In the long run of History you stand
Tall astride the mysterious alchemies
Of commerce and trade, the intellectual
Colossus of economic thought. Bands
of adversaries, with their arrayed blasphemies,
Have not dispelled your gorgeous gospel.
We bow to your memory, John Maynard Keynes
Your truths congealed in our collective veins.
On The Ringgit
Twenty five years later:
Some things we just deserve to suffer.
On Inflation
Inflation: well and
Truly beaten? The Fed holds
Its breath in suspense.
On China’s Unstoppable Rise
After more than two decades of riding the wave of globalisation, and forging itself into “the world’s workshop”, it appears as if the Chinese economy is drawing to a skidding halt. Is this a temporary setback, or a more permanent subordination of what is now the world’s second largest economy?
We have seen the USA do this before. There was a phase in the 1980s when the rise of Japan struck fear in the hearts of American policymakers and industrialists – that Japan was going to get to Number One, supplanting the USA. Of course, we know how things played out: the US forced the Plaza Accord on Japan, casting the Japanese economy into a deflationary tailspin that the island nation is only slowly attempting to come out of.
I think the outlook for China will be different, and that no matter how America will be pulling out all the stops to halt the rise of China, there is really no stopping the Chinese economic juggernaut, and that the current economic slowdown is merely a blip in the long sweep of Chinese future history.
The first reason for this belief is that the recent rise of China is really a decades-long process of a reversion to the mean in human history. China has been a coherent political entity and a global economic powerhouse for most of the past several thousand years – the recent rise of the West and the ascendancy of the British and later the American empires are really anomalies in the longue duree of human civilisation. Anyone who has read the accounts of Marco Polo would remember that for most of humanity, the riches and wealth of China were the stuff of legend. This is also the glue that is binding the Chinese nation together in its loyalty and obeisance to the Chinese Communist Party – more than anything else, the economic reform and rise of China over the past two decades is a nationalist project, to redeem the dignity of the Chinese nation after two centuries of prostration to the West.
The second thing worth mentioning is that unlike Japan, the challenge of China to American hegemony is a contest of symmetric equals – both the US and China are continental powers, with a large and vibrant population and a deep-seated faith in their respective ideologies. The belief in the inevitable ascendancy of the Middle Kingdom has a rhyming resemblance to the ideology of American exceptionalism. Both peoples are firm believers in the manifest destiny of their respective societies.
A third reason to believe that China will continue to be a legitimate competitor to the US is that unlike Japan, China was never militarily conquered by the US. The bombing of Hiroshima and Nagasaki, and the dictatorship of Douglas MacArthur after the Second World War, were both events that carved a deep scar into the Japanese political psyche. There are no such hangups within the Chinese political class today. They have exorcised the ghost of British colonialism with the takeover of Hong Kong in 1997, and China’s recent initiatives – the ongoing BRICs summit, and the globe-spanning Belt and Road Initiative – show their confidence in their ability to carve out a path as a leader in the rise of the Global South, if not in direct opposition to the West, at least in standing tall and toe-to-toe against the inheritors of the legacy of European colonisation.
A fourth reason for why I believe China will not fade quietly into the geopolitical night is that China has positioned itself well to take advantage of ongoing inflexion points in the global economy. The global energy transition away from fossil fuels has been embraced openly by Chinese industrial conglomerates that have invested heavily into solar, wind and other forms of renewable energy. The rise of digital technologies is also another important vein of future economic development that has been successfully tapped by China, evolving rapidly from mere assemblers and manufacturers of devices for Wester companies, to become principal manufacturers and innovators themselves.
One could surmise that while the US, and world at large, has definitely benefited from the growth of China as a hub for global manufacturing, the geopolitical genie is now out of the bottle. China’s “wolf warrior diplomacy” and unwavering assertion of its “nine-dash-line” hegemony in the South China Sea demonstrates a newfound confidence that is here to stay. The US is frantically trying to push the genie back in the bottle – I think this effort will prove to be futile. We will all need to learn to live with an aggressively confident and hegemonic China in the decades to come.
On Monopolies, and Following the Money
On the Dark Side of Malaysia Boleh
All Malaysians of a certain age will remember the boisterous confidence of the 1990s. The stock market was booming, the economy was the darling of investors, and everyone was making money. Politically, Malaysia had come through a rough patch at the end of the 1980s, and everyone was eager to look forward, beyond the traumatic events of Ops Lallang and the deregistration and rebirth of Umno and the fiercely-contested general elections of 1990 that saw Kelantan fall back into the stewardship of PAS. Many were still disgruntled, or fiercely opposed to the iron fist of Mahathirian authoritarianism, but the rise of Anwar at that time gave hope that there was a more liberal future in store for Malaysia. Understandably, some Malaysians looked at the political upheavals of the late 1980s and decided “that’s enough for me, I’m off“, leaving the country for different shores. But for those left behind, the 1990s had a balming effect of soothing the wounds of the body politic with the elixir of rising wealth and prosperity.
One of the slogans (and there were many, during the Mahathir era) that truly captured that moment in time was “Malaysia Boleh“. A pithy and confident assertion of can-do positiveness – our very own version of the American Dream. After the trauma of 1969 and the political battles of the 1970s and 1980s, Malaysians were finally ready to step into the sunshine of economic prosperity. The fall of the Berlin Wall gave rise to a unipolar world, in which the US presided over a new age of globalisation, as the tendrils of capitalism extended outwards into the frontiers of the the Third World, and Malaysia was standing ready to welcome intrepid investors into the brave new world of emerging markets.
Never one to miss a grand opportunity, Mahathir parlayed his utter political dominance into a flourish of edifice-building and infrastructure investments. The North-South Highway had whetted his appetite – and likely enriched his party’s coffers as well! – and he took Malaysia into a new era of infrastructure investments: KLIA. The new stadia and new hotels and new train systems for the Commonwealth Games. The Petronas Twin Towers. And for the coup de grace, Malaysia was to unveil a whole new capital city, built from scratch with petrodollars out of the marshes and oil palm plantations of Prang Besar.
Much ink has been split, of course, over the eventual economic boom-and-bust of the 1990s. There was definitely irrational exuberance, and the collapse of many of the premier conglomerates of that age were textbook cases of corporate overreach. “Malaysia Boleh” became licence for frantioc dealmaking, and everything was being fueled by cheap credit and a stonkingly-bullish stock market. There was already blowback even then: “Malaysia Boleh” came to be viewed with bitterness and cynicism by a number of Malaysians who saw their country’s transformation into “Bolehland“, where anything goes, as long as one had the wealth, or power (ideally, both) to push one’s way through the red lines of regulations and morality.
But there was also another, darker psychological side of “Malaysia Boleh“: the race for performative “achievements” became a favourite mode of expression, especially for those eager to curry favour with those in power. The longest Malaysian flag. The longest satay barbecue. Biggest cake. Biggest ketupat. Swimming over the English Channel (as if there weren’t already hundreds, if not thousands, of others who had already done the same.) Climbing Everest.
Not to dismiss some of these deeds – I cannot ever imagine climbing Everest, or even having the desire to, really. But too many of these “achievements” were clearly low-ball efforts at garnering attention. And it laid bare the contradictions at the heart of the “Malaysia Boleh” project – we wanted attention and recognition from the world, but often unwilling to do the hard things that would be truly meritorious. Biggest flag, tallest flag pole – boleh. Eradicating politik wang, weaning the economy off cheap foreign labour, paying Malaysians fair wages for the work that they do – these ones tak boleh.
And this frustration strikes at the core of today’s Malaysia Madani project: what are we doing now that is so different, now that we have a man who was probably unjustly imprisoned and shut out of power for more than two decades, now at the helm of the government? Two decades of calling for Reformasi. What is so different now? Why are we still playing the same old games of state propaganda – the slogans and the logos and the theme songs? Why are we still treating appointments to state agencies and government-linked companies as ghanimah? And why is it that for the truly hard and necessary measures that we need to enact, to bring out the potential for our great nation, the answer is still “tak boleh”?
Today’s Reads XI – Income Levels and Stress, Old Politicians, and Cats Purring
- “Higher income amounts to lower stress.” No shit, HBS. But yeah, it’s a good reminder, that money can’t buy happiness necessarily, but it can smoothen away a lot of the wrinkles that crop up in life from time to time. It’s not always good to be rich, but it’s very very helpful to not be poor.
- American gerontocracy! I haven’t seen similar analyses for Malaysia, but if we have a 90+ year old former PM still hankering for the top job, I’m willing to guess that Malaysia probably has similar problems!
- Why and how cats purr. What a wonderful thing it is to make another creature happy, for no other reason than love and mutual care.
Today’s Reads X – Fighting the Status Quo, Self-Identities, and the Politics and Economics of Immigration
- Faced with a life-changing decision? You’re more likely to be happier if you Choose Change. Fight that status quo bias. You know you ought to.
- This is an interesting method to analyse and discover potential self-identities. Useful when you are confronting a potentially life-changing decision, and you are wracked with doubt. I’m going to give this a try soon.
- “Immigration is America’s superpower.” In contract, while Malaysia, too, is an immigrant nation, our politics have been transmogrified by narrow-minded nationalism such that the “pendatang” is now a dirty word, even when the word is uttered by those who themselves are of immigrant stock!
Commentary I – Education and Economic Growth
As someone who grew up and is currently living and working in a developing country, one takes it for granted that investments in education is one of the most important and pound-for-pound valuable ways to spend public money. Indeed, Malaysia consistently spends a significant amount of its public expenditure on education.
So it astounds me to find that President Biden’s recent decision to announce student debt forgiveness has been seen as controversial. It’s one thing to have Republicans oppose the measure – the mid-term elections are around the corner, anyways – but to witness even steely-eyed economists cast doubt on the effectiveness of the policy measure has been surprising.
Amongst Malaysians, it is an article of faith that education is the primary key to upwards social mobility. Perhaps it is a reflection of the long-term rapid growth of the Malaysian economy, that as the economic pie grows rapidly, a larger share of the pie is captured by those with the right skills and competencies. The skills and capabilities gained through education enables workers to undertake higher value-added activities, making them more valuable in the job market, and unlocking greater opportunities for employment and income generation.
A large part of the criticism around student loan forgiveness in the US comes from the perceived moral hazard of potentially encouraging for-profit education institutions to raise the tuition fees even higher, in an environment where tuition fees are already rising much faster than inflation. (Let’s not get into the entire morass of how the US Congress has been captured by corporate lobby interests, resulting in weakened industry oversight and regulatory logjams.)
And as tuition fees continue to rise in runaway fashion, the return on investment for higher education continues to be eroded, so that many young Americans are increasingly dissuaded from taking the extra time, money and effort to undertake higher education.
This doom spiral in American higher education is one of the many reasons why the USA is becoming increasingly less competitive in the global economy. Conversely, multiple research has shown that economic development is, at its most fundamental level, driven by the accumulation of skills and know-how. Every country that has undergone periods of rapid economic development in their history, from postwar Japan to Malaysia in the 1980s and 1990s and China in the 2000s, can point to large investments in education as a key driver for rapid growth.
Despite the crisis in American higher education, it has still been able to maintain its competitiveness, especially in key sectors such as technology and healthcare, but the weakness in American higher education has been masked thus far, I believe, through America’s continued ability to recruit highly-skilled immigrants, especially in industry hubs such as Silicon Valley. (Although one wonders whether the US can still maintain this edge in coming decades, especially if Trumpism becomes a permanent fixture in American politics.)
As Malaysia’s competitiveness continues to be eroded by lower-cost competitors such as Vietnam and Indonesia, it is alarming to note that our rate of public investment into education is on a declining trend. If we are truly to escape the middle-income trap, we will need to reverse this recent decline, and continue to ensure that investments in skills and education continue to be the number one priority for Malaysia.
Three Things I am Thinking about Today #9
- As the world begins to emerge from the Covid-19 pandemic, concerns arise that we might be heading into another era of stagflation, as global economic growth still looks to be frail, and commodity prices begin an inauspicious climb. Should we be worried? I think it’s too soon to be all anxious about such prospects, but it’s good that people are thinking about it. To be forewarned is to be forearmed.
- After the recent oil price slump of 2014, crude oil prices have made a gradual climb back up, but have not yet reached the peaks prior to that slump. And while there was a major drop following the outbreak of the Covid-19 virus, prices have recently recovered, and a commodity boom is now on the horizon. But how will oil prices fare in the years ahead, as consumer demand for decarbonisation accelerates? It appears to be that that dreaded “peak oil” scenario is likely going to happen soon, or at least within my own lifetime. That secular shift in energy patterns will lead to significant changes in the global economy, as well as geopolitics. That will also mean that the spoils could well go to countries with the foresight to capitalise on this once-in-a-lifetime shift, like the way China has ramped up its capacity for manufacturing solar panels. Other countries would be wise to follow suit.
- This might be controversial to say in certain circles, but after 50 years of the New Economic Policy, and the “emergency” measures of forcing the reallocation of corporate equity to the hands of the “Bumiputera”, it is clear that we need a different way forward. And yet we are recently told that Bumiputera institutions should only sell to (rich) Bumiputera buyers. Why persist with the type of policies that have been proven to have failed in the past, and reward those who are already wealthy, as opposed to helping those who truly need help? And why now, when the new government of the day is insisting that we are all one “Keluarga Malaysia”?