sorensen had been in poor health in recent years and a stroke in 2001 left him with such poor eyesight that he was unable to write his memoir, "Counselor," published in 2008. Instead, he had to dictate it to an assistant.

President Barack Obama issued a statement saying he was saddened to learn of Sorensen's death.

"His legacy will live on in the words he wrote, the causes he advanced, and the hearts of anyone who is inspired by the promise of a new frontier," Obama said.

Kennedy's daughter, Caroline Kennedy, called Sorensen a "wonderful friend and counselor" for her father and all of her family.

"His partnership with President Kennedy helped bring justice to our country and peace to our world. I am grateful for his guidance, his generosity of spirit and the special time he took to teach my children about their grandfather," she said in a statement.

Hours after his death, Gillian Sorensen told The Associated Press that although a first stroke nine years ago robbed him of much of his sight, "he managed to get back up and going."

She said he continued to give speeches and traveled, and just two weeks ago, he collaborated on the lyrics to music to be performed in January at the Kennedy Center in Washington -- a symphony commemorating a half-century since Kennedy took office.

"I can really say he lived to be 82 and he lived to the fullest and to the last -- with vigor and pleasure and engagement," said Gillian Sorensen, who was at his side to the last. "His mind, his memory, his speech were unaffected."

Her husband was hospitalized Oct. 22 after a second stroke that was "devastating," she said.

Some of Kennedy's most memorable speeches, from his inaugural address to his vow to place a man on the moon, resulted from such close collaborations with Sorensen that scholars debated who wrote what. He had long been suspected as the real writer of the future president's Pulitzer Prize-winning "Profiles in Courage," an allegation Sorensen and the Kennedys emphatically -- and litigiously -- denied.

They were an odd but utterly compatible duo, the glamorous, wealthy politician from Massachusetts and the shy wordsmith from Nebraska, described by Time magazine in 1960 as "a sober, deadly earnest, self-effacing man with a blue steel brain." But as Sorensen would write in "Counselor," the difference in their lifestyles was offset by the closeness of their minds: Each had a wry sense of humor, a dislike of hypocrisy, a love of books and a high-minded regard for public life.

Kennedy called him "my intellectual blood bank" and the press frequently referred to Sorensen as Kennedy's "ghostwriter," especially after the release of "Profiles in Courage." Presidential secretary Evelyn Lincoln saw it another way: "Ted was really more shadow than ghost, in the sense that he was never really very far from Kennedy."

Sorensen's brain of steel was never needed more than in October 1962, with the U.S. and the Soviet Union on the brink of nuclear annihilation over the placement of Soviet missiles in Cuba. Kennedy directed Sorensen and Bobby Kennedy, the administration's attorney general, to draft a letter to Nikita Khrushchev, who had sent conflicting messages, first conciliatory, then confrontational.

The carefully worded response -- which ignored the Soviet leader's harsher statements and included a U.S. concession involving U.S. weaponry in Turkey -- was credited with persuading the Soviets to withdraw their missiles from Cuba and with averting war between the superpowers.

Sorensen considered his role his greatest achievement.

"That's what I'm proudest of," he once told the Omaha (Neb.) World-Herald. "Never had this country, this world, faced such great danger. You and I wouldn't be sitting here today if that had gone badly."

Robert Dallek, a historian and the author of "An Unfinished Life: John F. Kennedy, 1917-1963," agreed that Sorensen played a central role in that crisis and throughout the administration.

"He was one of the principal architects of the Kennedy presidency -- in fact, the entire Kennedy career," he said Sunday.

Of the many speeches Sorensen helped compose, Kennedy's inaugural address shone brightest. Bartlett's Familiar Quotations includes four citations from the speech -- one-seventh of the entire address, which built to an unforgettable exhortation: "Ask not what your country can do for you; ask what you can do for your country."

Much of the roughly 14-minute speech -- the fourth-shortest inaugural address ever, but in the view of many experts rivaled only by Lincoln's -- was marked by similar sparkling phrase-making:

"Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty."

-- "If a free society cannot help the many who are poor, it cannot save the few who are rich."

-- "Let us never negotiate out of fear. But let us never fear to negotiate."

As with "Profiles in Courage," Sorensen never claimed primary authorship of the address. Rather, he described speechwriting within Kennedy's White House as highly collaborative -- with JFK a constant kibitzer.

In April 1961, weeks into the Kennedy presidency, the Soviet Union launched the first man into orbit. Less than a month later, Alan Shepard became the first American in space with a 15-minute suborbital flight. The idea of a moon landing "caught my attention, and I knew it would catch Kennedy's," Sorensen recalled. "This is the man who talked about new frontiers. That's what I took to him."

Shortly after Shepard's landmark flight, Kennedy said: "I believe this nation should commit itself to achieving the goal, before the decade is out, of landing a man on the moon and returning him safely to Earth." U.S. astronauts met that deadline in July 1969.

Kennedy reinforced the Eisenhower administration's commitment of sending advisers to South Vietnam, but Sorensen maintained that the president, had he not been assassinated, would eventually have withdrawn American troops. Sorensen also believed that the president would have passed the civil rights legislation that successor Lyndon Johnson pushed through.

On the afternoon of Nov. 22, 1963, Sorensen was leaving his home in Arlington, Va., where he had stopped briefly after lunching with a newspaper editor, when he was summoned to the White House.

There, his secretary told him that the president had been shot in Dallas.

"Sometimes," Sorensen told an interviewer in 2006, "I still dream about him."

Sorensen's youthful worship never faded, even as he acknowledged Kennedy's extramarital affairs. "It was wrong, and he knew it was wrong, which is why he went to great lengths to keep it hidden," Sorensen wrote in his memoir. "In every other aspect of his life, he was honest and truthful, especially in his job. His mistakes do not make his accomplishments less admirable; but they were still mistakes."

Sorensen would witness a brief revival of Camelot with the presidential election of Obama, whom Sorensen endorsed "because he is more like John F. Kennedy than any other candidate of our time. He has judgment as he demonstrated in his early opposition to the war in Iraq."

A year after Obama's election, Sorensen said he was disappointed with the president's speeches, saying that Obama was "clearly well informed on all matters of public policy, sometimes, frankly, a little too well informed. And as a result, some of the speeches are too complicated for typical citizens and very clear to university faculties and big newspaper editorial boards."

Theodore Chaikin Sorensen was born in Lincoln, Neb., on May 8, 1928. His father, C.A. Sorensen, was a lawyer and a progressive politician who served as Nebraska's attorney general.

His son described the elder Sorensen as "my first hero." Growing up, Sorensen once joked, "I wasn't involved in politics at all -- until about the age of 4."

He graduated from Lincoln High, the University of Nebraska and the university's law school. At age 24, he explored job prospects in Washington, D.C., and found himself weighing offers from two newly elected senators, Kennedy of Massachusetts and fellow Democrat Henry Jackson, from Washington state.

As Sorensen recalled, Jackson wanted a PR man. Kennedy, considered the less promising politician, wanted Sorensen to poll economists and develop a plan to jump-start New England's economy.

"Two roads diverged in the Old Senate Office Building and I took the one less recommended, and that has made all the difference," Sorensen wrote in his memoir. "The truth is more prosaic: I wanted a good job."

At the 1956 Democratic National Convention, the charismatic Kennedy attracted wide attention as a candidate for vice president. He eventually withdrew, but his exposure at the convention led to a flurry of invitations to speak around the country.

During the next four years -- the de facto beginning of Kennedy's presidential run -- he and Sorensen traveled together to every state, with Sorensen juggling various jobs: scheduler, speechwriter, press rep.

"There was nothing like that three-four year period where, just the two of us, we were traveling across the United States," Sorensen told The Associated Press in 2008. "That's when I got to know the man."

After Kennedy's thousand days in the White House, Sorensen worked as an international lawyer, counting Anwar Sadat among his clients. He stayed involved in politics, joining Bobby Kennedy's presidential campaign in 1968 and running unsuccessfully for the New York Senate four years later. In 1976, President Carter nominated Sorensen for the job of CIA director, but conservative critics quickly killed the nomination, citing -- among other alleged flaws -- his youthful decision to identify himself as a conscientious objector.

Besides "Counselor," his books included "Decision Making in the White House" (1963), "Kennedy" (1965) and "The Kennedy Legacy" (1969). In 2000, Hollywood turned the Cuban missile crisis into a movie called "Thirteen Days." Actor Tim Kelleher played Sorensen.

His role, according to Sorensen? To "think and worry. ... often bent over."

Gillian Sorensen said a public memorial service would be held for her husband in about a month, but the exact date has yet to be set. She said there would be no formal funeral.

Survivors also include a daughter, Juliet Sorensen Jones, of Chicago; three sons from his first marriage, Eric Sorensen, Stephen Sorensen and Philip Sorensen, all of Wisconsin; and seven grandchildren.

Sunday, October 24, 2010

How To Innovate Like Steve Jobs

All the stuff that we've been reading in the local mainstream media and, all the interviews *blah-blah**yawn* never really tell you how innovative ideas come about.

There's a scene from a great 1980s movie, Working Girl, where the media tycoon, Trask, asked Melanie Griffith's character (who had been accused of stealing Sigourney Weaver's character's idea), "What was your impulse (for the multi-million dollar merger deal)?"


What was your impulse?

Where does the creative spark come from?

Do rote-learning help with creativity?

Does the lack of reading help with creativity?

Don't worry, I am just being rhetorical. Not substantive. Just light fluff. Just like how politicians talk at general assemblies.

Anyway, back to the point.

The lead-in to the extract that I'm setting out below is that we have to understand that Steve Jobs had a restless and inquisitive mind. He has always been a passionate man. I imagine that he reads voraciously.

True, he was a college dropout. But, remember that, just as it was with Bill Gates, Jobs dropped out of college because he had a kind of epiphany - a realisation that he really wanted to get into the nascent computer industry of the time. It was NOT because he felt that he was too dumb to pass his exams.

Some of us are plodders. We follow the syllabus. Others, like Jobs, have minds that are wired differently.

Remember the scene from A Beautiful Mind where Russell Crowe's character, John Nash was standing at the pub bar in Princeton. The girl walks in. All the men turned their heads to look at her. Suddenly it hit Nash. He saw the patterns of probabilities and possibilities in human behaviour that led him to his great Game Theory postulation. It eventually won Nash the Nobel Prize (was it for Economics or Mathematics?).


So, read on...the piece is surced from Forbes:

There’s a chapter in the book called, “Kick-Start Your Brain.” In it, Gallo explains that what scientists have found is that great innovators practice what’s called “association”. They look outside their industry for ideas they can apply within their organization. Steve Jobs has been doing that his whole life.

Here are two examples:

1) Gallo says Jobs’ inspiration for not having a designated cashier in the Apple Store, came from the Four Seasons hotel chain, which has a concierge;

2) When Jobs and Steve Wozniak were creating the Apple 2 computer, which became one of best selling personal computers of its time, Jobs wanted a computer people would have in their homes. But instead of looking at his competitors, he walked through the kitchen appliance isle at Macy’s for inspiration.

In that same chapter, scientists explain to Gallo that another key to kick-starting your brain and get those creative juices flowing is to try new and novel experiences that push you outside your comfort zone and push your interests.

Friday, October 22, 2010

Bloggers For Malaysia

Okay, here's the deal. There are some SoPo bloggers who have a nose for scoops. They are sniffers. Their exposes have helped to democratise and level the field of information dissemination.

Most of the stuff is raw. And, that's why we love it.

There are other SoPo bloggers (like me) who are plodders. We like to scratch our private parts and take our time to stare at scenery. And, when we do write, it is often prolix and painful to read.

But, being bloggers, we are collectively seen as an alternative medium to the conventional media.

I was pretty gobsmacked when I heard from Syed OutSyedTheBox that Rais was on the warpath against Rocky, Big Dog and Taikors & Taikuns for having the temerity to raise questions about his Ministry.

The first thought was, naturally, that I thought these bloggers were UMNO-BN-leaning types. Weren't they on the same side?

Upon reflection, these bloggers do have the "bad habit" of regularly questioning matters of poor governance in UMNO, BN and the Government.

How's that different from my blogging? Not much, actually. It's only a matter of the "hardness" of the bite (I wanted to say "degree of acerbity of vitriol". But, that would have put you to sleep).

So, my blogger buddies are being put through the wringer by Rais.

Rais has said that as a citizen, he has the right to lodge a police report against a perceived wrong against him.

That is true. All citizens have that right.

But, this is where Rais gets it wrong. Unlike us mere mortals Rais is a currently serving Federal Minister. Rais is a significant UMNO leader. Rais is part of the BN government. Rais is a politician. Rais has the power of the government.

That power has been used against Rocky and Big Dog.

Just by having the MCMC require these hapless bloggers to attend at the MCMC offices in Putrajaya already causes great distress. Having Rocky's "tool of trade", his beloved Ferrari, seized is equally distressing.

Over and above that, there is the threat of a charge to be framed against them. This will be costly at a personal and financial level.

Being in possession of a Ph.D in Law, Rais may recall the legal expression nemo judex in re causa sua which roughly translates into "a man may not be the judge of his own cause".

The MCMC being in his Ministry, Rais should have actively instructed the MCMC to refrain from investigating his own complaint.

He should have let the Police conduct the investigation.

But, if I were ever asked for any advice by Rais, his Ministry, the MCMC, UMNO or, BN (not that it will ever happen) on whether or not to lodge a complaint on the impugned blog postings, my reply would be the negative of the Nike tagline.

I would have said, "Just DON'T do it".

And, so, I will record here that I intend to register this blog as a willing participant in Bloggers for Malaysia.

1MDB and IDR in the landscape of GTP, NKRA and ETP

I love History. I love it because there is much wisdom in having a context and perspective of how we arrived at where we are. Without knowing History, we will be forever groping in the dark. Not knowing which direction to take. Let's see how this post pans out.

Economics of development

In terms of the economics of development, the role of government is to decide how resources are to be allocated. There has to be a presumption that the resources must be allocated equally. There must also be a corollary rule that equal allocation be subject to merits.

"Merits" in the economic sense must mean the positive impact that such an allocation has on economic development and growth for the whole country.

This positive catalytic effect is termed the "multiplier effect".

Having put out the boring contextual matters let us dive into the issues at hand.

In the 1960s and 1970s, our economic planners were exemplary in identifying foreign investment to generate economic development. We had limited financial resources. We needed foreign money in the form of direct investment.

This meant getting foreign investors to set up shop here.

The name of the game at the time was industrialisation. We had a literate workforce. Wage levels were affordable to foreign investors.

Our economic planners made sure there was ample and reliable utilities in the form of roads, electricity and water supply.

Geography of development

But, beyond this generalisation, I wish to emphasise that our economic planners had to face up to the reality that the foreign direct investments (FDI) being manufacturing-based, needed access to a good supply of workers.

The logical location was Petaling Jaya first. PJ met the criteria. Next was Shah Alam, the logical extension since the direction of growth was towards Port Klang where the manufactured goods could be cost-effectively exported.

In the 1980s, Penang got into the game. The economics and locational principles remained the same.

From industrialisation to knowledge and services-based activities

Fast forwarding into the millennium, we witness the shift in emphasis from industrialisation to knowledge and services-based activities.

The reasons are obvious. Over time, the wages have risen. Industrial activity needs cost-effective wages since the skills of the work is limited and repetitive. Easy to train freshies. Experience is not a factor. That is why industrial FDIs have relocated elsewhere.

This situation is where our country is at. This is what people call the "middle income trap". We have become too expensive for industrial processing. But, we may not be skilled enough to get into creative work that pays well.

Finally, we get to 1MDB, IDR, GTP, NKRA and ETP

You may now ask what the relevance of such a long preamble on 1Malaysia Development Berhad (1MDB), Iskandar Development Region (IDR), Government Transformation Programme (GTP), National Key Results Area (NKRA) and Economic Transformation Programme (ETP) is?

Well, first, I need to say that this post is my way of expiating reasonably sceptical analyses done previously on these self-same matters.

I have felt strongly since Najib's tenure as Prime Minister began that the government has recognised the urgency of the "middle income trap" situation.

I have also felt very troubled that this urgent economic situation has been clouded by the ripple-effect of over-politicisation and power plays.

The message that the rakyat sent on March 8, 2008 was that change is needed. What the nature of the needed change was is something that we can debate until the cows come home.

Economics trumps politics

The takeaway from March 8, 2008 that I am recommending for your consideration is that the rakyat sensed the urgency of dwindling economic opportunities.

I am aware that many of you will not agree with this narrow interpretation. But, if you adopt the Abraham Maslow heirarchy of priorities, I will resoundingly say that economic welfare trumps any other issue in terms of priority. If you are not convinced, I suggest that you read about Mikhail Gorbachev and the perestroika saga.

So, what we have here today, is a set of nebulous principles in the form of GTP, NKRA and ETP.

If we were to take a helicopter to rise above the thicket of nebulous words in the GTP, NKRA and ETP, we may be able to get a better idea of the socio-economic landscape that confronts Malaysia.

Crossroads

We are at a crucial economic crossroad.

Yes, the GTP, NKRA and ETP are imperfect roadmaps. But, I don't have a better roadmap than this. So, yes, I have been prepared all along to buy-in. Of course, my buy-in is done with eyes wide open. That's the whole point of the exercise of buying-in, anyway. As citizens, taxpayers and stakeholders we must not be indolent. We have to be a part of the thought process.

And, what of IDR?

IDR makes geographic sense, I suppose. It's proximity to Singapore means that the chances of its key investment criteria succeeding is that much higher. The key areas of the IDR are:

6 categories of service-based sectors:
  • Creative
  • Education
  • Financial advisory and consulting
  • Healthcare
  • Logistics
  • Tourism
And, of course, the attractive features are:


  • Exemption from the Foreign Investment Committee (FIC) rules
  • Flexibilities under the foreign exchange administration rules as follows:
    • Make and receive payments in foreign currency with residents;
    • Borrow any amount of foreign currency from licensed onshore and non-residents;
    • Invest any amount in foreign currency assets onshore and offshore; and
    • Retain export proceeds offshore.
  • Unrestricted employment of foreign knowledge workers
  • Eligibility for tax incentives
The tax incentives are:
  • Exemption from corporate income tax for a period of 10 years in respect of statutory income derived from qualifying activity carried out within the approved node for customers situated within the approved node and outside Malaysia or wholly for customers outside Malaysia. Such activities must commence on or before 31 December 2015; and
  • Exemption from compliance with the withholding tax provisions on payment of royalty and services fee to non-residents for a period of 10 years from commencement of operations.
And, what of 1MDB?

Well, from my previous postings you will, no doubt, have gotten an idea of my concern about the debt edifice of 1MDB.

Be that as it may, I do wish for the Sungei Besi Airport redevelopment and KL Financial District projects to be successful.

Here comes the reason for my long preamble.

In a sense, the 1MDB projects can be seen as the present day equivalent of the industrial parks of past decades. Where industrial parks were meant to house and cluster manufacturing concerns, the 1MDB projects are intended to house services-based concerns. This is consistent with the ETP goals, I suppose.

And, I am making a strong assumption that to ensure the financial viability of the 1MDB projects, there will be IDR-like incentives in the pipeline. And, like IDR, the incentives will be legislated by Parliament and decreed by MIDA.

Calling the Klang Valley "Greater KL" is, I suppose, a branding exercise to the global customer base. I have no problems with that just as most of us have no problems with the KLIA being called KLIA even though it is in Sepang. It's about global branding.

Two key takeaways for you

All the foregoing is intended to lead to 2 points that I wish to make:
  • First, how about extending the IDR-type incentives to the whole country?
  • Second, how about (here I go again) reducing the corporate and personal income tax rate to 18%?
What a stimulus and seriously positive economic multiplier these will have on the whole country.

Wednesday, October 20, 2010

Pee Pee Pee Budget Issues

I found Budget 2011 to be a strange document. It is strange at many levels.

For one, there was really only one big expenditure item. That was the allocation for Operating Expenditure. No austerity measures there. There was, in fact, a marginal increase in allocation.

Another, is the great store put on the so-called Public-Private Partnership (PPP) formula. At a cursory level, PPP seems to mean that the private sector will foot most of the developmental bill. At another level, PPP seems to mean projects for private sector parties with access to the political masters.

The third feature is that this is a largely a budget for large scale (some say "mega", others say "grandiose") construction and property development.

The fourth matter that struck me, going back to the concept of PPP, is that the Government recognises that it is cash-strapped. The "innovative idea" is to take developmental matters to, what I will term, "off-balance sheet" transactions.

What do I mean by "off-balance sheet"? Well, I have deliberately put the expression in inverted commas (just like the way Dr. Evil did with his fingers in Austin Powers) because I don't mean it in the way that accounting standards mean it.

The "off-balance sheet" that I allude to is that PPP arrangements has less transparency than a basic, garden variety budgetary allocation that is open to Parliamentary and public scrutiny.

Take the case of the 100-storey Warisan Merdeka Tower. I was puzzled that the matter was even included in a Budget speech. Essentially, the RM5 billion outlay will be borne by Permodalan Nasional Berhad (PNB), not the Government. I imagine that the only involvement of the Government would be at the Economic Planning Unit level - to approve the project for its perceived salutary economic "high-impact".

In a sense, the Warisan Merdeka Tower project is more akin to the proposed Sungei Besi Airport project the land ownership of which is in the process of being transferred from the Government to 1MDB. That is "off-balance sheet". Not open to direct Parliamentary and public scrutiny.

In this sense also, there is a precedent in the KLCC Project. It was also "off-balance sheet". It was not open to Parliamentary and public scrutiny.

But, this is where the similarity starts and ends.

The KLCC Project was destined never to fail. It could never have failed because it had the financial clout of Petronas behind it. That the KLCC District has become the success that it has is due, in my humble opinion, to the benefit of a central location in the heart of Kuala Lumpur. It also had the benefit of Petronas, which is a Fortune International 500 company, occupying one whole tower block effortlessly. By the way, Petronas was also instrumental in keeping Dayabumi alive in terns of occupancy during Dayabumi's first decade of existence.

In contrast, new-fangled PPP projects such as Warisan Merdeka Tower will rely on PNB's finite resources. What is PNB? Unlike Petronas, which is a commercial going concern in the substantial oil and gas industry that generates significant revenue streams, PNB is at best a fund management entity and a passive asset owner.

How will PNB be able to acquire the skill sets and the commercial gravitas to fill up the floor spaces in the 100-storey Warisan Merdeka Tower? RM5 billion is a substantial outlay. And, lest we forget, PNB is the trustee of Malaysia's institutional wealth - especially for Bumiputras. Failure is not an option.

As for the Sungei Besi Airport project, I have touched on it previously. But, the analysis is substantially similar with one worse addendum - 1MDB is based on an RM5 billion bond issue. 1MDB is in the process of raising yet another RM5 billion bond issue.

A bond is a debenture instrument. It is a hypothecation. A debenture is a debt. A debt must be repaid.

Therefore, it is obvious even to the untrained mind that 1MDB's financial feasibility relies in large measure in its hoped-for ability to parlay the Sungei Besi Airport land into a valuable piece of real estate. This is something real estate developers do. Any member of REHDA could have done the job. Why is there a need for 1MDB? I'm just asking....

Finally, I just want to make an observation that, in recent decades, we have placed great store on Corporate Governance.

The International Financial Reporting Standards (IFRS) on mark-to-market valuations, property development sales revenue accounting treatment and, recently, leasing arrangements demonstrate a great concern for off-balance sheet transactions.

The IFRS Exposure Drafts on these and many other business practises are intended to ensure transparency so that investors and stakeholders that have dealings with corporations have a clear idea of the financial health of corporations as going concerns.

In this context, PPPs may not be a march forwards. History may see it as a troglodytic concept.

So, I leave you with this question: Should governments have a different accounting standard from corporations?

Saturday, October 16, 2010

Maghrib prayer at my house

My son told us that his friend Ishak (not his real name) was dropping by to hang out at the house. He was just informing us. No permission really needed. Just notification. These 15-year olds had just completed their PMR exams. It is time to hit the PS3 games with a vengeance.

Since Ishak was at the house we decided to "bungkus" some Otai burgers from the franchise burger stall nearby for the kids.

Got home. Dropped the burgers off in the lounge. Ishak greeted me with "Hi, Uncle". I responded with my usual, "Hi, Ishak." The dinner arrangements taken care of I headed upstairs for a much-needed TGIF snooze.

I just came downstairs. It is almost midnight.

I saw a folded blanket in the middle of the lounge floor. Ishak is long gone by now. My son having retired with his laptop to his room, I asked my daughter why the blanket was on the floor.

She told me, "Oh, Ishak needed to pray just now." I realised that it must have been the Maghrib prayer time.

I asked her how Ishak could have identified the kiblat direction.

She said, "I think he agak-agak."

I just want to say that I think Ishak is a way cool Muslim Malay Malaysian boy.

I also want to say that he wears his faith so easily, which shows that he has received very wise instructions on his faith.

Finally, I want to say that his parents are very cool Malaysians.

Friday, October 15, 2010

Facing the human capital challenge

This is Part 2 of the interview that RB Bhattacharjee conducted with the Universiti Malaya Professor Rajah Rasiah as reported in the Edge Daily:

In part 1 yesterday on Malaysia’s economic direction and the constraints that are holding it back, Universiti Malaya Professor of Technology and Innovation Policy Rajah Rasiah talked of the strategic initiatives needed to raise its economic prospects. In the second and final part, he tells R B Bhattacharjee about fixing the public delivery system and how Malaysia can draw on its diaspora for help


TEFD: What are the priority reforms needed to make the public delivery system a selling point for the country?
Rasiah:
The best is probably in Penang. For some reason, there is much more involvement. But even there, things have flattened. During Tun Dr Lim Chong Eu’s time as chief minister, at least during the tail end of his career, they had evolved a system where it was the Penang Development Corporation’s (PDC) responsibility to keep firms happy.

Penang was one of the success stories, because in 1970 the incidence of poverty was something like 50% and it went down to 0.3% or thereabouts by 2005. How was that possible? The state recognised that it may not enjoy much support from the federal government, because it is dominated by the Chinese, even though the ruling party was with Barisan Nasional.

They often did things that included providing the requisite service that is necessary to see that firms continued to upgrade or involve firms in the network, promote linkages so that greater progression of synergies.

Some of their methods come from Singapore and Ireland. They knock on doors to identify species of firms. At one time they realised that consumer electronics is too labour intensive, then they mistakenly went to disk drives, then they realised that too was labour-intensive, then they scaled down.

Later, they went to different species of industries, knocking doors and requesting them to relocate.

Penang was among the first to face the problem of a lack of skills. The Penang Skills Development Centre evolved in response to that. PDC was the facilitator. The old PDC building was rented out at RM1 a year as their contribution. The firms came in because they knew the group of stakeholders there were interested in helping each other. Firms put in the equipment and a whole range of other things.

While providing this state-of-the-art training, it also made sure that Penangites were being trained. Some of the training went to people who were not working in those firms.

That sort of initiatives also led to linkages. PDC tried to match multinationals with local firms, and facilitated the birth of local firms from employees of multinationals. That is well recorded.

But that did not evolve into the scale of upgrading necessary to match Taiwan, Korea and Singapore because of a number of institutions governed by the federal government.

The rules of the game were established by the federal government. Say, whether Penang can have enough professionals from abroad in a particular area. That’s a decision the federal government has to make.
Rasiah uses Penang to illustrate the example of a successful public delivery system.

Rasiah uses Penang to illustrate the example of a successful public delivery system.


Whether the government will provide the requisite educational infrastructure to create the human capital they require, those instruments are governed by the federal government, and whether the federal government would put up these labs.

I have brokered this myself, with the federal government’s backing. I assisted Khazanah on it. The Indian Institute of Technology Kanpur had a MoU with Universiti Sains Malaysia, for the federal government. The idea was to undertake research, using Masters and PhD students who were some of the supervisors from there. For the moment, they are targeting what firms want, which is the research focus.

We need to get into things the firms may not want, namely some elements of those technologies that will go to the poor. That means they won’t make money, so the government will have to buy the research products and pass the benefits to the poor.

Or you can have situations where firms have not recognised the potential in their sector. There you need incubators.

At one level, you serve the firms, and at another, you provide technology for incubators. At another level, you produce the graduates that firms and others can hire.

We should give green cards to these guys. Target the whole world for employees. At the same time, take in local participants. You need this networking between the best around for them to capture the best practices, and for the improvements to stick.

I also recommended a leading Taiwanese university for that. But the reason why the university is not in the equation now is because of some political considerations then.

Can Malaysia wean itself from its dependency on cheap foreign labour without going into economic shock?
We have broad statistics to show that in a number of industries we are relying on foreign labour. There have been attempts many a time to stop taking new foreign workers, but we have not thrown back those who are already here.

From time to time, there have been raids to check that the foreign workers have not been here for more than five years.

I don’t think the government should take any steps that contravene the joint governmental agreements with Bangladesh and Indonesia to repatriate the workers. Nor with the Filipinos, who even have minimum wage legislation that requires that maids here are paid probably a premium compared to the rest.

What they should do is through policy governance, by introducing levies that make it more expensive to hire foreign workers. Not immediately, because then the immediate retracting factor could be deleterious to the country, but gradually, they should defer recruitment. This would be like in Taiwan, where they imposed a levy if you take in unskilled labour.

You have to start somewhere, but you should not do it abruptly. If you do that, you are actually going back on your word. Firms should be given the assurance that you will stick to the word you gave earlier, otherwise they will lose confidence in whatever you do.

What is the positive news about Malaysia’s economic situation?
The minister mentioned that in the first quarter they had more than RM5 billion already. If they can maintain that they will be able to achieve more or less the annual figure to reach the RM115 billion in five years.

The positive news is the promise that the NEM provides. Of course, there are things that are unclear. Among them, you need to achieve 12.8% annual growth in investment over the next 10 years. Does it make sense? People are reluctant to believe that when it has slackened substantially from 1995 to 2010.

I remain convinced that NEM has provided the motivation that policy should focus on inclusive growth. In other words, embrace corporate social responsibility (CSR) practices as an inherent part of growth itself, not as a detached one, that you take care of afterwards.

NEM has taken head on the need to generate the human capital necessary to reinvigorate economic growth in the country.

Thirdly, the focus on the 40% of families with income levels less than RM1,500 per month. When you enable their thinking faculties, it gives them the opportunity to improve their situation, although the NEM does not explain that much. I would prefer that they look at the Scandinavian countries, so that they will create a welfare state without free riders.

There should be no misallocation of subsidies. There needs to be different instruments to address the problems of targeting subsidies. The focus should not be the distortion they think they are creating. Even if there is distortion, the welfare state will correct that better because you don’t have misallocation of resources.

You now identify the poor, which you know from the Statistics Department’s household income and expenditure survey. Of course, real income varies between locations, and you need to adjust for that. Then, if they divert the current system of providing additional income or coupons or whatever form they give aid in, then I don’t enjoy the subsidy, I don’t become a free rider, and neither does a foreigner.

It also reduces smuggling. That figure will be very small.

Although there are some sceptics, I think the NEM’s good points are that it provides the conceptual and epistemological rationale behind why these 12 economic activities should be done. That to me is exciting. What is not clear to me is that it is not very explicit about how they will go about doing it.

That same thinking is found in the 10th Malaysia Plan. Perhaps more foreigners were involved and they did not understand the workings of the macro organisations. Perhaps they weren’t able to outline the responsibilities to different ministries that the previous Malaysia Plans had done.

Those things need to be made clear, but we at least have the motivation.

You can also see universities now getting into this bandwagon of competition. In the past few years, Malaysian universities have been investing and working towards raising their performance, especially in the science faculties.

That means positioning themselves to hire anyone from any part of the world, provided they meet the standards required to perform. So, we can hire anyone from India, UK or elsewhere, provided they can provide the publications required, because we believe universities should be led by research to drive teaching.

These things weren’t done before. These are things that are happening, but the results may not be immediate, but the long-term effect will be there. Local staff strength is going up, as well as foreign staff standards, and this will have some kind of effect on the economy, including towards supplying the labour force in all fields, including science and engineering.

Is the Talent Corp idea workable and what are the lessons from previous exercises to attract the Malaysian diaspora?
I am a participant because I came back under the brain gain programme. I also coordinated the brain gain report of 2009 for MOSTI. We recommended that a Talent Advisory Council be set up. We called for an R&D investment of GDP of 1%. We wanted the ratio of R&D personnel and scientists per million persons to be raised from 367 to 1,500, if I recall correctly. I think they are looking at 1,000.

The Talent Corp, from the R&D side, again is not very explicit to me. It is hoped that we adapt from the experiences of successful countries. In a country like India, there is no incentive scheme for talent to come back, and yet there are all sorts of talent going back.

Taiwan and Korea are our real models, compared to Singapore, which targets the world, like the US. Taiwan and Korea have talent advisory councils which play an important role because they connected to the diaspora very well, and they gave them recognition to participate in the initiative.

You must look at the whole ecosystem that has been evolved. You must see all the parts, and the way they are organised. This is critical.

In the case of Taiwan, they continue to spin off incubators that are potential world class firms. Then they bring people from similar industries to head them, like Morris Chang, who was senior vice president at Texas Instruments taking over Taiwan Semiconductor Manufacturing Corp or Dr Wang from IBM. There are so many of them in many different things. You have all these hi tech firms like Vanguard, Asus, etc.

The advisory committee is very well linked to them. And they don’t discriminate, at least from 1985, because they recognise the role that they play. Before that, the local people thought they were the most loyal.

In the case of Malaysia, they must see a transition. We have a problem, again, of political economy. Most of these people abroad are not Malays. Of course, there are Malays too. Are they willing, say, to bring a Chinese, who may be the best suited to run Mimos? Or Silterra? This is an area we have to solve, because you are now competing. You cannot suddenly have a sub-optimal performer running a big corporation or a meso organisation without the standards that you put there in order to achieve running those things. Is Talent Corp going to do that?

We have a problem because more often than not the person who comes back plays a secondary role. He is not the boss and has no autonomy to do anything.

Let me give you examples of people who left. They came back, they didn’t mind being second in command, but the first in command often left critical meetings when the minister called. These people were trying to establish MoUs with critical suppliers, even buyers, from abroad.

But when they come, the main person is not there because the minister has called. And his position, if he doesn’t take care of the minister’s interests, he won’t be here. And the real talents are the people who came from abroad.

I thought this would be a rare case, but when I speak to them, I find that it is a common case.

Reinventing Malaysia’s economy

I must warn you that I have reproduced a very long piece from the Edge Daily. It is a first-part distillation of an interview that RB Bhattacharjee conducted with the Universiti Malaya Professor Rajah Rasiah:

Malaysia’s diminishing appeal to both foreign and local investors has been in the news of late. Energising the country’s economy will need some strategic policy shifts, Universiti Malaya Professor of Technology and Innovation Policy Rajah Rasiah, who has been appointed the Holder of the Khazanah Nasional Chair of Regulatory Studies, tells R B Bhattacharjee in a frank and free ranging interview. Here are some excerpts in the first of two parts:

TEFD: To what extent is Malaysia’s poor investment performance in recent years, as reported in the UN’s World Investment Report 2010, due to internal and external structural factors?
Rasiah: Investments have gone up this year, so the outlook isn’t bad. The government has made some changes that have had a positive impact. If the investment flow sustains, it is good.

Obviously the global recession has had an effect. Among members of a good neighbourhood that has done relatively well in relation to the global economy, foreign direct investment (FDI) having contracted only by 17% for Asean, you have us as really a bad example, showing a drop of 81%. That has sent a wrong message that things are not okay here, especially that Malaysia is probably the worst place to go and invest, because they have had the largest contraction.

But it could also be seen differently, that this is a country that does not really need massive FDI because it has the capacity to invest abroad, not only domestically.

There must be a holistic approach to investment dynamics, with government policy identifying FDI as an integral part of development policy.

The New Economic Model (NEM), as well as the 10th Malaysia Plan (10MP), addresses the need to focus on economic activities that provide the value-add required to bring Malaysia’s growth path back to the trajectory required to achieve Vision 2020.

We need to see how FDI can contribute. So far, a whole lot of FDI goes into manufacturing, and that’s one of the reasons why there has been a trend fall from the golden years of 1988-1993. It is because they are no longer competitive in low-end, labour-intensive manufacturing. We have delayed that by importing foreign unskilled labour.

It is recognised by the NEM, and 10MP, that we are facing a severe human capital deficiency problem. There have been attempts since the 1990s to overcome this, through the Private Investing Bill and a whole range of other instruments that were created. But they haven’t solved it; The deficit has been growing.

Malaysia is facing the problem of matured industrialisation. It is deindustrialising, meaning the share of manufacturing in GDP has started to fall since 2000, although the sector has not reached maturity status. The target is to achieve 20% value-add in Malaysia’s output, against 32% in Korea. In some sectors like steel, it is about 13%, it’s that low.

What that means is we are not migrating or upgrading our manufacturing sector sufficiently fast to keep up or at least stay in touch with Korea and Taiwan, as well as Singapore.
Prof Rasiah says there must be a holistic approach to investment dynamics, with government policy identifying FDI as an integral part of development policy.

Prof Rasiah says there must be a holistic approach to investment dynamics, with government policy identifying FDI as an integral part of development policy.


Meanwhile, other countries that are growing rapidly — China, India and Vietnam — are closing the gap. Even more scary is their sheer size. Imagine, as India and China get closer, then surpass us, the consequences will be more difficult to deal with.

If you plan properly and address the shortcomings raised in the NEM and 10MP, at least you give yourself a fighting chance to make yourself attractive to those sectors where FDI is likely to come.

We must have the requisite human capital and macro-organisations that deal with R&D labs. This can be through specific sector specialisations, for example, R&D labs on electronics, like the Electronics Research and Service Organisation (ERSO) in Taiwan, and incubators then that are co-located.

That produces knowledge, which is critical. You have this systemic effect of knowledge that spills over into firms, which will find it attractive.

What advantage have we got in relation to India and China? We have much better basic infrastructure, comfort and choice of residence. These are things I’m picking up from interactions with CEOs of firms.

Once you have those serious deficiencies addressed, we will be better placed than our competitors, including Taiwan and Korea in many ways.

In these countries, there were clear government initiatives to develop indigenous capital. They saw that development meant the development of domestic capabilities.

They also recognised it is pointless reinventing the wheel. There are different paths to reach the frontier. They sought technologies that they thought the country should focus on.

Korea went into steel, electronics, shipbuilding and industries of that sort. They looked at the flagship firms in these industries in an attempt to catch up. Initially, because the gap was so wide, they went into licensing. Secondly, they hired Korean personnel working in those big firms because they carried passive knowledge, which includes experiential knowledge.

This allowed them to acquire a labour force that can really perform. They also remained networked to markets and R&D labs in all these places. They had a strategy of ensuring that all these flows of knowledge, either by licensing, using their own human capital or bringing back their diaspora, generated results.

They developed vetting, monitoring and appraisal instruments by evolving these capabilities. The equivalent of the Economic Planning Unit of Malaysia led the drive in Korea, Singapore, Taiwan and Japan. They improved by continuing to appraise and remove their mistakes, identifying new thrust areas and so on. They evolved planning and execution capabilities.

They relied on their diaspora for advice as well as foreigners whom they thought could contribute to them. If you have a mechanism with that sort of standards, then you can subject any performance to that measurement. They have that. We don’t. If you have that, then you can plan against the countries and firms you are catching up with, and close the gap. These are very critical.

FDI should not just be seen as capital flowing in, but includes multinationals which may not relocate here. One channel for developing our own skills is by either establishing an outsourcing link, and growing from there, or accessing technology through licensing.

What short- and medium-term measures are needed to restore business confidence in Malaysia?
In the next five years, the 10MP is seeking inward investment growth of RM115 billion, which translates to RM23 billion a year. This is not really impossible because we got more than that in 2007 and 2008. Only in 2009 it crashed.

If we say that we need FDI reviving, rebounding to the amounts that we recorded in 2007 and 2008, then we need to find out why those figures have gone down.

The dominant players that are coming in are industries that typically did not come here previously. In the 70s and 80s, it was electronics, garments. All that were big, and they went into manufacturing.

Now, it is Kuwaiti oil, even Indian firms into infrastructure and properties that are bringing in FDI. We need to go back to the drawing board and see if that is the sort of capital we still want. In those areas, we’ll have competition for our own producers.

Because we are also investing abroad a lot, and if you want them to allow us to build infrastructure in India, then you have to allow them to come here. Otherwise, bilateral arrangements don’t work.

But if you want to pursue the new growth policy, then we need to address and convince the firms that are here. Firstly, firms like Intel, for example, have been asking government leaders whether its plan to fast track applications for permanent residence (PR) has been executed.

Some, however, are concerned that this policy might lead to a dualistic economy where the set of foreigners who come may not have a long-term responsibility to the country.

It is still a fact that the government needs to tell investors that it means action. The officials must take the steps and put it out that we are already doing this, that foreigners working in firms here can now apply for PR.

We now have a one-stop agency that deals with the entire range of issues on this. So, those things must immediately take effect.

You are dealing with the FDI crowd here. These are flagship firms: Motorola, AMD and others. You are really dealing with the big guys in an industry I think is still important — electronics.

Secondly, Malaysia is known for its universal spread of MIDA offices, that were known to promote FDI, at least in the past, quite effectively, so that potential investors knew the investment opportunities here.

I feel the focus has shifted somewhat to tourism and related sectors. They must bring real information to potential investors. Don’t go back and promote the same thing because nobody believes it now.

In the 1990s, CEOs of Taiwanese companies told me they felt cheated coming to Malaysia. They were clearly told there was an abundant supply of cheap labour and they were literate in English. When they came, they had to go very far to get their workers. Once they got them, they brought them by the busloads to their factories. The next day, they had been poached by neighbouring firms.

Clearly, they didn’t have the labour force. The building was already up, so what could the investor do? One CEO was quite upset about this. It is unfortunate that they had to adopt practices such as holding back workers in the previous shift because they didn’t know how many would turn up in the next shift.

The officials have to recognise the transition that has taken place and they must have the requisite labour force. These need to go hand in hand. You can’t make statements about things you can’t deliver.

The longer you do that, the more people won’t believe you, like the boy who cried wolf.

The prime minister seems sincere in trying to see these things happen. But there must be execution by the officers who are made responsible. The line of responsibility should mean that the range of people involved must be made to recognise that they will be rewarded only if they continue to execute the things required of them.

Otherwise, if loyalty is the only thing that the leaders look for, then their officers won’t deliver.

Another measure would be to connect with the officials of the Ministry of International Trade and Industry and the Economic Planning Unit, who are looking at new species of industries to promote. The idea is not to create for the universe here, but to observe trends elsewhere, identify the right players and attract them here. For example, the planners are looking at solar energy and medical devices, which is already in the field, but now they want to go much broader into these areas.

This goes back to the same old strategy: you connect with a multinational value chain and attract them. The species are not new to the universe, but they are new to the country. Then it grows. It has happened before. The semiconductors moved to consumer electronics, then to disk drives. Suddenly, they went labour intensive, and on to other industries, computers and so on, and Dell came in.

But that strategy, I am reluctant to believe, connects with structural change. The structural change that is expected is not just about moving to different industries.

The most important thing is to move to higher value-add industries. They can be in the same industry category as such. If you’re looking at electronics, then it’s designing and wafer fabrication, where it gives you the higher value add which is necessary.

I’m not clear if they are going to reintroduce the policies which were seen before. You attract one industry, then you see a range of firms growing there, then suddenly they get up and go. That does not make for an economy that wants to progress from one level of income to another.

Taking up medical devices, there must be follow-up panels, comprising industries they want to promote. Previously, there was even avionics. In that case, you need to see that they will have at least design capabilities, if they don’t do basic research.

To do that, you need a different set of policies, which require a link with universities and R&D labs. All of them must be seen as an ecosystem that we need to have in order to have the sort of industries you think the country needs. Not simply industries by name, but industries that can support the value-add required to establish the growth rate so that we bring back the growth path to Vision 2020.

I wouldn’t like simply to do the promotion then, in economic terms, create a bubble; things that grow on the basis of perception. The prime minister is planning for a transformation, but when firms realise it’s not happening, then you see a huge fall because the requisite infrastructure, promotional instruments, macro organisations all have not been created.

You mentioned some concerns that industry representatives have raised about the business environment. What are the main hurdles in the way of attracting investments, from the political economy point of view?

We haven’t been successful at producing a responsible and capable labour force that can evolve with the expectations to become more productive. The kind of workers required can not only earn higher salaries but are able to support the upgrading of firms.

Political economy is one of the reasons why we have not been able to deal with the issue of targeting labour transformation. When the NEP was created in 1971, there were some shortcomings. The government had to introduce quotas for the Malays and non-Malays, for example, for places in education.

That was already flawed. Affirmative action should target providing equal opportunities. It should never be targeted at some because they have the colour or they think they were underprivileged before.

It gets worse because the community that you favour could have been financially much better endowed compared to the others who are competing for it.

We’ve got many things wrong, I think. The utility of money to the rich is low or zero. RM1 means nothing to the rich, but means a lot to the poor.

The dynamic argument is about moving the poor out of their situation by enabling their thinking faculties. Then they participate productively because they now have equal opportunities, and can perform better than the others. That’s the logic of affirmative action, not going along ethnic lines. If you do that, you may end up misallocating resources such that you may not establish equal opportunity. The beneficiaries could be the rich themselves.

Secondly, you no longer have the same standards for all. It becomes the right of one group to enjoy privileges.

In the initial stage, some good things happened. The restructuring targeted where the Malay communities were. They built canals, drains and roads. That integrated them into markets. That was enabling.

What was not enabling was the provision of 30% equity for bumiputeras. What do you establish from that, by simply fixing an artificial figure? That may even backfire because the poor Malays may not even enjoy it.

Because you have a framework of that sort, then a whole network of macro-organisations are created targeting bumiputeras. You have elements of collusion setting in.

I happened to have the opportunity to study Pusat Giat Mara and Institut Kemahiran Malaysia, both Malay-based.

I was visiting places in Johor, Perak, Selangor, I did not find the kind of skills they were teaching state-of-the-art.

When I spoke to the person in charge, I was told these students couldn’t grasp precision engineering and tool and die-making. I was surprised because this is the age at which you catch people’s attention. You never know how much they can learn. That’s the state-of-the-art skills the industry wanted, as reported in a 1994 World Bank study.

When I asked the Mara and polytechnic administrators, they said they were doing very well, because all their graduates get hired.

But when I went to the firms (this was at the peak of the labour shortage), they said they had no choice but to take them in and train them because they were already here and the misinformation was that skilled labour was in abundance here.

The training institutions claim they are market-oriented, but the firms say we pay lower salaries and we give them training. There’s no premium in that. They should bring the best to train the students. I would have preferred that they go to the poor irrespective of race, then you build nationhood, a society.

Even if you started with the Malays, the trainers shouldn’t have been those whose skills are mediocre. Get quality instructors even if you have to source them from abroad.

I criticised the political hierarchy in Johor on this point, and they said whatever you have said, we recognise and we’ll change, but I don’t think they have.

A World Bank official said, ‘Malaysia is an interesting country. Whatever FDI instrument there is in the world, it has, legislatively. But whether they enforce it and execute the policy properly, the answer is ‘no’.

When they say they don’t have the labour force etc, firms will say, they told us we can get tool and die makers and precision engineers from abroad, but approval is not easy. There is a lag period, sometimes they allow a few, sometimes they don’t. They talk about bureaucracy.

It’s also a tremendous waste of resources, isn’t it?

When I was doing the Iskandar Development Region strategic chapter, I spoke to many managing directors. Five of them told me they were keen on relocating their designing facilities from Singapore. Whatever Singapore has, Johor has. There are things Johor has that Singapore doesn’t have. Big land mass, more options for tourism, and they can have more people to work there, but unfortunately, after looking at a number of details they decided not to work there. Some CEOs decided they would drive to Johor daily from Singapore because Singapore is a better option. For example, education facilities are better.

I brought the matter to the state officials, who said, ‘This is the problem with Malaysians. Most of them run away to Singapore. Just 10% more wages, and they go there.’ One figure is that 50% of Singapore’s engineers are Malaysians.

We found some of these employees and talked to them. They said, ‘You think we’re fools? For 10%, we can’t get to see our children. They are asleep when we leave for work and again when we return. The real reason for choosing Singapore is that their problems with the local authorities are not solved because of bureaucracy. But they say we are a one-stop agency, we solve everything immediately.