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?

Some perspectives

These are interesting times for Malaysia. For the many who trawl the cyberspace for alternative news the hunting must be deliriously good. There is no shortage of negative views.

This gives rise to an interesting question. Many people blame the media for propagating sensational and negative news. But, then, why do cyberspace trawlers, who have the power to decide what websites to click on, decide to visit sites and blogs that spew bad news and negative views?

We would think that people who abhor sensational news would actively avoid it. But it never happens.

Let's face it. There is a dark, voyeuristic tendency in all of us. If there is a hole in the fence cladding that has a sign, "Do not peep", most of us will not be able to resist the temptation of a peek.

This is where things stand.

Malaysians read the mainstream news and Malaysians read the alternative media.

Too much information (not necessarily knowledge) results in information overload. Those who have no perspective and who do not read books and rely chiefly on the internet for reading material will suffer from a form of vertigo.

It is not easy to remember good news. It is impossible to forget bad news.

So, it is likely that you will forget this posting because it's about good things.

I have been associated in an advisory capacity with a European multinational for some years. They've had a sales office outpost in Malaysia for several years. The brands and products they sell reaches the retail level. So, it is likely that you would have had contact with their range of brands and products. Since this is not a paid advertorial, I will not give you any names.

Two years ago, this MNC decided to acquire a Malaysian SME based in Johor. The gross annual revenue for the SME was about RM20 million a year. It had good manufacturing and production practices that impressed the MNC.

Post-acquisition and fastforward to today, this SME is no longer an SME by definition. It's gross annual revenue has ballooned to nearly RM100 million a year. The SME is now part of the MNC's global supply chain.

Mind you, the MNC's Asian footprint is very large with a natural gravitation centred in its production bases around the coastal manufacturing hubs of mainland China. 

But, after the successful experience of acquiring a Malaysian SME this MNC continued to scour Malaysia to look for more gems - more diamonds in the rough.

And, you know what?

They found not one, but two more SMEs that met with their high production and manufacturing criteria. One is in Selangor,the other in Malacca.

So, the acquisition process is in earnest progression.

The good news, my fellow Malaysians, is that there are many Malaysian SMEs that are capable of becoming world-class.

Having said that, our challenge as a nation is to nurture these SMEs to go beyond making products for international brands (OEM - original equipment manufacturing) to creating and establishing their own brands.

In this way, Malaysian SMEs will be able to sustain its Malaysian ownership.

Although I am proud to have seen three Malaysian SMEs being highly regarded by my MNC associates, I will be prouder still if it is our Malaysian SMEs that can hold their own and grow themselves into partners of equal standing with the MNCs.

Putting the "new economic model" in perspective

All the talk about the new economic model for Malaysia has to be taken with a huge pinch of salt because the desire to take the Malaysian economy to the next few levels up the value chain must be supported by the fulfillment of many assumptions. These assumptions include raising the quality of education, the technical skills of the workforce and, a clear commitment by policy-makers to economic goals.

I don't really want to belabour the obvious deficiencies in the Malaysian system.

Just take some time to read this KPMG report on China's moves towards becoming a global outsourcing giant.

Whatever aspirations that we, in Malaysia, have about tweaking or drastically reforming the economy; whatever socio-political nonsense that is going on on the language of instruction; and, whatever nonsense that is going on in Malaysia - this nonsense needs to be seen in the context of the reality that exists - that, at any level up the value chain that Malaysia aspires to, we need to be able to compete with a behemoth like China.

The tempurung is going to get smaller and smaller. The sooner Malaysians understand this, the better we will all be.

Bumiputras cannot rely on the economic crutch any longer. It is becoming too expensive for a paternalistic government to pay for economic prosthetics. No to mention, politically expensive.

Non-bumiputras cannot continue to rely on utilising Bumiputra know-who to secure business opportunities.

This modus operandi that has subsisted for 40 years has made Malaysians, Bumiputra and non-Bumiputra, flabby and lazy, mentally and physically.

Read the KPMG report which describes China's ascendancy in the global outsourcing market. It's not just in manufacturing. It's also in high-end, high value-added industries like IT. In every segment that Malaysia dares to imagine our new economic model to be in, countries like China are offering a bigger bang for the buck.

There is no room for rent-seeking behaviour in that context. That means the greatest skill of Malaysians over the past 40 years has become completely obsolete.

It's time to learn new skills. It's time to study hard. It's time to stop arguing. Time to stop talking. Time to start doing.

Economic caveats

The pronouncements emanating from the Economic Council is music to the ears of this blogger. It signals an intention to strengthen the important features of the Malaysian economy at a time when the global economic recession is just beginning to set in. It won't be a smooth ride. The job of the Malaysian economic managers is to keep the economy on as even a keel as possible.

Having set aside some time to ruminate, this blogger is ready to examine the Economic Council's pronouncements a little deeper. The blue sections are extracted from the Star Online report.

The Government-initiated Economic Council is working on a “New Strategy Package” to focus on medium and long-term structural issues affecting the economy.

The government will need to provide more details on this nebulous term structural adjustment which can be taken to include matters such as:

• Cutting social expenditures, also known as austerity,
• Focusing economic output on direct export and resource extraction,
• Devaluation of currencies,
• Trade liberalization, or lifting import and export restrictions,
• Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets),
• Balancing budgets and not overspending,
• Removing price controls and state subsidies,
• Privatization, or divestiture of all or part of state-owned enterprises,
• Enhancing the rights of foreign investors vis-a-vis national laws,
• Improving governance and fighting corruption.

As you can see, the phrase structural adjustment can mean any or, all of the above and more. Let's have some more details as soon as possible, please.

Minister in the Prime Minister’s Department Tan Sri Amirsham Aziz said the council would identify constraints on the economy and re-look at development strategies. “These measures include attracting more foreign direct investments from high-surplus countries, stimulating domestic investment, taking advantage of China’s and India’s growth, promotion of tourism and construction activities.

First, attracting FDIs is the conventional wisdom for generating economic growth. To-date, FDIs in Malaysia have exhibited an interest in Malaysia as a relatively competitive venue for semi-skilled labour. Malaysia is quite far away from being a high-skilled labour venue despite over a decade of government talk about building knowledge capital. As this blog has said over and over again, the starting point is primary and secondary education. Without a strong foundation in the technical subjects of Science and Maths taught in the English language, the pipeline carries only low-quality products that are good only for low-skills and semi-skilled labour.

Second, domestic investment can be stimulated by lowering the lending rates, something that the Bank Negara is expected to do, perhaps by 50 basis points resulting in a 0.5% reduction in lending rates. The caveat I offer is that domestic investment depends on domestic and export demand and consumption. The SMEs will not invest unless there is demand. So, stimulating demand is also on the cards. This is not a quantitative game of pouring money into the economy from the supply-side and demand-side and, expecting stimulation. Rather, it is a qualitative game of identifying the sectors of the economy that has genuine multiplier effect. I can tell you that the property sector isn't the correct place to suntik modal...the multiplier effect of that sector is dodgy. But, let's leave that for another blog post.

Third, tourism is a no-brainer. It's already the third largest contributor to Malaysia's GDP. Tourism has genuine multiplier effects on the economy. But, there are so many structural problems in the Malaysian tourism sector. Public toilets need to be even cleaner. Taxi services are still appalling. Public transportation, in general, is very badly connected from one sector to another...and, yes, it affects tourism because many, many tourists like to move around by themselves.

Finally, construction is a nebulous term. Construction for infrastructure must also be qualitative not, quantitative. More money needs to be given to local councils to repair infrastructure. The Second Penang Bridge needs to get going even faster. But, tenders must be kept open. The days of negotiated tenders are over.

Amirsham said the country needed to rely less on low-skilled foreign workers and step up human capital development to move up the value chain.

“We have plans to reduce reliance on low-skilled foreign workers in the construction, manufacturing and services sectors to 300,000 from the current 600,000 over the next two years,” he said.

Well, if you've read earlier entries in this blog, you will know how well-received these words must be to this blogger. The Minister needs to quickly unveil the plans. And, this blogger is very, very curious about how the low-skilled foreign workers that are mostly involved in the construction and plantation sectors will be replaced by Malaysian workers. The key factor to facilitate the shift from foreign workers to locals must lie in the wages. Will there be a national minimum wage policy. RM1,300 to RM1,500 is a good range to start with.

And, as for human capital development and moving up the value chain, the starting point, just to reiterate, must be in the education system. No solid Mathematics, Science and English grounding and we may as well file the Minister's words as pure rhetoric.

Economic Planning Unit director-general Tan Sri Dr Sulaiman Mahbob said the reforms being looked at included liberalisation of business and professional services, a high-income policy and flexibility in employment of foreign experts.

My position on liberalisation is quite strongly made earlier. However, I am in a generous mood this morning. I am now prepared to agree with liberalisation. To Hell with the consequences. Maybe Malaysian professionals need a swift kick in the backside to get going. So, bye-bye low-skilled foreign workers, welcome skilled foreign professionals. Maybe the unemployable local graduates can be re-trained by the foreign skilled professionals or, replace the low-skilled foreign workers in the construction and plantation sector....why not?

He (Sulaiman Mahbob) said measures to promote entrepreneurship included reviewing rules and regulations pertaining to the Foreign Investment Committee.

The FIC rules are a protectionist disincentive to Malaysia's competitiveness in attracting FDIs. With the rise of Vietnam, Malaysia's past attractiveness is fast losing its allure. Like a narcissistic ageing Hollywood actress, Malaysia badly needs elective surgery to get a facelift and various augmentations. Eliminating the 30% Bumiputra equity in more and more industrial and manufacturing enterprises is long overdue. But, I want to warn Pemudah that talk is cheap. From experience, we hear all these pronouncements. But the FIC administration has a mind of its own. It will still issue conditional approvals with a 30% Bumiputra equity. Wanna bet? And, they wonder why investors complain...

He said for long-term sustainability, there was a need to broaden and raise the efficiency of revenue collection, review subsidies and accelerate the implementation of projects.

Efficiency of revenue collection is one thing. But, it is very strange that the Inland Revenue has revenue collection targets. It's a scary thought that a revenue collection body behaves like a sales and marketing entity. And, if you know the income tax laws, you will know that the principle is pay first, talk later. I believe that the revenue collectors must be taught some sensitivity to the likelihood that they may be one key factor in dampening the investment climate by treating taxpayers in their usual roughshod manner. The last time I checked, the Income Tax Act and Customs Act were classified as economic regulations, not penal codes.

“Moving forward, we’ll promote projects with higher domestic content, less leakage and higher returns while looking at the efficiency of expenditure,” Sulaiman said.

This awareness is necessary. But, again, the economic managers have to identify the areas where Malaysian SMEs can be assisted to enter into the higher value-added sectors that produce the components are currently being imported. This will plug the leakages from the economy.

On human capital development, he (Sulaiman Mahbob) said there would be a review of the wage structure.

“Measures include strengthening skills training and retraining, firming up collaboration between industry and universities as well as raising productivity,” he added.

Review of the wage structure. Is that a reference to the national minimum wage policy that I touched on above? The are many salutary effects to having a minimum wage policy. But the major caveat is that minimum wages MUST come together with higher productivity. This is the challenge for all stakeholders in the Malaysian economy.

Electronics industry needs sufficient human capital

There is a need for sufficient human capital for the electronics industry, as it is a significant contributor to the Malaysian economy, said the Minister of International Trade and Industry Tan Sri Muhyiddin Yassin.

The industry is the largest sub-sector within the manufacturing sector in Malaysia in terms of output, employment and exports, he added.

“For the period January to July 2008, the industry recorded a 28.8% of total employment in the manufacturing sector,” he said in his speech at the Panasonic Scholarship Award 2009 ceremony here yesterday.

Muhyiddin also said from last year until August 2008, the electronics industry recorded the second largest investment of RM16.3 billion (147 projects), after basic metal products which had a total capital investment of RM39.5 billion (93 projects).

The electronics industry was mainly driven by foreign investment with projects approved accounting for 95.9% of the RM15.6 billion total in 2007.

Muhyiddin said the initiative by Panasonic would complement government efforts to provide a sufficient supply of human capital for the industry. Apart from upgrading the skills of employees locally, the group also sends them to Japan for training. Source: Edge Daily

The Minister has shown an awareness that the workers of Malaysia need sufficient skills to support the Electrical and Electronics (E&E) industry.

Will there be a plan to improve education and skills training for Malaysians?
Now, will the Minister earnestly work with the Minister of Human Resources, the Minister of Education and the Minister for Higher Education to improve the education and training pipeline to ensure that there is sufficient education and skills for the E&E industry and all other industries in Malaysia?

Will there be a strategy to increase SME involvement in E&E?
Will the Minister earnestly put in place the necessary policies that will help Malaysian SMEs in the E&E sector and all other manufacturing sectors to move up the value chain with new production technology so that Malaysia does not remain overly dependent on FDIs to drive the E&E sector?

Will there be consultation and financial support for SMEs?
And, will the Minister consult with the SMEs and provide financial support to the SMEs to ensure that the goal of increasing the SMEs share of the E&E sector is met?

Will the Minister keep us informed?
Finally, will the Minister keep the Malaysian public informed of all measures planned?

The growing role of emerging markets in aerospace

McKinsey has examined the potential for so-called emerging economies such as China, India and Russia to solidify their positions as lower-cost OEM centres that form part of the aerospace industry supply chain.

I highlight this McKinsey study for selected features highlighted by the study. From a planning perspective it will shed light on the massive improvements Malaysia's Ministers can do with to move from generalisations to more specific language when addressing development issues. Read this Star Online report as an example of Ministerial generalisation that lends no clues to Malaysian SMEs that are looking for opportunities.

Here's a pertinent extract of the McKinsey report:

It would be easy—but wrong—to conclude from recent events in the aerospace industry that its globalization efforts have gone too far. To be sure, both Boeing and Airbus have discovered, in developing their new aircraft, that involving suppliers from around the world creates complex management, coordination, and design integration challenges. Nonetheless, McKinsey research indicates that the industry’s globalization remains in its infancy. China, India, and Russia are likely to emerge as significant players over the next two decades, a development that will give Western companies major short-term cost-reduction opportunities that they must capture.

Over the longer term, however, these changes could promote the emergence of new players representing a novel form of competition for today’s incumbents. In addition, further specialization in design, manufacturing, and assembly is likely among both suppliers and existing original-equipment manufacturers (OEMs)—such as Airbus, Boeing, and Bombardier—in areas where they have unique value to add or a compelling cost edge. Specialization will go hand in hand with more extensive collaboration, placing a premium on an organization’s coordination and integration capabilities.

These conclusions are drawn from scenario-based modeling of the industry’s future. The modeling was rooted in an analysis of the current capabilities of about 120 suppliers in China, India, and Russia—as well as from interviews with senior executives at OEMs and suppliers in developed countries and from a historical perspective on the circumstances in which nascent aerospace industries thrive or struggle. The result is a road map for aerospace OEMs and suppliers, in both developed and emerging markets, that seek to navigate the changes ahead.

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Currently, the chief attraction of these nations, especially China and India, as suppliers is lower labor costs. Our work with OEMs and suppliers indicates that even after accounting for transportation, the complexity associated with coordinating management and supply chains, and the expense of mitigating supply disruption risks, the cost of manufacturing typical aircraft structures (such as body panels or fuselage sections) can still be roughly 20 to 25 percent lower in these emerging markets than in more developed ones (Although Brazil also affords significant savings, this article doesn’t focus on it, because it already has a significant aerospace OEM—Embraer—in the regional-jet market.) The cost of labor, which on average is three to five times lower in these countries than it is in the developed world, also makes emerging markets attractive for labor-intensive maintenance and repair services.

Bear in mind, that lower labour cost in the context of the aerospace industry is very high cost labour in places like Malaysia!

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Several distinctive attributes of the aerospace industry have caused Western OEMs in this sector to limit their involvement in emerging markets—for starters, the complexity of the industry’s technology; its extraordinarily high regulatory, quality, and safety requirements; the critical importance of protecting intellectual property in areas such as aircraft engine design or avionics; and the sometimes intimate relationship between military and civilian technology.

Furthermore, aerospace manufacturing volumes are typically lower than those in other industries, and the level of design and production customization is higher than it is in many types of manufacturing.

As significant as these barriers have been in slowing the growth of emerging aerospace-manufacturing markets, counterbalancing forces have recently begun to turn the tide.

These include offset requirements, particularly in India; significant government investments in China and projected investments in Russia; and sourcing and engineering partnerships (with Western OEMs) that have begun to accelerate the development of the capabilities of emerging markets.

Chinese suppliers, for instance, now manufacture structural components for Airbus and Boeing and fuselage sections for Bombardier. Soon, they also plan to begin handling the final assembly of the Airbus A320.

Indian suppliers provide engineering services for many industry players and also produce wing exit doors for the Boeing 757, landing gear boxes for the Boeing 777, and passenger doors for the Airbus A320. Russian and other Eastern European suppliers, too, work with Airbus and Boeing. Honeywell, GE Aircraft Engines, and Pratt & Whitney have been building plants and engineering centers in these countries as well.

I highlight this McKinsey report because of the opportunities incredibly high-technology industries like the aerospace industry can present to countries like Malaysia if it can position itself with the correct skilled workers to produce a few components in the supply chain. I am aware that there is a company in Australia that just produces the wing tips for the A320. Think about it. Just the wing tips. Lots of money already.

But, we need planning and skills. We've got plenty of corridors. But we need to generate the content for those corridors. And, Malaysia has to choose its best and brightest minds to be involved in these planning matters.

More importantly, Malaysia needs a high-quality education system starting from the primary and secondary levels to create a value-chain pipeline that can supply young Malaysians to tertiary skills training. This, in turn, will connect a further value-chain pipeline for higher technology SMEs and large industrial corporations, both local and foreign, situated in Malaysia. That's how Malaysia can become competitive.

The dictates of commerce and industry is such that whether one is Malay, Chinese or Indian or Kelabit is not a relevant success factor. Instead, the skills, proper training and brains are the critical success factor.

Why (Malaysia) needs an economic strategy

Actually I just want to refer you to the longish piece written by Michael E. Porter, a Professor in the Harvard Business School that focuses on competitiveness issues. The title of his essay, reported in Businessweek is, Why America Needs An Economic Strategy.

In a broad sense, you can read the essay with occasional interpositioning of Malaysia instead of U.S. just to make the read more interesting.

UPDATE Nov. 2: Courtesy of walla, further references are a snapshot of Porter's Diamond Model and slides from his 2003 paper on Malaysia's Competitiveness: Moving to the Next Stage, where Porter introduced us to the concept of clustering and elements of the process that is commonly called the supply chain.

And, don't ignore the many, many, many underlying value-laden terms used by Porter like competitiveness and, labour productivity. This was probably another international seminar that Malaysia's economic managers attended and all they heard was "clusters" and the imagined call by Porter to "build more venues for FDIs".

The economic planners completely side-stepped the issue of productivity growth that Porter was highlighting. Maybe Malaysia's economic managers don't understand what productivity means, which should make everyone wonder what the Malaysian Productivity Council (MPC) has been doing all this time and, what the MPC has done with its funding?

The ineffectiveness of Malaysian economic programmes that focus only on venue-providing comes from the failure, refusal and ignorance of the economic planners to even attempt to understand many of the underlying assumptions that all consultants and advisors use in the course of submitting an advice. It is no wonder that we are left with many white elephants like the Port Klang Free Zone (PKFZ). The focus was on acquiring land and building infrastructure and buildings. Once those deals are completed and all parties duly paid, there is zero regard for how the place is to be managed and operated. The Malaysian economic development motto seems to be: Build lots of hardware, ignore the software.

A future without oil money

Today, oil money, courtesy of Petronas, constitutes 44 per cent of Federal government revenue. Oil revenues is the single largest contributor to the GDP of Malaysia.

We are all aware that world oil prices have declined to less than half of its high-point of USD145 per barrel. We are also aware that the Malaysian government used US$125 per barrel of oil as its benchmark price for the 2009 Budget to estimate the revenue it assumed it would earn.

Clearly, Malaysia's economic managers are now forced to recalculate the 2009 Budget assumptions. The deferment of the Eurocopter deal is the most high-profile response to the expected decline in Federal government revenue. We can expect more of such measures come November 4, when Najib as MOF1, takes to the floor of the Parliament.

But, this is the immediate future. We should be even more concerned about the near-distant future.

In the not-too-distant future of, say, 2012 or 2014, Malaysia's oil spigots are expected to run dry. What does this mean for a Malaysian nation that has enjoyed the oil largesse since 1974? If oil revenues constitute 44% of the Federal government revenues in 2008, wouldn't that mean that Federal government revenues will decline significantly, even if Petronas has oil revenues from non-Malaysian sources?

This is a real spectre that all Malaysians need to accept in the next four to six years.
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Strategies to deal with an oil-less future
I believe that when Najib spoke of liberalising elements of the NEP, he has been adequately briefed to be fully aware of an oil-less future for Malaysia. In a sense, looking at ways to liberalise elements of the NEP is the pragmatic and, highly necessary, strategic and tactical view.

I believe that the effect of the mooted NEP liberalisation is directed at foreign direct investment (FDIs). The Malaysian government needs to highlight the highly liberal and decentralised FDI strategies of competitor countries like China. The autonomous economic zones stretching from the Pearl River delta to Shanghai did not become the factory of the world by accident. In the 1990s, Beijing empowered provincial governments with very wide discretion even on equity structures and land ownership for FDIs. This strategy was highlighted by Kenichi Ohmae to be one of the key success factors for coastal China's economic leap. Our economic managers may have this in mind.

Key elements of the Malaysian economy
In a future where oil revenues as a contributor to the Federal government has declined, Malaysia's economic growth drivers will, more so than ever, have to come from:

1. Industrial-manufacturing base.

2. Primary industries such as palm oil and rubber.

3. Tourism.

4. Services sector, encompassing banking and finance, especially Islamic finance will become even more prominent since Kuala Lumpur is already recognised as a centre for Islamic banking. But, do not, for one moment, forget that Singapore is already equally recognised as a center for Islamic banking. That's competition for you.

One of the key routes that all nations take to foster economic growth, Malaysia being no exception, is the search for good quality FDIs. That was the idea that drove the numerous Economic Corridors under the Badawi Administration. But, as I have previously stated in earlier blog posts, at Malaysia's present stage of development, such Corridors are no more than mere venue-providing and construction opportunities for a select few. Underlining such an approach is the ready supply of cheap labour for low-skill assembly, soldering and packaging.

Industrial-manufacturing activity
Let's face it. Most of Malaysia's E&E (electrical and electronics) exports are generated by FDIs. While the Ministry of International Trade and Industry has crowed about this sector for years and years, the truth is that Malaysia is only a venue provider and a supplier of cheap labour. The FDIs can uproot themselves at any time. I saw with my own eyes how, despite having spent ten years in Malaysia, the giant US toy manufacturer, Mattel, uprooted itself from the North Port, Port Klang area within months to relocate in Indonesia. It paid all severance and retrenchment benefits and left. We are a mere budgetary item for the multinational companies (MNCs).
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That leaves us with surgical gloves and furniture. In the case of furniture, Malaysia suffers from poor industrial design or, even the lack of it. As I said in a previous post, industrial design is a key value chain element. But, we are short of it. It is a skill that can be learnt. But is our education system churning out the correct type of skill sets?

Primary industries
Let's look at rubber. Natural rubber, as far as I'm aware, has certain unique properties that makes it the only shock absorption material for heavy loads such as bridge spans. Natural rubber has properties that maintain its quality in high-performance tyres that are put in punishing conditions such as Formula One racing cars, aircraft and, even the Moon Rover. Synthetic rubber falls apart under extreme conditions.
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But, what happened to Dunlop tyres owned by Sime Darby once upon a time? Non-rubber producing countries have global brands like Michelin, Goodyear, Silverstone and, even the Korean Kookmin. What happened? Dunno. We only tap rubber, smoke them into SMRs and sell them semi-processed.
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Let's look at palm oil. Extract the palm oil and it becomes crude palm oil (CPO). Add additional processes and it becomes oleochemicals. Then it can be processed into margarine, soap and cooking oil. Wonderful.

The only problem is, all the world wants is palm oil in CPO form. The oleochemical part is usually done in the importer countries. It is a prime candidate for import substitution industries in the importer countries.

By the way, most of Malaysia's palm oil based soap brands are non-Malaysian. Owned by the Japanese-owned Kao or, the US-owned Procter & Gamble or, the European-owned Unilever.

Tourism
This is one possible bright, shining star. But we need to clean the public toilets and, get the taxi drivers not to over-charge.
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Education is a key factor
Seriously, Malaysia needs to move up the value chain. Dr M mystically describes this as making Malaysia a high cost centre. By high cost, Dr M means moving up the value chain.

There seems to be a disconnect in the minds of the Minister of Education(MOE), the Minister of International Trade and Industry(MITI) and the Minister of Finance(MOF). Let me help to connect the dots.

To move up the value chain, we must start with Primary and Secondary education. Two key elements are needed:

1. English language proficiency is crucial. Teaching Mathematics and Science in the English language is crucial. This will allow Malaysians to be assimilated into the modern world of knowledge and, into the modern economy.

2. More resources must be put into training teachers to become more proficient in English. The current crop of teachers come from a 100% Bahasa Malaysia medium. Forget about investing in ICT, computer labs and all that nonsense. We need software NOT hardware.

After the Secondary education level, Malaysians must have the option of going to vocational schools to learn mid-level technical skills or, pursue tertiary or high-level skills at the universities. Here, a sound command of the English language will be a significant advantage.
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Why is it so difficult for MOE, MITI and MOF to take this holistic view and jointly tell the Malay, Chinese and Indian tribes that teaching English in Mathematics and Science secures the future of their children and, advances the economy of Malaysia by ensuring that their children will get higher pay due to higher skills?

Employment and entrepreneuring
With higher skills, Malaysia will move up the value chain to become the high cost centre that Dr M spoke of. This means higher incomes and more high-level jobs for Malaysians.

It can be jobs from the FDIs. It can be jobs from Malaysian SMEs that produce components such as solar cells and, possibly, nanobots.

In a future without oil money, money can only come from our brains. And, if Malaysian brains are not properly prepared, the shock of becoming poor or, less rich can be a dangerous threat to social stability and national security.

It's Not a Crisis of Confidence

Read this most excellent piece by Businessweek's chief economist, Michael Mandel. For your convenience, I'm reproducing it in full. It may help us all understand some of the elements that led to the economic turmoil and give the Malaysian government some clues. Heaven knows, Najib could do with some blogger assistance. Perhaps, after reading this the Ministers and their coterie will stop using the word confidence as if they knew what it meant:

Is the market and economic turmoil nothing more than a crisis of confidence? To listen to Ben Bernanke and Hank Paulson, you might think so. "At the root of the problem is a loss of confidence by investors and the public in the strength of key financial institutions and markets," Bernanke told the Economic Club of New York on Oct. 15.

On Oct. 20, Paulson went further, explaining the bank recapitalization program this way: "Our purpose is to increase confidence in our banks and increase the confidence of our banks so that they will deploy, not hoard, their capital. And we expect them to do so, as increased confidence will lead to increased lending."

The implication of the Bernanke-Paulson view is that the underlying economic system is fundamentally sound, so that restoring trust in the financial system will put us back on a growth course. From that perspective, the infusion of massive amounts of capital into banks, which replaces the money lost in bad mortgages, will enable lending to begin again. Once investors see that all is well, then they will cease their irrational behavior, and start putting money back into stock markets and companies around the world.

Treating the Wrong Problem?

But what if the Bernanke-Paulson view is wrong? What if financial stress is a symptom, not a cause?

What if we face a wrenching readjustment of the global real economy rather than a crisis of confidence rooted in the financial system? What if Bernanke and Paulson are treating the wrong problem? What if investors, realizing that their long held assumptions about the global economy are wrong, are rationally bailing out of stock markets in almost every country, at least for now?

In fact, there's good reason to believe that the current crisis reflects a growing realization: Long accepted patterns of cross-border technological transfer, foreign trade, and global finance are simply not sustainable.

Three Big Flows

For the past 10 years, global growth has been driven by three big flows. The first flow was the transmission of knowledge, technology, and business know-how from the U.S. and other industrialized countries to low-wage emerging economies such as China and India. Under the neutral name of "supply chain management," multinationals taught local suppliers to make shirts, laptop computers, and airplane rudders that could be sold around the world. Moreover, U.S. and European companies gave suppliers access to enough information that they could develop their own cell phones, software, and other tech products. The result: a massive improvement in productivity and living standards in emerging economies.

The second flow was the movement of goods and services from China and other emerging economies to the U.S. Massive amounts of production capacity was built around the world, assuming that the U.S. was always going to be the consumer of last resort. Indeed, the value of U.S. imports—over $2.3 trillion in 2007—was larger than the entire output of Britain, the sixth-largest economy in the world. The result: Rising living standards in the U.S., rising employment, and production around the world.

The final flow, of course, was financial. The rest of the world lent U.S. consumers trillions of dollars to finance the trade deficit. The money flowed into the country in all sorts of ways, including cheap mortgages and cheap credit for cars and televisions that were made overseas. At the same time, companies in emerging markets were borrowing heavily to build the factories that were going to supply the developed world.

Something Had to Give

This tri-flow worked as long as everyone believed that American consumers could finance their debt. But here's the problem: At the same time Americans were borrowing, their real wages were falling—and not just for the least educated. By BusinessWeek's calculations, real weekly earnings for college grads without an advanced degree have dropped every year since 2002.

You can't pay back rising debt with falling wages; something had to give.

The first thing that broke were subprime mortgages, given to less creditworthy borrowers. But once investors started to look, they realized that the entire global edifice was built on an impossibility. The tri-flow that had built global prosperity could not be sustained.

Good News and Bad News

That's why the financial crisis has spread across the globe. Investors are peering at every country, from Kuwait to Korea, asking the question: Is it sound enough to survive if American demand for imports falls? The problem is in the structure of the global real economy, not the financial system.

This is both bad news and good news. The bad news is that government injections of capital into banks around the world can slow the damage, but they cannot fix the basic problem. The global economy has to go through a readjustment process that will be difficult even if policymakers can restore confidence in the financial system.

The good news is twofold. First, the productivity gains in the emerging economies are real. Sooner rather than later, their growth will resume. Second, we do have a tool for easing the adjustment, and that's fiscal stimulus. With private demand for credit weak, governments can judiciously borrow and spend to help pump up growth and employment.

The final implication: Policymakers should stop talking about investor confidence as if it exists in a vacuum. Instead, they should focus on the real goal of stimulating the creation of innovative new goods and services that the U.S. can produce and sell on global markets. That would reduce the amount of borrowing the country has to do, and help create a sustainable global economy. This crisis is not any fun. But if it shakes up companies and government, and forces them to focus on innovation, the end result will be stronger, more solid economic growth.

English education needs political courage

I don't know what's wrong with the Minister of Education. Maybe he's preoccupied with his party's politics. Or, to borrow an expression from the wise and erudite blogger Sakmongkol, perhaps the Minister is being dragged down by his hikayat advisors.

But, he really needs to display more political courage to do what is right for the country, our beloved Malaysia.

The Minister needs to play a leadership role in the matter of maintaining English as a medium of instruction for the technical subjects of Mathematics and Science.

A golden opportunity
Once in a while, an issue arises that represents a golden opportunity for stakeholders, people who have a direct interest in the matter, to rise above themselves, their community and constituents for the sake of a greater good. I believe that the issue of teaching English in the subjects of Mathematics and Science to be one such issue.

As a parent with three children in various stages of schooling in Malaysia's public schools and, as someone who is part of the Malaysian SME community, I am such a stakeholder.

Tower of Babel
What has disturbed me over the past few months is the unstructured noises and opinions over this matter. Educationists from various communities appear to be united in wanting to see the end of the teaching of English for the subjects of Mathematics and Science. Instead, they prefer the medium of instruction to be in their own non-English languages.

Some academics have decried the fact that their quarrel is over the emphasis on technical subjects like Mathematics and Science as opposed to teaching the foundations of English grammar. They may have a point.

The myth of language and cultural identity
There are even groups that fear the loss of cultural identity, silly as it sounds. How can a Chinese Malaysian be any less Chinese or any less Malaysian by being conversant in an international language of knowledge and commerce such as the English language?

I can lay some claim to being very comfortable speaking, writing and thinking in English.

But, I still wave the Malaysian flag like a madman whenever I can.

I can't stand being without my regular bakuteh (bringing my own collection of ti kuanyin, pu er or oolong tea to brew), wantan noodles, chicken rice and nasi lemak. I break into Bahasa Malaysia whenever I can in my daily conversations. And, come Chinese weddings I lustily do my yam seng cries. I've read, to the best of my ability, the Analects, Tao Te-ching, Three Kingdoms, The Art of War, some works of Lu Xun (all English translations, of course. *blush* *blush*) and I watch lots of Chen Kaige and Zhang Yimou movies (with English subtitles, of course. *blush again*). During the Chinese New Year my family organises a lion dance troupe to perform homage before the family altar.

All this, with a limited knowledge of the Mandarin language. Some people have called me a banana (yellow on the outside, white inside). So what? It doesn't make me any less Chinese, does it?

I am certain that Malays have the same inclination and predilictions in their culinary preferences and cultural conduct. Likewise with the Indians, Ibans, Kadazans and all suku kaum that is conversant in English but know and understand their cultural identity and sensitivities.

Truly, the non-English educationists need to explain this irrational fear of loss of cultural identity when they use this issue in the discourse on the usage of English as a medium of instruction in Malaysian schools.

National competitiveness
In my previous post I tried to deal with the aspect of value chain and knowledge capital. To build on the matter a bit further, let's look at the expression national competitiveness which has also been widely used by the political leaders.

The expression national competitiveness is still a matter of debate among economists. But, to avoid being caught in the thicket of concepts and the bark of words, I will declare here that for this post, I am using the Paul Krugman view that the expression national competitiveness should refer to productivity.

This refers to acquisition of knowledge that is transformed into marketable skills but with increasing value. So, productivity is not just about the number of widgets produced per worker. Productivity, in this context, refers to the value of the work or service generated by each worker. It is the qualitative aspect of productivity that Malaysia should now focus on instead of the quantitative aspects. That is how Malaysia can aim to be competitive. That is how Malaysia can move up the value chain.

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How do we move the Malaysian workforce in sizeable numbers from minah karan skills of soldering, assembling and packaging of electrical and electronic (E&E) products to higher levels such as industrial design which requires higher order thinking and skills?
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Just one example
I personally believe that given Malaysia's multiracial, multicultural and multireligious millieu, the fundamental exposure of each Malaysian to the cultures of the Malay, Chinese, Indian, Iban, Kadazan and other suku kaum and, within each of these cultures, so many subcultures based on geographic origins, Malaysia is a potential world leader in the field of industrial design.

But...how do we know that our designs can be used for mobile phones, satellites, cars, light bulbs or even pencils, without exposure to knowledge of areas such as production engineering?

Okay, another example
There is also all this talk about biotechnology. Malaysia's different communities have so many different petuas and herbal and mineral remedies. The native communities in Malaysia have even more numerous natural remedies since they live closer to Nature. Western researchers have been scouring our forests and mingling with natives for years and they have been extracting plants, flowers and minerals used by natives to take back home to research on the active ingredients.

Once identified, the process of extraction of the active ingredients are patented. The formula is then sold to giant pharmaceutical companies for commercial production. The royalty payments make these researchers multi-millionaires.

WIPO has helped to create awareness and, regulate this knowledge theft. My point is that there's still a helluva lot of such knowledge. But, we still need Western researchers because we lack the skill sets. These skills can only be acquired with proper education. The foundations must be correctly constructed. The starting point are Malaysian primary schools and secondary schools.

By the way, our southern neighbour has created a joint-sharing biomedical research facilitiy called Biopolis. It is a strategic move. Bold. There is huge potential for moving up the value chain and acquiring knowledge capital.

Lost in translation
As I wrote in my earlier post, if we accept that three-quarters of the world's knowledge in either written in or, translated into, the English language then, a Malay-educated, a Mandarin-educated or a Tamil-educated Malaysian technical worker will need to have a dictionary beside him or her at all times. As he or she comes across an unfamiliar English word (you can check for yourself, most of the technical texts are in English) reference must be made to the dictionary. I can assure you, it is a painful experience.

Some years ago, I had some dealings with partners from a Spanish-speaking country. The correspondence and contracts were in Spanish. I had a Spanish-literate lawyer, of course. But, not being content with the translation, I wanted to read the source documents myself. Let me just say that a document that would ordinarily have taken me twenty minutes of reading to understand, took me two hours. Even then, there were nuanced phrases that I missed. It ain't easy, I tell you.

Libraries
Just visit any major library in Malaysia. Just count how many books there are in the English language and, how many there are in non-English. I used to frequent the Main Library at University Malaya. In many of the books that I took off the shelves I saw many margin scribbles in Bahasa Malaysia which translated the English words. I thought to myself, these poor students, how painful it must be for them to conduct research for their term assignments and seminar papers. And, what about the nuances contained in these works? Probably missed by the poor student. How to get a distinction or an A?

Political courage
So, back to the Minister of Education.

Will the Minister muster the political courage to rise above the tribalism that now dogs the English-as-a-medium-of-instruction debate?

Will the Minister have the spine to urge and inspire the warring tribes to rise above their petty parochialism for the sake of the country and their children?

Or, will the Minister display the courage of a churchmouse and, wait....and, wait....and, wait.....until the storm subsides, come what may.

Value chain, Knowledge capital and education

Malaysia needs to move up the value chain. The government has said it time and again.

Economists and thinkers have said it. Everyone says it.

But it's not really happening in a meaningful way. The way Malaysia has approached the business of moving up the value chain is pretty much like the way Malaysia has handled sports. We depend on the rugged individual to spark off something special. Then Malaysia embraces that individual as a hero. Think of someone like Nicol David in this context.

The role of government is to create the processes that churns out more of these individuals so that the odds of getting more of these individual sparks will improve.

Knowledge capital

When I hear our political leaders talk of knowledge capital I wonder if they really understand what it means. They talk the talk but I don't see the walk.

The creation of knowledge capital starts from the Malaysian schools. Sure, we can import knowledge. That's what Dr M tried with the Multimedia Super Corridor (MSC). The Silicon Valley people came. They liked the infrastructure and the ballsiness of Dr M's audacious vision.

MSC

Tentatively, they set up some R&D units in Cyberjaya. They sent one or two or, maybe three guys over. They found few Malaysian technicians with the proper calibre. There were many Malaysians who could handle the reception desk, office administration, despatch, office equipment and low-level software writing. So, they began to pinch talent from Bangalore, India.

After a while, having had their Bangalore talent harrassed by the Malaysian Immigration Department and, worse still, not uncovering any additional Malaysian software writers of any significant imagination, they surreptitiously packed their bags and either went to Bangalore or back to Silicon Valley.

Venue providing

In the 1960s, Tun Razak and his team focused on attracting manufacturing companies into designated places like Petaling Jaya and Shah Alam within the Klang Valley. This was the original and, most successful corridor. Thus, came manufacturers like Matsushita. We provided that venue. We provided the minah karan workforce to perform basic soldering, testing and assembling.

In the 1980s, Lim Chong Eu began his own corridor-type development and scored coups like getting Dell to set up a manufacturing plant in Penang. More minah karan.

Fastforward to the millenium and Malaysia is using the same playbook with the Iskandar Region and the numerous corridors. Venue providers. Landlord. And, more minah karan.

Knowledge capital (Part 2)

As I said above, the process of creating knowledge capital starts from the primary school and, then, the secondary school and, after that, at the university.

First, we must accept the fact that three-quarters of the world's knowledge is either written in or, translated into, the English language.

Second, we must accept that countries that use their own language like Japan has a one hundred-years headstart over countries like Malaysia. Japan took a fifty-year period, from the Meiji Restoration at the turn of the twentieth century to post-war Japan to industrialise. Malaysia cannot do an apple-to-apple comparison with Japan in not wanting to emphasise the English language.

So, for Malaysia to truly move up the value chain, the necessity for a good command of the English language is necessary. With the language foundation, we can then add Mathematics and Science as the next skill layer.

If this is in place from primary level to secondary level, then, at the tertiary level everything is more likely to fall into place for Malaysians to acquire skills that will, collectively, move Malaysia up the value chain.

China

Detractors may point to China. It is true that despite being set back two decades during the Cultural Revolution from the 1960s to the 1980s, China under Deng Xiao-ping could claw its way within the next two decades after that to become the third largest economy in the world. All this progress with a largely dialect-speaking and Mandarin-literate population.

But China is unique. Being a large country there is a huge disparity between the first world feel of the major cities and the backwardness of the countryside. China has completely thrown out the traditional notion that economies move from agrarian to industrial to services. China appears to be moving at three levels at the same time. It is upsetting the neat economic development theories. But, many, many Chinese are rushing to learn the English language, too.

Knowledge capital (Part 3)

We must accept that in the 1970s, Malaysia needed to overcome the throes of nationhood. Nationalism and patriotism were necessary to create a commonality and unity. So a National Language emphasis was appropriate for the ethos.

Some time in the mid-1990s, Malaysia, together with the rest of the world, began to enter the Internet Age. In the cathartic experience the world realised that it was inter-connected in so many ways and, that the multi-national companies (MNCs) from developed countries were ahead of the game.

More importantly, in Malaysia, we became aware of that there is a real chance that we can become more than mere landlords and low-level employees of the MNCs. Whereas, in the past, we had to travel overseas to obtain new books that described new ways of doing things, now, everything was literally at our fingertips. By searching and surfing the Internet the world's collected knowledge was open and accessible to us in Malaysia. And, then, Thomas Friedman described what we felt, that the world is flat, that the field has become level. Everyone has equal access to knowledge.

Beyond ethnicity

In the area of acquiring knowledge capital and, moving up the value chain, Malaysians must realise that mastering the English language will not mean that we, each, will be any less Malay, any less Chinese, any less Indian, any less ethnic or, for that matter, any less Malaysian. Nothing can change who we are in terms of our culture and identity.

But, we should not eschew the golden opportunity to acquire more skills.

Beyond our generation

Frankly, all the stuff that I have mentioned may no longer apply to those of you who are reading this. We are products of the education system from the 1970s, 1980s and 1990s. We can only hope to enter some training courses or, get an MBA to move up the value chain.

But, for the next generation the possibilities are endless if we start the process of building knowledge capital at the primary and secondary schools. Mastery of the English language is an important foundation. Without such a foundation acquiring knowledge capital will be limited. This, in turn, will slow down Malaysia's desire to move up the value chain.

I only wish the political leaders can have the courage to move beyond political opportunism and pandering to constituents. There needs to be real leadership on this. So far, I haven't seen any.

Is there any strategic thinking in Malaysia?

TheEdgeFinancialDaily (Wednesday, 2 July 2008) reported on Singapore's Neptune Orient Lines looking to acquire German-owned Hapag-Lloyd. It will give NOL access to Germany's export markets and the huge payload of attendant cargo.

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NOL has a market capitalisation of Sing $4.8 billion (RM11.52 billion). NOL is two-thirds owned by Temasek Holdings. NOL's container line, American President Lines, has one of the most efficient cost structures in the industry. This led Elvind Kolding, CEO of Danish-owned Maersk Lines, the world's largest container shipping line, to observe that if Maersk had the same cost structure as APL, filled its container ships as fully as APL and carried similar types of cargo, Maersk would be two-and-a-half times as profitable!

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What happened to MISC?

What happened to the Malaysian International Shipping Company, in contrast? Set up by the likes of Robert Kuok at the urging of Tun Razak and Tun Dr Ismail, MISC was always intended to be Malaysia's flagship national maritime carrier. In the past 2 decades MISC has been content to carry only Petronas liquid oil bulk and LNG. No interest in becoming world-beaters, content to be jaguh kampung.

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If you recall, in the 1990s MISC was taken-over by Mirzan Mahathir's Konsortium Perkapalan group. When the Asian economic crisis hit, Petronas was summoned to bail-out Konsortium Perkapalan. Now MISC is still principally a shipper of Petronas liquid bulk. This is just a vertical logistics integration exercise.

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Can we attach any blame to Petronas for lack of strategic thinking for MISC to be a world-class shipping company? Presently, MISC is only a logistics appendage to its core business of oil exploration and extraction.

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No strategic agenda

But, as the people in Shell would say, let's take a helicopter up to view Malaysia's maritime agenda from a national vantage point. The view presented is that Malaysia has no strategic vision on matters such as shipping.

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There was some chest-thumping a few years ago when Port Tanjung Pelepas stole a march on Singapore by securing Maersk as a port management partner. This led the world's largest carrier fleet to channel a signifcant amount of cargo throughput to PTP at Singapore's expense.

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Apart from that flicker of light, we have been inundated with the bleak controversy surrounding the Port Klang Free Zone matter which is, to-date, a non-starter. Wasn't the strategy to create a hub for distribution, drop shipments, break-bulk handling etc in order to compete with the Port of Singapore? But PKFZ may drown in a sea of debt and lack of customers.

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The lesson of PKFZ may be that strategic thinking must be predicated on a viable financial model. Otherwise, all projects created by strategic goal-setting may end up as white elephants. In Malaysia, the list of white elephants is long.

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Ku Li's strategic contribution

Some of us may recall Tengku Razaleigh's simple observation in an interview by The Edge last year. Ku Li spoke of the simple strategic move to set up an oil refinery hub at the southern tip of Johor that would compete with Singapore's oil refining hub. Soon after, the government announced that it was setting up such a hub at the southern tip of Johor! No credit given to Ku Li. This is further evidence of an ad hoc approach i.e. a why-didn't-we-think-of-that approach.

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Singapore's strategic planning approach

For decades, Singapore has recognised the need for strategic thinking. A vision formulated by studying regional and global economic patterns to stay several steps ahead of the game. It is not a mere vision and mission statement like Vision 2020. Singapore sets the mission goals without fanfare and tests and, re-tests the goals using sophisticated econometric models. How many Cray supercomputers does Singapore have to support econometric modelling? How many does Malaysia have? Even for the water supply issue with Johor, Singapore has used numerous alternative planning scenarios that led to Newater as an added safeguard against being held hostage by Malaysia on the matter of water supplies.

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In the mid-1970s, Singapore strategic thinkers concluded that they needed to push the nation-state to the next level up the value-chain as countries like M'sia were offering cheaper venues for manufacturers. So, they built Changi Airport and revamped their fiscal policies and investment incentives to attract higher-end electronic manufacturers with great success.

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In this millenium, Singapore has upped the ante again. This time their strategic thinkers decided that a more liberal social environment and the establishment of 2 casino entertainment centres will usher in billions of dollars of tourism-related income, one of its highest GDP contributor.

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Singapore has also actively courted Nobel science prize winners to conduct and further their research projects by creating joint-resource-sharing facilities like Biopolis. These bright minds are intended to enlighten Singapore-based scientists and researchers who will assist these Nobel-standard scientists in their research. This type of knowledge-transfer is invaluable. It may be the base upon which Singapore's next quantum leap will take place from.

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This is in addition to their decades long sovereign wealth funds in the forms of Temasek and their Government Investment Corporation.

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Dr M and M'sian think-tanks

In the final chapters of The Malay Dilemma written in 1972 by Dr M, he wrote about the need for Malaysia to have think-tanks like the Rand Corporation in the US. In his time as PM he was a big fan of people like Alvin Toffler the futurist and, Kenichi Ohmae of McKinsey who is a strategic thinker. He also set up ISIS which is more into external, geopolitical and defence matters but less so on economic matters. While many of us are not big fans of Dr M's Machiavellian approach to politics and uses/abuse of power, we have to admit that Dr M definitely had a point there.

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Who is doing the strategic thinking in M'sia now?

Another case in point is the strategic thinking on wealth management. Permodalan Nasional Berhad has been the wealth manager for the Bumiputras since the 1970s. It is the creation of Tun Razak and Ku Li. PNB's creation was based on the strategic plan to house, in trust for Bumiputras, part of the wealth of the nation.

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In recent years we have Khazanah Nasional which seems to be more a knee-jerk creation to house previously ailing corporates handed-over by the now-defunct Danaharta. The strategic thinking to create PNB as a wealth fund is clear enough. But, what is the idea behind Khazanah? It doesn't seem to have the gravitas of a sovereign wealth fund. Often, it appears to be just a basic fund management company.

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But, really, where are we headed in terms of the strategic positioning of Malaysia in terms of economic competitiveness? EPU? ISIS? ASLI? More on this later.

An economic agenda to consider

I suspect that the amount of RM380 billion lost in corrupt activities over 20 years (see http://www.malaysiakini.com/news/84954) is only a fraction of the actual amount lost to corruption.

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Be that as it may, the Malaysian government's approach, whether BN or PR, to economic development and wealth management must be drastically revamped. Here are some possible policy approaches.

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Petronas funds to be moved from Consolidated Revenue to a Malaysian sovereign wealth fund

Borrowing the Norwegian example (see http://ctchoolaw.blogspot.com/2008/06/managing-malaysias-common-wealth-2.html) a M'sian sovereign wealth fund ("MSWF") must be created to receive at least 80% of the annual profits of Petronas. We have to define Petronas' oil revenues as the common wealth of all Malaysians.

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Key directors of the MSWF should be Tengku Razaleigh Hamzah, Tan Sri Robert Kuok, Ananda Krishnan, Tan Sri Quek Leng Chan and Tan Sri Teh Hong Piow. These are M'sians who have a proven track record of financial astuteness. These M'sians can be entrusted to have M'sia's best interests at heart.

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The MSWF will be value-neutral investing only in assets and funds worldwide that will provide the best financial yields. The MWSF is to be preserved for future generations of M'sians. We can work out the details in due course.

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No longer can Petronas funds be used for subsidies of consumption goods which are short-term and renders the M'sian economy inefficient and uncompetitive.

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Nationalise toll roads

The M'sian govt must take over the toll operations. This can be done through raising sovereign debt which will have a triple-A rating based on the cashflow from toll collections. By sovereign debt, I mean Treasury Bonds aka Malaysian Government Securities.

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This move will remove the rent-seeking formula endemic in toll collections. It will ensure that surplus and profits go straight into the Consolidated Revenue. It will help to offset the removal of Petronas funds from the Consolidated Revenue.

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Reduce the income tax top bracket to 18%

This will stimulate greater private sector-led economic activity and attract more foreign direct investments ("FDI"). The influx of capital will generate economic activity that will offset the lower income tax rates.

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Tenaga to acquire all IPPs

IPPs are protected by the unfair Power Purchase Agreements ("PPA") which forces Tenaga Nasional to purchase all power generated by the IPPs. We are told that Petronas is also subsidising the fuel consumed by these IPPs. Consumers are being forced to absorb the increased costs via higher electricity tariffs. This is classic rent-seeking behaviour.

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The government must do a work-out for Tenaga to acquire the IPPs. Tenaga can do a massive bond-raising exercise to acquire the IPPs with the government to stand as a sovereign guarantor. The consolidated cashflow from the IPPs and Tenaga's own operations combined with the sovereign guarantee should make these bonds attractive and be given a triple-A rating.

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I know there are brickbats thrown at Tenaga. But it is still a better vehicle that can be audited as opposed to the opaque structure that currently exists. Furthermore, the PPAs are under the Official Secrets Act, apparently. That is a sham!

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Reduce importation of foreign workers

This will force M'sian companies to increase their efficiencies and shift from labour-intensive activities to more capital-intensive ones. It will also force M'sian businesses to move further up the value chain of goods and services.

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Increase vocational training institutions

To meet the shift up the value chain, M'sian workers must acquire new skill sets. Greater fiscal resources must be directed towards the establishment of more vocational institutions.

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Reduction of the defence budget

No more hardware acquisitions such as submarines. The reduced defence budget should give priority to the standing Army, smaller surface coastal vessels for the Navy and, only towards replacement of Air Force hardware (no more net increases).

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Removal of tariffs for automotive industry

This protectionist measure has only benefited an inefficient local automotive industry and the rent-seekers that own it. It has made M'sians pay exhorbitant prices for imported motor vehicles. Worse still, this policy has cost M'sia FDIs from the automotive industry and allowed Thailand to create an automotive hub. A major loss of FDI. And, M'sian automotive workers has the correct skill sets for such FDIs! A wasted opportunity.

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Increase efficiency of public transportation

Sack most members of the newly-formed Public Transportation Commission. Include more NGO representatives. Most importantly, pinch and entice the key managers of Hong Kong's incredible Transport Department to lead and manage the change. (see http://www.td.gov.hk/home/index.htm and http://en.wikipedia.org/wiki/Transport_in_Hong_Kong)

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No more rent-seekers to operate public transportation i.e. buses and light-rails. A government-owned Public Transport Authority must be formed to nationalise public transportation. Private-sector rent-seekers are prone to making decisions that are sub-optimal to the public but are super-beneficial to the rent-seekers who don't even use public transportation.

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Maintain English as a medium of instruction for Science and Maths

No reverting to Bahasa Malaysia for Science and Maths. I am hearing ridiculous pronouncements from Hishamuddin's Ministry of Education about a reversion to BM. If the rural constituents are suffering then create a full BM curriculum for the rural areas. It does not have to be a "one-size-fits-all" education policy.

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Prior to the 1970s, before the odious Rahman Yaakub became Education Minister, M'sia's education addressed this type of education product differentiation. Hisham should read the history of his own Ministry. He shouldn't have to wait for bloggers to remind him!

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This is not a full list, of course

There's a lot here to digest and discuss. What I have outlined is not complete. But it is a start. Solutions are available if we all apply our minds to it. But we need a real federal government that is responsive and genuinely concerned about moving Malaysia forward. The rakyat has been sanguine in the past in accepting a paternalistic form of governance.

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But, the trust is lost. More so because of the present (and past) government's inability to forward-plan. The federal government's obssession is clearly directed at creating rent-seeking opportunities for their cronies. Change is necessary.

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The economic storm is coming. We are witnessing a phenomenon that was forgotten since the 1970s. It is called STAGFLATION; a stagnating economy with inflationary pressure (see http://en.wikipedia.org/wiki/Stagflation). No more time to lose, people!