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Monday, May 2, 2011

The West going down, rest of the world up!

Comment by Heather Stewart


The west may be declining, but the rest of the world looks ready for a 40-year boom



While post-industrial economies stumble out of recession, some unlikely developing nations are poised for a period of 'catch-up' reminiscent of China's rapid industrialisation
America's recovery is petering out, the UK economy is flatlining and euroland's crisis rolls on. There's scant cause for optimism in the Old World. But outside the credit-crunched post-industrial countries, the next few years – and decades – could see the blossoming of a whole new group of super-economies.

We all know about the extraordinary rise of China and India; but new research by Willem Buiter, former MPC member and now chief economist at Citigroup, argues that 2011 is an auspicious moment for the emergence of new economic powers, too.

In fact, unlikely as it may seem, Buiter and his colleagues believe the period between now and 2040 could turn out to be one of the best in the whole of human history for spreading the benefits of economic growth.

The fastest-growing economies during this supercharged period, they claim, will include China and India; but also, among others, Mongolia – currently better known for miles of featureless steppe than for economic dynamism – Indonesia, Nigeria, Bangladesh and Vietnam.

And what will bring about this new economic miracle? It's a tale of the mighty power of catch-up: unlike the days of the industrial revolution, when radical new technology – steam-powered mills, trains, threshing machines – transformed people's lives, these countries could achieve extraordinary growth largely by adopting the pre-existing methods, inventions, and sometimes institutions, of richer rivals.

Using the peerless research of Angus Maddison on the economic history of mankind, Buiter reminds us that for the first millennium or so, GDP growth was almost certainly negligible. Nothing changed. Peasant farmers scratched a living – just – from their little patch of land, year after year, century after century. In fact, not much changed until the industrial revolution, when technological improvements and mass urbanisation led to huge growth in productivity. Postwar reconstruction helped generate another jump in growth, as western European countries and Japan rebuilt and played catch-up with the US; and there was a further jump from the 1990s on, as the opening up of former communist countries to trade with the west, and later the integration of China in the global trading system, brought rapid improvements in living standards for millions.

Today, Buiter and his colleagues claim, there is an auspicious combination of large numbers of countries with big populations that are a long way behind their peers in the rest of the world, but are revving up for takeoff.
Of course it's not that simple – a range of factors are significant in what economists call the "convergence" of living standards towards the levels of the wealthiest countries.



High investment is important – and the capital to fund it, often from high levels of domestic saving. A young and relatively well-educated population is handy – recent research has shown that investment in schooling has been critical to China's success. And some openness to international trade and investment (though not to the pernicious credit booms of the 2000s) is important. Bad government, armed conflict or just very bad luck (such as a spate of natural disasters) can set a country's progress back by decades.

Venezuela was richer than many western European nations in 1957, for example, with income per head at two-thirds the US level; but decades of poor policies have seen it falling farther behind instead of catching up, with GDP per capita now barely a fifth that of the US. Zimbabwe provides an even starker example of the catastrophic consequences of bad government.

It could all go wrong at the level of international diplomacy, too: failure to make progress in the Doha round of trade talks, as evidenced yet again in Geneva on Friday, shows how little political will remains, in Washington especially, for further dismantling of trade barriers, and raises the spectre that protectionism could reverse some of the gains of the past decade.

But even without an ambitious World Trade Organisation deal, there is much to be won by, for example, freeing trade between emerging economies. A recent report by the Asian Development Bank urged the countries of "the south" – a catch-all term embracing Africa and Latin America as well as Asia – to burnish their trade and investment links and reduce their dependence on the US and Europe. The bank's research suggested they could almost double their share of world exports – from 33% in 2004 to 55% in 2030 – by waking up to the potential of markets closer to home.

None of this is good news if you're concerned about Britain's status as a mighty world economic power; but there hasn't been much good news on that front for decades. It could be great news, though, for many millions of people who have so far missed out on the benefits of a century or more of economic development.

There's a new drive to assess "happiness" and other alternative measures of success, prompted by the puzzle that after a certain point, rising GDP doesn't seem to make people feel any better. But if you don't have food to eat and you can't send your children to school, the benefits of extra income are blindingly obvious. Let's hope as many as possible of the countries preparing to harness the power of catch-up in the coming decades follow Buiter's key piece of advice – "don't blow it".

Super-hawk's final chance to raise rates has taken a dive

Andrew Sentance, the Bank of England's super-hawk, will have one last chance this week to win fellow policymakers to his cause.

The news isn't going his way. The official GDP figures, released on 27 April, showed the economy stagnant, with 0.5% growth merely taking us back to where we were in the autumn. High street sales are soggy, and retailers are squealing about lost margins as they struggle to avoid passing cost increases on to shoppers. And, so far, there's no sign of wage growth running out of control. Consumer confidence has slumped to levels last seen in the recession.

Instead of stoking an uncontrollable wage-price spiral, inflation is eating into profit margins, gobbling up the spending power of pressurised consumers, and making businesses even more nervous about investment plans. And that's before the bulk of the government's fiscal squeeze has fed through to job and public service cuts.

Backed by the hawks in the City, Sentance has become increasingly strident in his insistence that the Bank has been "selling England by the pound" (quoting 1970s rock band Genesis).

Will fellow hawks Spencer Dale and Martin Weale – who have only demanded a quarter-point rate rise instead of the half Sentance wants – continue the campaign when he goes? If inflation falls again, they may admit it's time for a full stop. - Guardian

Malaysian economist extraordinaire, Zainal Aznam

By SOO EWE JIN ewejin@thestar.com.my





He was frank and forthright with his assessment of many current issues which recently came under fire from certain groups after he pointed out the problems faced by the NEAC in formulating the New Economic Model (NEM)

PETALING JAYA: The last article Datuk Dr Zainal Aznam Yusof wrote for The Star was entitled “Secret Lives of Statistics” which was published on April 18, 2009, as part of Star BizWeek's cover feature on numbers.

He began his article this way, “Alcoholics and economists have something in common. Both have problems of addictions. Alcoholics have a soft spot for alcohol while economists have a fetish for hard statistics.”

Zainal not only had a way with numbers. He certainly had a way with words.

On November 14 the same year, Zainal opened up a bit more on his life to our readers when he was featured in the 10 Questions column.

Giving readers an account of his extraordinary life beyond economics, Zainal revealed how he trekked in the Himalayas to the Annapurna base camp, attempted two Langkawi Ironman events, completed Olympic length triathlons and duathlons and even had time to go sailing.

Datuk Dr Zainal Aznam Yusof
To the public at large, they are probably more familiar with seeing Zainal expound on the economic issues of the day through his columns and watching him anchor many of the Budget discussions on TV.

But Zainal certainly had a life beyond economics. He was a film critic for The Edge, a voracious reader, played the drums and even had a YouTube channel Yowassupproduction on satirical and comedy skits which involved the whole family.

And he loved to cycle. He was a familiar sight riding along the roads of Taman Tun Dr Ismail where he lived.
Through all the years I have known Zainal, the one thing that truly stands out is how he made numbers come to life that can be easily understood by the common man.

As a member of the National Economic Advisory Council, this gift was much needed since he was not just talking to fellow economists but people of different disciplines, including politicians, who can sometimes be befuddled by statistics.

Zainal made immense contribution to our understanding of the economic issues in the country. And his views were also much sought after abroad.

With a doctorate in economics from the University of Oxford, he served in various capacities at Harvard University, Keio University and at the Korea Institute for International Economic Policy. He was also a consultant at the World Bank in charge of political economy of poverty, equity and growth. Because of his wide experience and his ability to convey information to the common man, Zainal was a favourite panelist for the many economic roundtables hosted by various publications.

When he was deputy director of the Malaysian Institute for Economic Research, he started the brown bag lunch talks where serious issues were discussed over lunchtime.

But he faded from public view after he ventured into the private sector and worked for a spell as the South East Asia Regional Economist at Kleinwort Benson Research (Malaysia).

He returned to public policy work after that when he joined ISIS as deputy director-general and became a regular voice in all the various media.

Zainal crunched numbers with ease. For discussions on the Economic Report and the Budget, he needed just a few key numbers. I recall the times when he would call in once he knew we had the Economic Report and asked for certain statistics.

He was so familiar with the document, from his years at Bank Negara, that he could even tell us which page to go to.

I have always enjoyed the non-formal conversations with Zainal. We often bumped into each other at the Bank Negara canteen during the time I was working ISIS Malaysia, which was nearby.

I found it heartwarming that a man in his position was so at ease among the ordinary people who ate at that canteen.

Although he was always seen as an economist on the establishment side, because of his positions in the various government institutions, Zainal was frank and forthright with his assessment of many current issues.



As he wrote in “Secret Lives of Statistics” on what had been the most seminal and outstanding statistics that have appeared so far,

“Over the past 38 years, I think that the statistics on the incidence of absolute poverty, the inter-ethnic income disparity, overall income inequality and the ownership of share capital of bumiputras have been the most outstanding statistics because of their wide repercussions. And controversial too.”

It sounds prophetic now because it was only quite recently that he came under fire from certain groups after he pointed out the problems faced by the NEAC in formulating the New Economic Model.

His frank views put him in the middle of a controversy. I was running through some e-mail exchange we had when I was trying to get him to be a regular columnist for The Star.

In response to a question from a reader about his alter-ego, Zainal said it would be a hard choice between Woody Allen and Juliette Binoche.

He loved Woody Allen for his humourous films and writings, making neurosis a necessity and passe, and for defining modern man as those born after Nietzsche's edict that “God Is Dead” but before the recording of the Beatles “I Wanna Hold Your Hand”.

I offered him the loan of my full collection of Woody Allen DVDs which a friend from the United States had given to me.

He wrote back, “You have a fantastic Woody Allen collection. A treasure. I will be in touch soon.” He never did.

Zainal passed away on Saturday, aged 66. He leaves wife Datuk Kaziah Abdul Kadir and children Irwan Shahrizal, 33, Shazalina, 30, and Juliana, 23.

Certainly the world of statistics will feel the loss of this one illustrious person of numbers. And Malaysia, one of its most outstanding economists.

Sunday, May 1, 2011

Reversing the brain drain, innovate to compete!




Reversing the brain drain

By P. GUNASEGARAM

Unless Malaysia succeeds in developing, retaining and attracting talent, its cherished dream of attaining high income by 2020 may be dashed to bits.

PROBABLY for the first time ever we have had substantial facts and figures on Malaysia’s brain drain – and it has taken the World Bank to come out with this (see our cover story this issue).

The World Bank simply defines brain drain as the migration of talent across borders. It is instructive what it says.

“For Malaysia to stand (sic) success in its journey to high income, it will need to develop, attract and retain talent. Brain drain does not appear to square with this objective: Malaysia needs talent but talent seems to be leaving,” the World Bank said in its report on Malaysia. Let’s look at some of the figures as a gauge of the seriousness of the problem. The worldwide Malaysian diaspora is conservatively estimated at one million in 2010, quadrupling over the last three decades.

Singapore alone accounts for 57% of this with the rest dispersed mainly through Australia, Brunei, Britain and the United States. Ethnic Chinese account for nearly 90% of the diaspora in Singapore and are similarly over-represented in other developed countries. And here’s one frightening statistic: “One out of 10 Malaysians with a tertiary degree migrated in 2000 to an OECD (the club of rich countries, but which does not include Singapore) country – this is twice the world average and including Singapore would make this two out of 10.

”In other words, it is very likely that 20% of our best graduates end up in other countries. The reasons why they leave are also instructive: 66% cited career prospects, 60% social injustice and 54% compensation.

http://dinmerican.files.wordpress.com/2011/04/reasons-for-leaving1.jpg




The situation is serious and as Malaysia is wont to do under such circumstances, it is resorting to ad hoc measures such as tax rebates on those returning and a corporation to attract talent into the country.

These will only chip away at the massive outcrops of declining educational standards, a badly implemented social restructuring policy, a poor system of rewards and the unwillingness to move away from low labour costs to high value-added manufacturing and services amongst others. The changes that are needed are deeply structural. First, everything possible has to be put into raising educational standards to improve the quality of those entering the workforce. South Korea had one third Malaysia’s per capita income in 1970 but now it is three times Malaysia’s. Such change would not have been possible without a super educational system at every level.

Developing talent at every level simply has to start with education and we have to put the best talents, facilities and other resources into this. Right now only the most dedicated or those who don’t have other choices go into teaching because it is neither rewarding nor respected as a profession.

Next we need social re-engineering to gear towards giving equal opportunities for advancement instead of a premature equalisation of outcomes whether in terms of wealth ownership or employment creation.

Otherwise the ultimate result might be plain mediocrity and creating a small class of privileged wealthy who have done little or nothing to deserve their wealth. Otherwise too, the talented who get little or nothing face despair and look elsewhere for their rewards.

Then we need too the unfettered opportunities, entrepreneurship and incentive for talent to flourish and to be adequately rewarded. We can’t continue to base our competitiveness on low wages and costs. In this respect, a weak currency and its attendant poor purchasing power is a sure way to chase talent out of the country.

That’s how we can retain talent and attract it too, realising that we must be open and free to import the best the world has to offer in terms of people, goods and services at the best prices. For these things to happen and be sustained what we need is honest policy and implementation untainted by corruption so that the most can be done with the resources at our disposal instead of frittering these away through all sorts of leakages in the system. It is no accident that the least corrupt countries are often the most developed and have the highest income.

If there is a lesson from the World Bank report, it is that we must return to the basics and work ourselves up from there. There is no shortcut, but once critical mass is reached progress grows in leaps and bounds.

Managing editor P Gunasegaram believes that an uncompromising stand towards excellent and quality education bereft of political and other pressures will do more towards a high income Malaysia than almost anything else.

Related Stories:
How can Malaysia stem the tide of talent migration?
The big picture on skilled labour market
Can Malaysia reform fast enough to meet challenges?
Talent Corp CEO: Need to change business model
The ‘vicious cycle’ of brain drain



PM: Innovate to compete

By LESTER KONG  lester@thestar.com.my

PUTRAJAYA: The country's economic competitiveness will continue to be threatened if Malaysia relies on cheap foreign labour and is reluctant to innovate, said Prime Minister Datuk Seri Najib Tun Razak.

He said the country's labour productivity also needed a large jump for local small and medium enterprises to compete well in the increasingly globalised and liberalised markets.

Najib said Malaysia's labour productivity was valued at RM15,000 per employee per year compared to RM103,000 for each American employee.

“According to this benchmark and compared to other countries, we are still very low.

“We must change in the next few years to raise productivity by 100%,” he said after chairing the 11th National Small and Medium Enterprise Development Council (SMEDC) meeting here yesterday.

Let’s talk business: Najib with International Trade and Industry Minister Datuk Seri Mustapa Mohamed (third from right) and Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz (right) at a press conference after chairing the SMEDC meeting in Putrajaya Friday.
 
Najib, who is also the Finance Minister, said lack of funding was the least of the SMEs' weaknesses as RM6bil had been allocated for SME development this year through various ministries and agencies.

He said the key weaknesses are weak managerial and entrepreneurial skills, reluctance to innovate and use technology and reliance on human-intensive labour to generate output.

“We find that many problems do not stem from funding but rather from the need to boost (SMEs') capacity,” he said.

Regarding a World Bank report on Thursday, Najib admitted that businesses were hampered by the slew of licences and permits required to start and conduct business and that this could encourage “elements of corruption”.

“The council (SMEDC) has decided that more radical steps are needed to relax permit requirements as a whole. This is related to our competitive policy to make it easier for companies to enter a market,” he said.

“A green lane policy has been established where the Govern-ment will give opportunities through contracts to use their products or services.

“We are looking at what other help we can give to enable these companies to enter the global market,” Najib said.

On foreign direct investments, Najib said FDIs into Malaysia had increased four-fold since 2009, rising from US$1.4bil (RM4.2bil) in 2009 to US$9bil (RM27bil) last year.

“I am confident that we will be able to ensure a very healthy growth in FDIs. But don't forget, it's not only about FDI, it's also about domestic investment as 73% of our development plans involves these,” he said.
Najib admitted that brain drain remained a major obstacle to Malaysia's plans to achieve a high-income developed status by 2020.

“We have identified (brain drain) as one of the problems that we need to find solutions to. That's why we set up Talent Corp.

“We will try to overcome (brain drain) through Talent Corp and other policy measures,” he said.

“It (brain drain) is not something that is happening now. It is a problem that has been happening for some time.”

He said the ringgit's gain over the US dollar will not affect Malaysia's exports.
“Local companies should use our stronger ringgit to strengthen processes in their companies, such as buying equipment and ensuring their supply chains are more efficient,” he said.