Monday, November 25, 2013

Incriminating crime

If the people in charge of national security and economic planning were to trouble themselves to think harder and clearer on the ecosystem of Malaysia based on putting Malaysia's national interest first and foremost they ought to come to a realisation that they have much to expiate.

First, on what basis was the decision made to open the spigots to allow cheap foreign labour to enter Malaysia?

If it was due to intense lobbying by the property development and plantation sectors, then, the basis may be wrong if the decision makers failed to take into account the socio-economic impact of the usage of cheap foreign labour.

Did anyone bother to prepare econometric models to consider the displacement effect that cheap foreign labour will have on Malaysia's own indigent labour class? Where would this class of Malaysians go when they are displaced by cheap foreign labour? Where will they get their income? With low skills, poor education it is not a stretch to forecast that these Malaysians will be pushed to the fringes of society.

And, "fringes of society" clearly means crime, lawlessness and unsavoury activities.

Second, what is so wrong about raising the income levels for the labouring class?

Yes, the cost of everything will rise commensurately. What is the big deal with that if it lifts up the entire substratum of Malaysian society?

Plantation sector
In the case of the plantation sector, no access to cheap foreign labour would have resulted in higher wages for Malaysian labour AND it would have forced 2 things to happen-
  1. Increase the incentive and urgency to innovate the plantation sector. This may manifest itself in the form of more intense downstream activities and discovery of new applications for rubber and palm oil products.
  2. Increase the incentive and urgency for Malaysian companies to search for cheaper and lower cost countries to establish plantation activities.
Instead, due to molly-coddling by the Malaysian government, the silly and myopic arguments used by Malaysian plantation owners resulted in an inefficient plantation sector that is now at risk of losing Malaysia's edge to countries like Indonesia and those in the African and South American continents.

The sad reality is that Malaysia was bound to lose its dominance in the plantation sector anyway. But Malaysian companies should still be the dominant players in the rubber and palm oil sectors IF they now work at double-speed to conquer the emerging upstream plantation jurisdictions.

Don't just be the kings of our own backyard! That should be the message that the Malaysian policy makers should be exhorting the plantation sector to do.

Property development sector
As for the property developers the self-same critique also holds true.

No access to cheap foreign labour would have resulted in higher wages for Malaysian labour AND it would have forced 2 things to happen-
  1. Cost of construction would have gone up. Prices of properties would have gone up. The property market would have been cooler and less speculative. Property developers would have faced profit margin compression but, still be profitable.
  2. Increase the incentive and urgency to innovate the property and construction sector by using different construction materials and using better equipment.
Better paid Malaysian workers
Better paid Malaysian labour with a commensurate higher cost of living has the salutary effect of improving the quality of life in Malaysia. 

Malaysian labourers will have a chance to get their children a better education. This type of mindfulness, about the need to have a better education, usually comes with having better income.

With less cheap foreign labour and a Malaysian labour class that has better wages we will experience a higher cost of living. This higher cost will be tempered by higher income all around for Malaysians. The resulting effect is less crime.

Another resulting effect is that Malaysia and its citizens will have to greater incentive to move up the value chain of skills.

My visceral and indelible impression of reasonably high wage income in the labour class was a mature age classmate in Melbourne Australia in the 1980s. Robert D. was already in his late 30s when he enrolled in Law School. He chose to be a bricklayer for some years. It was a decent enough job, income-wise. Constructions sites in Australia have always been safe and clean environments, unlike the cesspools and dengue-breeding places we have here.

My other impression is that of a Greek Australian family who still manifested a strong Greek-accented Ozzified English when spoken in a reasonable posh suburb in Melbourne. The guy owned just one heavy duty lorry which he drove himself. His neighbours were bank managers and white-collar management level. Is that cool, or, what?

I'm not saying that we have to be at that kind of stratospheric level. I'm just saying that for the benefit of all Malaysians, super-rich, rich, well-off, breakeven and poor, our economic system must put Malaysians first.

Not just the rich. Not just the owners of plantation and property development sectors.

Just let the common wealth of our country percolate down more than it does now.

This can be done, in direct fashion, via enlightened economic and labour management policies.

There are a trillion reasons as to why the scenario that I have sketched will be argued to be impractical, idealistic and, even Utopian.

But, as with all right-thinking Malaysians, I wish for a better society and a better country for my family, my friends and my colleagues.

Is this challenge too much to ask or, to expect?


walla said...

It depends.

People don't care:

That is the only possible reason. They didn't care then when local workers were being displaced en masse by big industries without any job replacements.

And they don't care now either. The leaders are defocused and their subordinates are demotivated so any new policy will receive the same fate, namely, more negatives than positives.

These net negatives then pile up to create more problems requiring more new policies.

The connecting skein is the unwillingness to face up to the fact that situations were and are flat-footedly left to get worse.

Construction and plantation are labor-intensive:

More often than not these days, the local who is willing to do the grunt work in these two industries is a newly naturalized foreign worker.

If it is because of wages, then how much would be a fair wage for the locals to make them see enough the risk to their lives if they embark on crime instead?

Given the cost of living, a lot.

If that be so, how will the companies involved make enough to continue their business when at the same time they pay high taxes and suffer red tape costs, material costs, financing charges and market forces operating to shave their profits tomorrow when their investments were already sunk yesterday.

Moreover, the biggest limiting factor in these labor-intensive industries is of course labor.

And if those industries keel over, the bourse will suffer a relapse with investor sentiment sinking. Including the provident retirement fund of millions.

The local has no stamina for manual work:

We have a problem. We created progress but it is limited. It is limited to the extent we never answered "what's next that must be done?"

Compare the local who can today appreciate air-conditioning. Put a new foreign worker in an air-cond car and he will ask for the window to be opened. Yet give him years in the country and he will acclimatize to the progress.

The point about progress we have forgotten is what it engenders. Continuous improvement. The day we fail to realize this is the day we start rolling backwards to where we were. And that's today.

Today, our locals will only take up hard labor work as a last resort.

Because of short-cut policies, many choose the easier, cozier, clam-shell route.

Because of dreams of making it, others will go into do-or-die risk-taking businesses.

Because of constant hardship and bad influence, a few will take to crime.

Anything except to go into the field at five in the morning and toil until four in the afternoon in backbreaking, weather-salting work.

They don't have the stamina or the stomach for it. The muscles have atrophied and the endurance limit has been softened by calculation of how it was before that makes it exceedingly unpalatable to go back and toil again like one's forefathers even if it be honest work.

Besides, it'll be thought bad form to do something that will lower one's status amongst other locals.

That's also a side effect of racial policies which would also explain why Chinese rural mainlanders are not taken in for these two industries.

The local has no skills for brain work:

If eighty percent of the workforce has at most an SPM of diminishing worth, what skills are in place now for our locals to aspire to higher paying jobs?

Markets anywhere pay for result. In a world rich with choices, what differentiates one result from another is skills-based value.

How do we deliver this when our education system is as de-focused in implementation as its policy-runners are in realizing its critical importance to our national survival?

walla said...


The resource curse and middle-income trap are just two manifestations of something we have not grappled with decisively enough, namely the pocket of indifferent ability which prevents us from making real changes whatever the policy.

Maybe it's because we have been hosting too many candlelight feasts to see that our destiny is being blighted by our peoples enmeshed in the vortex of no stamina for manual work but no skills for brain work either.

Lest all this be thought too airy, let's bromide, say, the oil palm industry. But then again it could be just anecdotal verisimilitude.

The oil palm is a hardy plant requiring less maintenance than rubber. All it needs is adequate nutrition and weeding and it will yield two harvests a month for the twenty three years of its life in our sun-shiny and rain-sweet weather - provided there are harvesters.

These harvesters are mostly sturdy foreign workers but for the same reason of stamina, they are not from Bangladesh or Myanmar.

They are paid by tonnage harvested and loaded. Compared to what they can get back home, they get decent sums each month that they can save and send back. They are frugal and hard-working.

But since they know they are in demand, their focus has moved from total wages per month to rate of wages. What is signed on the contract has no effect on them because they can influence profitability by just working at a lower pace while looking to jump estate without giving notice.

The tree must however be harvested otherwise the fruit will spoil. A constantly unharvested tree will itself weaken. Because of its lifespan, its economic value has a range that itself is determined by market forces outside the final ambit of the planter, for that matter the miller. Therefore plantation companies can only control costs. They are also subject to a total tax exposure of some sixty five percent.

Given that locals can't do the job and foreigners are getting more mercenary about the rates with buying price determined by offshore futures exchanges, what leverage do the companies then have to ensure that beyond just trying to control costs, they can make enough not to jeopardize their profits in order to pay higher rates of wages, besides higher wages?

There is another factor. The present local oil palm industry is mostly reaching semi-retirement age.

To continue, there has to be substantial replanting. This means a gestation period of three years during which workers will leave because there is nothing for them to do and companies will not have revenue because there will be no sales at those replanted blocks.

The lost sales will have to be amortized back into the cash-flow which can be dangerous if other costs like fertilizers, fuel and machinery maintenance keep going up for the remaining trees.

The industry is one in which there is little if no say in the selling price of the output, for that matter the buying price of its essentials.

Now multiply that dilemma across the entire board of local industries and we have today's economic situation before us.

People will say we are still making money nationally so what's the problem? The problem is where we are making it from.

If ever the labor situation changes because things get straightened out at the sources, many of the plantations here will fold.

There are not that many millers who can invest in large recycling plants to turn oil palm bunches to paper since commercial-sized downstream activities are themselves capital-intensive.

And that is why most of the retired planters wear wary, weary faces.

So back to how to alleviate the plight of our poor. Here's a small idea. Consolidate both the EPF and Socso funds into one massive fund that can leverage insurance payouts for the poor not just for retirement or injury compensations but also for job replacements, rehabilitation from marginalization effects, micro-financing...the works.

Perhaps the stock investments and insurance contributions can be leveraged as collateral interest as well once the M&As are changed.

flyer168 said...

DM & Walla,

Yes indeed.

Just to share this...

"...Critics of the government’s approach say that amid what they call an obfuscation of crime statistics and the sudden crackdown, any real discussion of the roots of Malaysia’s crime problem is being lost.

They blame not only a police force that they view as corrupt and ineffectual, but also income inequality and the alienation of ethnic Indians who represent 7 percent of the country’s population, yet, according to the police, make up two-thirds of gang members.

Some suggest the government needs to modify the country’s seemingly inviolable preferential policies for Malays, who receive scholarships, cheaper housing and government contracts as part of a policy dating from the 1970s.

Ahmad Ghazali Abu Hassan, a professor at the National Defense University of Malaysia, says the system of preferences for Malays “should be modified to address inequality within our society, without identifying race.”

Particularly in need of help, he said, were ethnic Indians. “I still believe that poverty is the root cause of this,” he said...."

Foreign money, foreign values? -

Policy chaos over migrant workers in Malaysia -

"...The final policy issue also under consideration is minimum wages. The Malaysian Trade Union Congress has been pressuring the government to introduce a minimum wage of RM900, plus cost of living allowance of RM300, to attract local workers and reduce the dependence on migrant workers. The key challenge is to identify the appropriate rate for minimum wages as the proposed rate matches up to a basic wage of a semi-skilled worker in Malaysia, lest displacement of jobs may post a greater problem as higher wages relative to neighbouring countries attract more migrant inflows.

The argument that a minimum wage will reduce the dependency on migrant workers is debatable and can somewhat be counterproductive given that: first, migrant workers may increase instead of decrease unless transaction costs (such as work permits and levies) are increased sufficiently to render them unattractive; second, local workers may still not be willing to undertake 3-D (dirty, difficult and dangerous) jobs, and even if they do, workers’ productivity with minimum wages becomes another concern; third, the problem of non-compliance and abuse by the various stakeholders which has plagued in-migration in Malaysia to date may worsen as unscrupulous employers resort to illegal workers to undercut cost of competitors.

The core problem is a lack of a comprehensive migrant worker policy and weak governance structures. The Malaysian case is a classic case of the failure of decentralisation in the recruitment and placement of migrant workers, in addition to lack of enforcement of existing regulations by various stakeholders."

Evelyn Devadason is Visiting Fellow at the Australian National University and Associate Professor at the University of Malaya.

Any new funding mechanism in Bolehland will always end up being "Mismanaged" by you know who...!

You be the judge.