Archive for May, 2007

Towards A Competitive Malaysia #8

Thursday, May 31st, 2007

Chapter 3  The Diamond of Development  (Cont’d)

Porter’s Diamond of Competitiveness

 

Porter discerned four basic conditions that promote the competitiveness of companies and industries. These elements interact with and feed on each other, forming a self-reinforcing synergistic virtuous cycle. He schematized the relationship with his famous “diamond diagram,” with each element forming the angles. Two-way arrows connect each corner to the other three, representing the mutually reinforcing relationships.

The four elements are:

 

Factor conditions: These are the economists’ traditional factors of production: land, labor, capital, and infrastructure.

Demand conditions: The characteristics of the domestic market, including the size, demand, value, and sophistication.

Related supporting industries: The presence of suppliers and supporting industries that are equally competitive and of high quality.

Firm strategy, structure, and rivalry: The regulatory and other governmental environment in which companies are created, organized, and managed, including the nature of the domestic competition.

 

Favorable factor conditions include efficient infrastructures (good ports, communication system) and availability of skilled workers. These would be conducive to and enhance heavy industries like automobile manufacturing. Similarly, the availability of large areas of arable land permitted the development of America’s massive agribusiness. Some of the factors like availability of land and natural resources are the natural or geographic attributes of the nation, “inherited” as it were. Others like the availability of capital and skilled workforce are created or “acquired” traits. The factors critical to higher order and more sustainable competitive advantage are created rather than inherited, as seen with the remarkable successes of such resource-poor nations as Singapore and South Korea.

The absence of these favorable factors, the competitive disadvantages, may at times work in favor of a nation by forcing it to innovate and compensate for the disadvantage. Japan, with its the high energy costs, is forced to produce energy efficient machines. Its narrow streets, the consequence of critical land shortage, were the stimulus for developing a niche for compact and subcompact cars.

The role played by demand factors is illustrated by Italy’s well-regarded leather craft and fashion industry. It is the consequence of its stylish, sophisticated and demanding domestic consumers. They demand high fashion and are not satisfied with any rag to wrap themselves. Italian designers and manufacturers have to cater to those demanding tastes, ushering Italy to lead the world in this sector. Afghanistan and Saudi Arabia are unlikely to lead the fashion world; their consumers are satisfied with the formless and colorless robes and burkas. American onsumers too are discerning; they seek high quality products. They do not hesitate returning a toaster that does not work. Unlike in Malaysia and the Third World, Western manufacturers and retailers are loathed to blame their consumers; instead they focus on improving their products and making them safer and better.

To compete effectively in a demanding market, American retailers have liberal “No Questions Asked!” return policy; they in turn demand rigorous standards from their suppliers and manufacturers. Each returned item represents a loss for the retailer, supplier, and manufacturer. As these companies have to satisfy a demanding domestic market, their products are continually being improved, which in turn make them more in demand in the global market.

Companies in protective markets or where their customers are passive and not demanding have little incentive to improve or innovate. This is the fate of Russian industries. With globalization, and deprived of their protective market, they simply cannot compete. Russian plane designers are among the most talented, yet they hardly make a dent globally. In America with the ending of the Cold War, once leading defense contractors like Lockheed and McDonald-Douglas, long dependent on lucrative “cost plus” military contracts, have either been adsorbed by others or disappeared entirely.

In Malaysia, a major and persistent problem with Bumiputra enterprises is that they rely substantially if not exclusively on government contracts. The government in turn, because of political pressures, does not demand high standards. As a result, these companies are rarely competitive locally, much less abroad. With the 1997 economic crisis and the consequent drying up of government projects, these companies simply folded, much like the Pentagon contractors with the ending of the Cold War. They could not compete. The government is clearly misguided in protecting Bumiputra companies. What they desperately need is more, not less competition.

I am not suggesting that these companies be thrown open to the harsh market right away. The weaning must be cautious and not disruptive, with the competition initially restricted to within the Bumiputra community, and later enlarging it to other Malaysian, and thereafter, regional and international competitors. The important concept is that they must be continually exposed to ever increasing competition. That is the only way to create truly competitive enterprises.

Malaysian leaders point to the Japanese experience to justify protecting domestic, especially Bumiputra, enterprises. The Japanese were initially protective of their “infant” industries, and only after they had become strong would they enter the international arena. Unfortunately Malaysia in its eagerness to ape the Japanese is learning the wrong lesson. As Porter has clearly shown, the truly competitive Japanese industries like automobile and electronics have survived brutal domestic competition. They did not receive any support or preferential treatment from their government, nor has it singled them to be in the “strategic national interest” and therefore be protected and subsidized. The much-coddled Japanese banks and other financial institutions on the other hand failed miserably when exposed to international competition. Likewise its retail sector, long protected because of political pressure, is the least productive. The added costs of that inefficiency are borne by Japanese consumers. Even Japanese-made goods cost more in Japan than elsewhere! Porter’s observation on Japan is equally valid for Malaysia.

The third determinant of competitiveness is the presence of other equally high quality and competitive supporting and related industries and conditions. Italy is rightly famous for its quality leather fashions with such premium brands as Gucci and Bruno Magli. This is possible because Italy has well-developed leather industry and many talented designers. Similarly with the computer industry; the ready availability of skilled engineers and the confluence of Stanford, the University of California, Berkeley, and others in the area, together with innovative venture capitalists willing to take risks, made Silicon Valley a reality. Add to that the openness and lack of deference to tradition and precedence that is the hallmark of the California lifestyle.

Malaysia has much less success with its Multimedia Super Corridor (MSC) in replicating the Silicon Valley experiment, despite its bold attempts. Knowing that the country lacks venture capitalists, the government created its own firms. Unfortunately, they have only the appearance of a venture capital fund; in style and operations they are like the usual conservative and risk-averse banks. Their staff—essentially civil service types—together with the reward system would ensure that the atmosphere remains that of the civil service, the very antithesis of a “high risk, high reward” culture of a venture capital enterprise.

Malaysia also grants companies in the MSC considerable autonomy, like greater leeway in employing foreigners, freedom from onerous regulatory burdens, and significant tax advantages. Still, Malaysia has a long way to go before it recognizes the importance of giving its citizens, especially its intellectuals, entrepreneurs, and risk takers, greater freedom. The crudest and most egregious expression of this Neanderthal “control freak” mentality was demonstrated when the government seized the computers of the Internet news portal Malaysiakini.com in January 2003. By mid 2006 the government was openly mulling censoring the Internet.

Nor have Malaysian universities done their part in producing much-needed qualified personnel. The few graduates are so poorly prepared that companies have to recruit foreign workers even for low to mid level jobs. While America has expedited visa programs to recruit talented foreigners, Malaysian companies have to go through hoops. It reflects the perverted thinking—and priorities—of those in power that it is much easier to bring in hordes of unskilled Indonesian maids and Bangladeshi laborers than talented foreign PhDs and engineers.

Porter introduces the concept of clustering, the interrelated and reinforcing supporting industries and infrastructures. Silicon Valley has the cluster of high-tech companies like HP, Intel, National Semiconductor, and others big and small. One would think that these companies would mortally cannibalize each other, clobbering each other through brutal competition. On the contrary, such competitions and clustering enhance the competitiveness of the industry as a whole.

The fourth element, firm strategy, structure, and rivalry, includes the regulatory and other environments in which firms and companies are created, organized and managed. Senior personnel in German, Japanese, and American firms often are individuals with scientific and technological training. They are fast to grasp the implications of scientific or technological initiatives. Executives with non-scientific background have to be briefed exhaustively by their technical staff.

Most multinational firms are home based in America and Europe rather than China and other Asian countries. Japan and increasingly South Korea are the exceptions. The cultural and social make up of their societies have as much to do with this. Switzerland is made up of three or four major European stocks (Germanic, French, Italian, Flemish). The Swiss are used to living with and exposed to persons of different cultures and languages. Their circle of trust readily extends beyond their cultural and linguistic group. This is also true of Americans. When I give seminars to “high tech” companies in Silicon Valley who are sending their employees to Malaysia, the one item that strikes me is the diversity of their workforce. American managers are attuned to and encourage this diversity; it comes in handy in this era of globalization. American and European executives thrive in foreign cultures.

In contrast, East Asian societies are ethnically and culturally homogenous; their people are parochial, their circle of trust rarely extends beyond family and clan. They do not trust anyone not like them. In Malaysia, few Malaysians have reached the upper reaches of management in Japanese, South Korean or Taiwanese companies, as compared to that of American or British, Asian solidarity notwithstanding. The few senior Malaysians in Taiwanese companies are ethnic Chinese. It would take a major change in mentality for East Asians to break free from their clannishness.

The various components in the cluster synergistically reinforce each other by their close proximity. They stimulate innovation, facilitate the distribution of supplies and products, and allow for close interactions among the participants.

Malaysia’s Multimedia Super Corridor (MSC) clearly lacks many of the elements that made Silicon Valley a thundering success, in particular the lack of high-powered educational institutions to spur research and to provide the necessary skilled manpower. Most importantly, Malaysia lacks the culture of openness and receptiveness to new ideas.

Next:  Role of Government and Public Policies

 

What A Contrast In Leadership!

Sunday, May 27th, 2007

What A Contrast In Leadership!

First posted on Malaysia-Today.net, May 20, 2007

It is the mark of great leaders that they are able to read their followers well, and then to inspire them by appealing to their better side.  Raja Nazrin Shah, the Raja Muda of Perak, is not yet a sultan, yet he has excelled on both counts.

            His recent royal wedding to Zara Salim Davidson was elegant in its simplicity, and dignified by its moderation.  Simplicity and moderation did not make the ceremony any less regal; on the contrary, they enhanced it.  We were, for instance, thankfully spared the all too-common debasing of our fine cultural tradition of the mas kahwin and wang hantaran (dowries) into a crass exchange of cold cash.

            In a culture where the elite has difficulty differentiating between the public treasury and private coffer, the prince’s declining to accept public funding for his wedding is unprecedented.

             The fact that he is receiving widespread praises and adulations reflects the underlying silent disgust Malaysians have for the rampant and obscenely ostentatious displays of wealth that is fast becoming the norm among our elite.  Only our Malaysian politeness prevents the citizens from expressing their loathing for such vulgar displays and the assault on our collective sensibilities.  Unfortunately, our leaders mistake that to be tacit approval, if not explicit encouragement.  How wrong can they be!

A few months earlier, the Crown Prince gave a speech where he passionately declared, “Malaysians of all races, religions, and geographic locations need to believe beyond a shadow of a doubt that they have a place under the Malaysian sun.”  He was specifically addressing young Malaysians, but his speech inspired all.  It was without doubt the most widely quoted address. That was remarkable.  It was as if Malaysians were yearning for their leaders to say something sensible, and at last they found one who did.

In style, tone and words, his speech was a refreshing contrast to the usual screaming, race taunting, and keris-wielding antics of those who have pretensions to be our next leaders.  While Raja Nazrin appeals to the finer qualities of our fellow citizens, these other leaders derive their strength by instigating their followers’ sinister side.  Raja Muda’s speech touched our hearts; these other leaders’ rhetoric chilled our spines.

Hereditary and Political Leaders

            The merit of democracy is that we get to choose our leaders, in contrast to a monarchy where the leadership in inherited.  With the choice and competition of democracy we should expect better quality leaders.  Yet in the person of Raja Nazrin we have a hereditary leader who is way above our elected political leaders.

            We could not attribute the difference to education.  At the risk of flattering UMNO Youth leaders like Hishamuddin and Khairy Jamaluddin by comparing them to the Raja Muda, consider this.  The pair attended top British universities, as did Raja Nazrin.  Khairy, for example, went to Oxford and came back to marry the prime minister’s daughter in lavish multiple ceremonies that dragged on for days.  There was nothing modest or simple about that wedding.  Raja Nazrin too was Oxford educated, but he opted for a modest uncomplicated ceremony, and asked that donations be given to charity in lieu of extravagant tributes and bodek advertisements in the media.

            Nor could we explain the difference to their upbringing or breeding.  Hishamuddin is the scion of a distinguished political family.  His grandfather, Datuk Onn Jaafar, was ahead of his generation in seeking integration among the races and the creation of a pluralistic vibrant Malaysian nation.  Onn resigned from UMNO’s Presidency over this very issue.  Hishamuddin’s father, Hussein Onn, was noted for his integrity and intolerance of corruption.  Despite intense opposition and at a considerable cost to his popularity, Hussein refused to block the prosecution for corruption of a popular senior UMNO figure.  Unfortunately, none of these sterling qualities filtered down to Hishamuddin.

Demonstrating Good And Upright Leadership

            In his speech, the Raja Muda emphasized that “good and upright leadership must be demonstrated.”  He was echoing the qadharat hassanah – leadership through personal example – of our Prophet Muhammad, s.a.w.

When the Raja Muda declared that he wanted a modest ceremony, he meant it.  He politely declined public funds and asked that the money be expended on the poor instead.  The royal wedding guests included students and orphans.  In so doing, he inspired others to do the same.

All too often our leaders are good only at spouting trite phrases.  “Work with me, not for me!” is an oft-repeated quote of Prime Minster Abdullah.  Yet when the citizens were in dire need, as during the massive Johore flood, he saw no need to cancel his scheduled overseas vacation.  He asked Malaysians to be frugal yet would not hesitate in buying a luxurious corporate jet at public expense for his use.  Never mind that no other Commonwealth Prime Minister has such a privilege.  He compares himself to the Saudi King and the United States President.  The humility and modesty of a modern Imam!

            When the Raja Muda said that political, social and economic incentives must reward good behavior and penalize bad, I wished our Prime Minister would listen.  Consider Klang Town Council member Zakaria Mat Deros and “Close One Eye” Melaka MP Muhammad Said.  Far from being punished, they are being rewarded, and rewarded handsomely.  That sends precisely the wrong message, and undercuts the Prime Minister’s very message (and campaign promise) of public integrity.

Encouraging the Raja Nazrins and Discouraging the Hishamuddins

The challenge for Malaysians is how to encourage the Raja Nazrins and dissuade the Hishamuddins among our leaders.  Picking our leaders based on their political or familial pedigree is not reliable, as demonstrated by Hishamuddin.  Sending future leaders to august universities like Oxford is no guarantee either.  As with Khairy, that would only feed their over-inflated ego and sense of competence.

Instead, what we should do is heed the advice of Razja Nazrin, that is, reward our leaders when they do good, and penalize them severely when they stray.  Our ultimate weapon as citizens in a democratic society is to grant or deny them our approval at election times.  Elections however come once every four or five years, and the election weapon is a crude one:  approve or reject.  There is no subtlety.

There is much that we can do in between elections to voice disapproval of our leaders.  The obvious is of course to let these leaders know when they do something we disapprove.  With the democratizing effect of the Internet, any citizen can now have a potentially powerful megaphone to reach as wide an audience as possible.  The worse that we could do is to justify their stupidities or be their apologists.  That would only encourage them.  If we do nothing but remain silent on the sidelines, our leaders would eagerly interpret that as approval.  They would then continue to act with impunity and become, in the words of my kampong folks, tak sedar ekor (lit. not knowing where his tail is; fig. get carried away).  Alternatively, when they do something worthy of our approval, we should be generous in our praises.

I read a deeper meaning to the Raja Muda’s refusal to accept public funding for his wedding.  He is a genuine prince, and his marriage is the product of true love.  Like us, he knows that the flattering public displays of devotions and tributes in those effusive newspaper advertisements are phony.  There was nothing generous in the Mentri Besar offering money that is not his to the prince.  Unlike our political leaders, The Raja Muda intuitively knew that the path to the citizens’ hearts is not to have them spend money on him but for him to spend money on the citizens.

As Raja Nazrin Shah and Zara Salim Davidson begin their life together, I join millions of others in wishing them many years of blissful marriage.  May they bring happiness to each other, and may Allah shower His Mercy and Blessings upon them.  May their example of charity, grace and moderation rub off on all of us – leaders and followers alike.

Towards A Competitive Malaysia #7

Wednesday, May 23rd, 2007

Chapter 3:  The Diamond of Development

The five largest countries in terms of population are (in descending order) China, India, United States, Brazil, and Indonesia. Combined they have over half of the world’s population.1 Except for America, none of the other countries have personalities, companies, or industries that have an impact globally. As for the few Chinese and Indians whose contributions are of global significance, many do so only after they have left their homeland. As for the Indonesians, they have given the world and themselves only brutal and inept dictators: Sukarno and Suharto. The only Indonesian who commanded respect worldwide was the gifted writer Pramoedya Ananta Toer, and his books are banned in Indonesia! As for Brazil, she can rightly be proud of her soccer legend Pele.

Again excepting America, none of these countries are known for providing premium goods and services. Consider the leading brands of today. Nestle foods and Rolex watches come from Switzerland, population over just six million. Nokia phones, the gadget Malaysians cannot seem to be without, are from Finland, population under five million; the luxury car Volvo, Sweden, population eight million; and Shell Oil, the Netherlands, 14 million.

The example of Shell is particularly pertinent considering that the Netherlands does not even have oil. One would have expected that an Al Sheikh Arabi Oil Company or some such Arab entity to lead the global petroleum market. About all the Arabs could do was to invite others to explore, extract, refine, and market their oil. Then with the ensuing fabulous wealth, the Arabs managed no better than to squander it on expensive armaments for killing and destroying each other.

China and India were once cradles of ancient and sophisticated civilizations. The Indians gave us the concept of zero and other valuable insights in mathematics. The Chinese, as intimated earlier, had all the ingredients that could propel them into their own Industrial Revolution.

It is unlikely for the Chinese and Indians to have undergone any biological change in the interim to explain their subsequent decline. Nor have the climate and geography of their native lands changed. We have to look elsewhere for more satisfactory explanations of what makes Switzerland capable of creating companies that can bring out products like Nestle Foods and Rolex watches while China and India, each with a population several hundred times more, can hardly run their airlines. Air India is one of the worst airlines; even the Indians avoid it. Chinese airlines have equally lousy services, and an atrocious safety record to boot. Yet Singapore Airlines, run essentially by the same ethnic entity, is the envy of the world and consistently raking in profits.

A common refrain among Malay leaders in trying to explain Malay backwardness in commerce, especially when compared to the Chinese and Indians, is that they (Chinese and Indians) somehow have this mysterious instinct to excel in business. They are born with this talent, so how could Malays compete effectively with such divinely favored groups? Hence the need for special privileges for Malays! No less than former Prime Minister Mahathir subscribes to this view. A brief visit to Bombay and Beijing would quickly disabuse these misguided Malay leaders of their silly notion.

This chapter deals primarily with the development of societies during a much shorter time scale of a few generations. The literature is voluminous; I will touch on some of them later, but in this chapter I will explore three highly influential modern ideas: Michael Porter’s concept of competitive advantage, Robert Barro’s determinants of economic growth, and Paul Romer’s new theory of endogenous growth.

Porter’s Competitive Advantage

Searching for answers on why some countries are more successful in creating companies and industries whose products and services are in demand worldwide led Michael Porter to his breathtaking study that resulted in his seminal tome, The Competitive Advantage of Nations.2 With over 800 pages, it is presumptuous of me to summarize it in a few paragraphs, but I will for now to keep the narrative.

In the classical view, nations could best take advantage of their comparative advantage by engaging in trade. The simplified example was the comparative advantage Portugal had with its balmy Mediterranean climate over Britain in growing grapes and producing wine. Britain on the other hand had the advantage of having abundant coal, a cheap energy source. By exploiting their comparative advantages through mutual trade, the Brits get to enjoy fine Portuguese wine while the Portuguese can warm their homes and winery by importing cheap British coal. Sensible enough.

It was cheaper for the Portuguese to import the coal; if they were to provide their own energy source by cutting down their forests, fewer Portuguese would be available to make their fine wine. Similarly with the Brits; if they were diverted to making wines that were of poor quality anyway, there would be fewer to work the mines, and less coal to sell to the Europeans.

Porter introduces the novel concept of competitive advantage. What is critical is not that Britain has cheap coal and Portugal is blessed with a climate suited for vineyards, rather how each country could use those resources to maximal advantage. To follow through the example, yes it is more expensive to grow grapes in Britain because of its erratic weather, fewer sunshine days, and frequent crop failures, nonetheless the British could still beat the Portuguese in wine making by using some smarts. By harnessing the brilliance of its scientists, Britain could produce biogenetically engineered grapevines that could withstand frosts and pests, and then concentrate producing only premium wines. Though it would cost more to produce, it would command a higher price and therefore bigger profit margins. Meanwhile let the Portuguese capture the mass low-profit cheap wine market.

Similarly, the Portuguese need not be at the mercy of Britain for energy. They could develop solar panels to tap the energy source of its abundant sunshine, or design special turbines to tap the massive tidal wave energy of the Atlantic Ocean. Both sources would be infinitely less polluting, sparing the pristine beauty of the country’s bucolic vineyards. With no thick smoke bellowing from the smokestacks of its coal generators to soil the air and blight the landscape, the Portuguese could now turn its countryside into a vacation haven for the sunshine-starved Brits, just as the Californians are doing with their Napa Valley wine country.

Porter studied successful industries and companies of ten leading trading nations. Among them, three are major industrial powers (United States, Japan, and Germany); two small Asian states (South Korea, and Singapore); and three small (Denmark, Sweden and Switzerland) and two relatively large (Italy and Britain) European nations. These ten countries accounted for an amazing 60 percent of the world’s economy and 50 percent of its exports, while having about 10 percent of the population and 8 percent of the land mass.1

Next:  Porter’s Diamond of Competitiveness

Malaysia’s Special Freedom Zone

Sunday, May 20th, 2007

Blogging:  Malaysia’s Special Freedom Zone  (Exchanges With Din Merican)

Dear Bakri.

I was at the inaugural meeting of Malaysian bloggers held at the Lake View Club, Subang Jaya, on May 19, 2007.  I was invited as a guest of Desi Chong, presumably because I was identified with your webblog.

There were well over 100 bloggers participating, representing a broad political and social spectrum.  It was well organized, with a panel of speakers followed by substantive discussions.  It was also an opportunity for personal interactions and social networking.

It was not all business and intellectual feast however.  The two roasted lambs, compliments of Club owner Soh Chee Wen, together with the usual Malaysian fair, made for a fine social evening.  There was also some red wine for those so inclined, as well as a karaoke session afterwards.

The panel included Jeff Ooi (Screenshots – www.jeffooi.com), Marina Mahathir (www.rantingsbymm.blogspot.com), Tong Pua (Economic Advisor to DAP’s Lim Kit Siang – www.tonypua.blogspot.com), Rocky Bru (Ahirrudin Atan – www.rockybru.blogspot.com), Nadeswaran (Citizen-Nades of the Sun), Desi Chong (Chairperson – www.desiderata2000.blogspot.com), Thian Chua (KeADILan Information Chief), Raja Petra (www.Malaysia-Today.net), and a lecturer from the Institute of Press Relations.

The evening’s theme was “Embrace and Engage; The Role of the Fifth Estate.”  There were also various books on sale at the event, including your latest, Towards A Competitive Malaysia.

Raja Petra and Rocky Bru mentioned and acknowledged your contributions to the development of blogging in Malaysia and your ongoing efforts to keep the public informed of your perspectives on contemporary issues.  Rocky in particular admired your writings.

Raja Petra forthrightly told the audience that his blog was intended to “bring down the Government” of Abdullah Badawi!  He left no doubt in our minds where he was coming from, with the full knowledge that there were, as usual, Special Branch plainclothes officers in our midst.  He proudly mentioned that when he started his one-page blog in 1995, there were only 250,000 Internet users in the country.  Today, the number has shot up to 11 million.  His Malaysia-Today regularly gets daily hits of nearly two million.  He feels strongly that there is a desperate need for an alternative to the government-backed and political party-owned mainstream papers.

Raja Petra encouraged all, including our family members and friends, to be involved in a determined and sustained basis.  He urged us all to do three things.  First, register to vote; second, re-check the electoral roll to make sure that you are properly registered; and third, cast our ballots on voting day – even if it were snowing! – in favor of any opposition party.

He feels that the Abdullah Administration is corrupt and inept, run by a courtier of individuals around his son-in-law Khairy Jamaluddin.  They include Kamal Abdullah (the son), Kallimullah, and Patrick Badawi.

As for personal and press freedom, Raja Petra argued that there was no material change under Abdullah.  It is the same as under Mahathir, but more subtle.  As long as there are the ISA and Press laws, we are never truly free.  Raja Petra revealed that he always received threats from the authorities whenever he was critical of Abdullah’s actions and policies.

Rocky Bru, who together with Jeff Ooi are being sued by the NST, said that he and a few friends had established a Bloggers Alliance Group, but was waiting for approval of the Registrar of Societies before they could commence activities.  This Group was intended to be a networking mechanism, and to provide some assistance with legal suits, especially of the “class action” variety.

Tony Pua urged bloggers to be balanced and responsible.  Only those blogs that are credible would have an impact on public opinion.  His personal blog was intended to provide up-to-date information on the state of the economy and an objective commentary on government policies.

Nadeswaran reminded us that the government could be heavy handed with bloggers and journalists critical of Badawi personally and of his Administration.  He pointed out that the Special Branch could literally turn up “in the middle of night and take you away from your family,” using “disrupting national unity” as the pretext.

While politicians like Minister of Information Zam, for whom Nadeswaran showed nothing but utter disgust, had threatened the public with the specter of May 13 and Ops Lallang, Nadeswaran reminded the audience that he was not intimidated.  He made sure however, that his facts are accurate.

Marina related how her friends encouraged her to blog when her 17-year Musings in The Star became constrained over the 800-word restriction.  She is often criticized as a “copy and paste thing” because she posted articles of topical interest to stimulate public discourse.

Bakri, you should consider doing a piece on our blogging community and how they could mobilize public opinion.  Highlight Raja Petra’s three suggestions on preparing for the upcoming elections.  Finally, you may wish to send your best wishes to all the bloggers mentioned above for their timely initiative.

Kind regards, Din

====

Dear Din:

Thank you for your update on the Bloggers United meeting, dubbed BUM 2007 (thanks to someone’s sense of humor!).  Malaysian bloggers’ dynamism is anything but a bummer, except perhaps to the authorities!

            I read some of the comments on the other websites.  Someone had also thoughtfully videotaped the sessions and posted them on YouTube. Isn’t it amazing the power and reach of these new technologies!

In 1978 Deng Xiaoping, in thinking of ways to rebuild his country after the disastrous Mao decades, came upon the idea of Special Economic Zones to nudge his stagnant communist country into the modern economy.  From that early seed grew today’s modern China, with capitalism now embracing the whole nation and with that, a quantum leap in the well being of its citizens.  China is today only nominally communist, or as Deng would wickedly put it with a wink in his eye, communism with Chinese characteristics!

I look upon blogging specifically and the Information Technology (IT) generally as Malaysia’s Special Freedom Zones.  From this seed would sprout greater freedom in other, and ultimately all, spheres of Malaysian life.  At least that is my hope.  Unlike China’s Special Economic Zones that took decades to have their impact on the rest of the country, Malaysia’s Special Freedom Zone will exert its influence much more rapidly.

Unlike China’s Special Economic Zone which was a deliberate official policy, Malaysia’s Special Freedom Zone was an unintended (at least by the authorities) consequence of the country’s eagerness to embrace IT.  Prime Minister Mahathir, who spearheaded this, grudgingly accepted this trade off.  Even today, despite the obvious personal benefits to him after being shut off by the mainstream media once he was out of power, Mahathir still has second thoughts about granting this freedom.  It matters not as the genie is now out of the bottle.

Mahathir may not realize it, but his granting freedom to the IT sector may well be his greatest and most enduring legacy.  There is no stopping this movement towards greater freedom; the metaphorical Berlin Wall that blocks access to information in Malaysia is now broken.  It cannot be put together again.  On the contrary, the momentum of the wreckage will break down other barriers.

When I was writing for one mainstream paper, I would be lucky to hear from one or two readers occasionally.  I was not sure whether anyone was reading my commentaries or the editors were not publishing my readers’ letters.  Today I get hundreds of letters here on my blog as well as on Malaysia-Today.

Bernama bragged about getting half a million hits a day on its website because of its coverage of the Perak royal wedding.  Bernama editors obviously had not looked at Malaysia-Today’s figures.  The Star and New Straits would drool at figures a tiny fraction of MT’s!  No wonder Michael Backman named Raja Petra among the Top 20 Asian Progressives!

The blogs’ influence will expand and be even more powerful.  This is reflected in the declining circulation, readership and influence of the mainstream papers; they are fast being reduced to irrelevance.  NST is today nothing more than an UMNO newsletter.  It is noteworthy that Ahiruddin Atan is now more widely read and influential than when he was with the mainstream media.  Raja Petra’s aggressive investigative journalism reduces the mainstream journalists to sophomore reporters.

The authorities are forced to respond however ineptly to issues raised by bloggers, from Abdullah absconding to Perth during the devastating Johore floods to his ordering a luxury corporate jet.  The threat to register bloggers reflects this increasing reach; likewise with mega libel lawsuits.  These lawsuits will be futile.  As can be seen, with skillful lawyers these lawsuits can backfire on the plaintiffs.  Thanks to court filings, we now know of other instances of plagiarisms.

Even if the suits were successful, they would be meaningless.  All they would do is to make people use pseudonyms, Internet cafés, work on-line, and use overseas servers.

Even China is not successful with reining in the Internet.  Whatever success it has is through the unwilling help of IT companies.  Those companies are now being sued in California by Chinese nationals who had been detained by the Chinese, allegedly based on information provided by those companies.

However, as Raja Petra rightly noted, we need to go further.  The Abdullah Administration must be humbled, and the only way is through the ballot box.  I am with Raja Petra on this:  vote any opposition party.  You do not need to defeat the government in order to teach it a useful lesson.  Look at Bush with the recent midterm elections; Abdullah too is teachable.

We must bring out the jantans in our voters to impart the lesson to Abdullah.  To get rid of him however, we must encourage if not instigate the jantans in UMNO, if there are any left.

The organizers and participants of BUM 2007 have done the nation a great service.  Individually and collectively, they are cultivating the soil and planting the seeds of freedom.  I join you and others in thanking them for their untiring efforts.  I am humbled that folks like Ahiruddin Atan, Jeff Ooi, Nadeswaran, Raja Petra and others, despite the obstacles and threats hurled their way, bravely march on.  Raja Petra in particular, despite having been detained under the ISA, remains unfazed, in fact he is invigorated – a tribute to the resilience of the human spirit.

May they, and Malaysia, have continued success.

Sallam, Bakri

Towards A Competitive Malaysia #6

Wednesday, May 16th, 2007

Chapter 2: Ideas On The Evolution of Societies: From Ibn Khaldun to Jared Diamond –Cont’d

Presumed Primacy of Biology

The other element often cited in discussing the fate of human society is biology. It is easy to fall for the line that biology is destiny. The most advanced nations today are Western European and others settled by its kindred: America, Australian and Canada. It is tempting to attribute the success to their supposed innate superiority. In the heyday of colonialism it was accepted that the White Man was divinely destined to govern the rest of mankind. The remarkable observation is that the rest of mankind readily accepted this fate. Hence the British could rule mighty India with its glorious age-old civilization with a mere few thousand British civil servants, and humbled Imperial China with a few more thousand troops.

Today such claims of racial superiority are of course frowned upon, and rightly so as they reflect a dangerous underlying racism. Nonetheless the residuum of such thinking still exists, and not just among the White Man. In his book The Malay Dilemma, Dr. Mahathir, a man who should know something about human biology being a physician, bluntly attributed the backwardness of Malays to “dumb genes!” He went so far as to encourage Malays to intermarry so as to dilute the impact of these “undesirable” genes.13 He must speak from personal conviction, being the product of mixed Malay-Indian heritage.

To be fair to Dr. Mahathir, at the time his views were widely shared not only by the public but also by scholars.

South of the causeway, Lee KuanYew also entertained similar thoughts. His government is actively arranging marriages among university graduates to ensure that future Singaporean babies would be smart, or at least all above average, like the children of Garrison Keillor’s Lake Wobegon.14 Fortunately those bright Singaporeans of reproductive age knew better than to listen to some halfcocked genetic advice from their half-informed leaders. This line of thinking is no different qualitatively from Hitler’s eugenic ideas on the super Aryan race.

The problem with using biology to explain the conditions of human society is that there are many ready exceptions. While most of the First World may be White Man’s territory, nonetheless a large swath of the globe inhabited by the White Man is still mired in poverty: Eastern Europe, Russia, and Latin America. It is also easy and convenient to forget that the ascendancy of the West is very recent. While London was still in the Dark Ages, cities like Damascus and Baghdad were already flourishing centers of great civilizations. Similarly, China had an efficient and organized system of governance while Britain was still nothing more than a collection of feudal fiefdoms. Biological attributes do not change on such a short time scale.

Today with Japan, South Korea, and Singapore joining the First World, we no longer hear such previously commonly uttered phrases as “the dumb Japanese” or the “stupid Chinese coolie.” Old British colonials based in Singapore regularly referred to the Chinese as an “inferior Asiatic race” with “disgusting habits,” “loose morals,” and where “a life of chastity and continence was a phenomenon so rare as to be beyond native belief.”15

The fallacy of the biological argument is dramatically demonstrated by examining the fate of the North and South Koreans. Same biology, but after over a generation of being separated and brought up under two different political systems, what a difference!

* * * * *

Although I have presented a brief overview of human society from our hunter-gatherer forefathers to the present, the focus of my book is on the development of human societies on a much shorter time frame, that of a few generations. In that short time span, factors like geography, climate and biology remain constant and do not play much pivotal role. Nor can such factors be modified, thus limiting their usefulness. Why study something that you cannot do anything about?

To examine the factors influencing the development of societies over this shorter time frame of a few generations, we have to look beyond biology and geography to the social sciences, in particular economics. That will be my focus in the next few chapters.

Next: Chapter 3: The Diamond of Development

Angan Angan Mat Jenin, Or, The Delusions of a Walter Mitty

Sunday, May 13th, 2007

Angan angan Mat Jenin

Or, The Delusions of A Walter Mitty

M. Bakri Musa

Hardly a day goes by without some minister, including the Prime Minister, announcing a brave new initiative. One day it could be, “Love our Rivers!” on another, “Cultivate a culture of maintenance!” Lower-level leaders too are aping this. Thus, the vice-chancellor of one public university proclaiming, without even a trace of embarrassment, that his institution would be the “Harvard of the East” within a decade! Such pretensions reflect blissful ignorance.

Many of these ideas end up being nothing more than what we Malays would put it as Angan angan Mat Jenin, or the delusions of a Walter Mitty.

Mat Jenin is the ageing “has been” jagoh kampong (village champion) who never tires of expounding his daring plans to save his race. Meanwhile he is busy idling his life away beneath the swaying coconut fronds. Walter Mitty is the fictional character in James Thurber’s short story, The Secret Life of Walter Mitty, a meek old man who fancies himself a wartime pilot, a daring surgeon, and a ruthless killer, all in a few paragraphs and while driving his wife shopping.

The vivid imaginations of a Mat Jenin or a Walter Mitty are harmless if not mildly entertaining; the wild delusions of our leaders are dangerous and cost us a bundle. It would humble if not silent these leaders if only they would pay some attention on how they would carry out their ideas. That would disabuse (or at least discourage) them of their grandiose schemes, and in the process spare us – and them – the embarrassment.

The most damaging aspect is that because of these leaders’ poor executions, hitherto excellent ideas would now become discredited, making their later resurrections by more competent leaders that much more difficult.

Ignorance and Incompetence

Ignorance and incompetence are the twin factors why otherwise good ideas failed. In particular, ignorance of the magnitude of the problem and of the power of existing forces in maintaining the status quo. This is quite apart from the sheer force of inertia; people just do not like change.

This dilemma is further complicated by the fact that the gains from any new initiative, even if it were to benefit many, would remain only a promise until the project was fully implemented and successful. Meanwhile those currently benefiting from the status quo, the loss for them would be immediate. They may be in the minority but they can be expected to mount a vigorous challenge and to make themselves appear as the voice of the majority.

This is a familiar public policy dilemma, and explains the difficulty in eliminating public agencies that have long ago ceased to serve any function. They have acquired entrenched constituencies, foremost the civil servants.

A leader does not need to be knowledgeable in all fields. President Kennedy knew nothing about aeronautics or planetary science when he ambitiously declared about sending a man on the moon (and back) within a decade. He knew enough that that was an achievable goal, and then sought competent personnel to run the project. Had Kennedy declared that he wanted to land a man on the surface of the sun, Americans would wonder what their president had been smoking.

Goals must be achievable; unrealistic targets would merely be a set up for failure, and its attendant negative consequences. Better to have a modest and achievable target, once you reach it, then you could build on it. Success builds upon success.

My advice to the Malaysian vice-chancellor would be simple: Do not try to make your institution the “Harvard of the East,” whatever that term implies, instead have specific, quantifiable, and achievable goals. For example, strive to have at least half your faculty members with terminal qualifications, double their research grants, and triple the volumes in your library. That may not produce a Harvard in the rice fields of Kedah, but at least you – and the nation – would have a much better university than what it has today.

Currently, Prime Minister Abdullah’s preoccupation is with the poor maintenance of public facilities. Instead of endlessly sermonizing and whining about it, why not mandate all departments allocate a specific budget for maintenance?

I participated in the planning of an addition to our current hospital here in California, and we allocated a generous budget for maintenance and renovations for the first year of operation equaled to about 20 percent of the capital costs. We understood that the architect, no matter how competent and visionary could not anticipate all the specific needs of all the building users, and that there would be an inevitable need for changes once the building was occupied.

Contrast that with the typical Malaysian project. The budget would have been exhausted in building the structure with nothing left for the subsequent needed alterations and landscaping. The access road would remain narrow and unpaved, and there would be no upgrade to the power grid or drainage system. The consequences would be predictable: flash floods, traffic jams, power failures, and of course, falling ceilings!

Downstream Analysis and Failure Analysis

Many of the problems can be anticipated by doing “downstream analysis,” that is, by imagining or modeling what would happen if the project were fully operational today. Consider a housing project. With hundreds of new families moving in, you could imagine the increased in vehicular traffic, the need for more utilities as well as social services like clinics, shopping, and schools. By anticipating these problems, you could more easily solve them.

The various projects in Malaysia go through impressive vetting processes and environmental impact studies. Unfortunately they are impressive only on paper; there are too many exemptions or variants because of corruption and influence peddling. There are many ready and obvious examples.

When things fail, there must be a thorough failure analysis. In America this is done less to find the cause rather to assess liabilities and who would be responsible for paying the attendant damages. The process thus often gets entangled in expensive litigations, with the learning opportunities consequently diminished

Failure analysis means going through the process from start to finish and finding what and where the deficiencies are. Major catastrophes often are not the result of one major bungle, rather the cumulative and compounding effects of minor and seemingly unrelated errors, all working in the same direction. As the old saw would have it, “For lack of a nut … the war was lost.”

In Malaysia, the problem is compounded because decisions are often made by committees. It would be hard to nail the responsible individuals when failures happen. Even when the responsible parties could readily be identified, the government is unwilling in naming the culprits. It has yet to name the responsible contractors and engineers for the various projects that have collapsed. These professionals have their reputation to protect; therefore revealing their names would have the desired effect not only on the responsible parties but also on others. In the fiasco over computer lab constructions in schools, the ministry has yet to publish, let alone blacklist, those incompetent contractors.

Prime Minister Abdullah recently unveiled his ambitious plan to take the nation to 2050. I would be happy if he could execute his current Ninth Malaysia Plan first, and well. His 2050 Plan sounds very much like Angan angan Mat Jenin.

Towards A Competitive Malaysia #5

Wednesday, May 9th, 2007

Chapter 2:  Ideas On The Evolution of Societies:  From Ibn Khaldun to Jared Diamond –Cont’d

Comparative Advantages of Physical Geography

Apart from its effect on the economy through climate, geography also confers distinct advantages through such attributes as location and availability of natural resources.

Accessibility to navigable waters is one significant economic advantage. Transportation over water is cheaper, easier, and more efficient than over land. The only expensive infrastructure needed apart from the boats and ships are the ports. There is no need for expensive roads and bridges. Coastal areas and those accessible to a large body of water enjoy distinct advantages over the hinterland. With the ease of transporting goods and people, comes the flow of new ideas and ways of doing things. Minnesota and North Dakota share essentially the same geography and climate, but the former is connected to the Great Lakes (and through that, the world) and thus enjoys superior economic advantages over North Dakota.

Singapore’s leaders brag with nauseating frequency about how their republic’s achievements come despite its apparent lack of natural resources, but they conveniently forget one significant favorable attribute of geography. The island is strategically located on the important maritime trade route between Asia and Europe; it is further blessed with a deep, protected natural harbor. Those are considerable natural advantages. To real estate professionals, location is everything.

Many countries are blessed with numerous positive geographic attributes only to squander them, as the Arabs with their oil. For many, such bounties are a curse; they encourage greed and corruption among its people and leaders.9  While a nation cannot alter its geography, it can change its attitude towards and thus the management of those realities. Florida may be inundated with mosquito-and crocodile-infested swamps, but with flood and pest controls together with the needed public utility improvements, those swamps are turned into desirable marinas and prime real estate. In Malaysia such swamps are regarded as sources of pestilence, ascribed evil qualities (infested with hantu or evil spirits according to traditional Malay myths), and turned into convenient dumpsites. This negative cultural attitude is well chronicled in Conrad’s many Malay novels where the water’s edge is invariably associated with scenes of intrigue, death, and destruction.10

This natural flow of trade and people over water has other consequences. Islam entered the Malay world through Malacca, once a thriving maritime trading center. Globally, the most cosmopolitan—and thus most developed—regions are either coastal areas or those accessible via navigable waters, as with China’s Shanghai, Japan’s Yokohama, and India’s Goa. Exceptions occur, of course. East Coast Malaysians are among the most insular despite their access to the South China Sea. There is very little trade with the outside world as there are few natural harbors along that coast. Further, their culture treats the ocean as something evil and to stay away from it. No doubt the havoc created by the monsoons contributes to this belief.

Globally, the areas of high economic activities are concentrated mainly in temperate zones and along coastal areas, confirming the significance of geography.8

 

Collapse of Societies

Studying how societies develop is important; equally instructive is to study why once thriving societies and civilizations declined or even collapsed.

Holy books warn of the dire consequences to societies when greed, corruption, and injustice become the norm. Pre-Islamic Arabs were never destined for greatness; on the contrary they were close to self-destruction with their endless internecine wars and destructive cultural traits like slavery and female infanticide. Prophet Muhammad’s (may peace be upon him) divine revelations uplifted them from their Age of Jahiliyah (Ignorance) into enlightenment. The ulama may emphasize the theological and spiritual aspects of the prophet’s teachings; to me the essence of Islam is social justice and serving your fellow man.

Historians have their own explanations on the decline of great empires. Underneath their specialized language, the same basic reasons as noted in the holy books prevailed: hubris, greed, corruption, and injustice.

It took a biologist, Jared Diamond, to look at the issue differently. His Guns, Germs, and Steel takes a panoramic view of the progress of society, in particular, the pivotal role of geography. His latest book, Collapse, explores how once dominant societies declined and disappeared almost in the blink of the eye, historically speaking.11

In his study of disappearing and disappeared societies as diverse as the Easter Islanders and Greenland’s Norsemen, Diamond discerned a number of commonalities. One was their disregard for the environment. Easter Island was once heavily forested with tall palm trees and other tropical plants when the first Polynesians came upon its shores around AD800. They built canoes and huts from those trees. The islands were also teeming with birds and animals; the seas abundant with fish. The Islanders were never short of food. The concept of over fishing, over hunting, and over cutting was beyond their comprehension. By AD1600 however, the trees and birds were gone, and so were the Islanders.

The “tipping point” for that society presumably came about when the Islanders cut down the last tree to build their one canoe too many.12 Diamond posed the interesting hypothetical question: “What were the Islanders thinking when they cut down that last tree?” Probably nothing, they were doing exactly what their ancestors had done before them. That sealed their fate; their decline came rapidly thereafter.

Without the trees they had no firewood, nor could they build their canoes to fish the ocean. The environmental impact of denuding the forest was even more devastating. The once lush fertile soil became depleted through erosion and thus unable to sustain their agriculture. In the end, they resorted to mass cannibalism; such was their desperate state. It must had been gruesome, and, to use the language of the ecologist, not a sustainable survival strategy.

Across the globe in the Arctic Greenland, the Norsemen had similar environmental problems, and their society too met the same sorry fate as the tropical Easter Islanders. The Norsemen came from Norway, a country rich with its farming traditions. They saw no reason to change their lifestyle in the new land. Being Europeans, and having conquered and subdued the northern part of the continent, they felt they had nothing to learn from the backward natives, the Inuit (Eskimos). They were contemptuous of and hostile to the Inuit.

The Norsemen maintained the same lifestyle as their brethren in Norway, including and especially their fondness for beef, instead of changing their diet and taking advantage of the abundant fish and reindeer. Those were for the poor natives, not cultured Europeans. The growing season in Greenland was much too short and raising calves put great demands on the land. Over grazing and over cultivation ensued. When the mini Ice Age hit their new land, it sealed the fate of this proud population that refused to adjust to the new realities.

Their contempt for the natives precluded the Norsemen from learning and adopting sustainable lifestyles, like hunting walruses and fishing the ocean. Weakened, they were easily overpowered by the Eskimos. Cut off from support from their brethren in Norway, those Norsemen had to fight the Eskimos on the same level playing field and using the same primitive weapons.

Overgrazing alone did not do in the Norsemen, and did the mild climatic change. More critical was their culture that prevented them from solving their problems, or at least helping them adapt to the new realties. Despite the heavy toll on their environment, those Norsemen persisted in their ways. Today, the Inuit still live in Greenland; as for the Norsemen, we have to rely on archeological findings to tell their story.

Lest we think that Diamond’s theory applies only to ancient people, he brings up the plight of the Montanans. Only a few decades ago Montana was one of the wealthiest states in America, buoyed by mining, agriculture, and forestry. Today 70 percent of its children receive food aid, and its population slowly declining. The mines are now exhausted, waters polluted, agriculture destroyed, and forests denuded. The state depends on federal aid to survive.

It is not the environmental damages and climactic changes that doomed certain societies, rather their responses to such changes. That in turn is largely governed by their culture. The crux of Diamond’s observation is that success or failure of a society is to know which core values of its culture to hold on to, and which ones to discard and be replaced with new values when times and conditions change.

We cannot predict or prevent natural disasters like the Tsunami that hit Southeast Asia in 2004. However, if we have an inherently healthy regard for the environment, we would intuitively respect and not destroy our natural habitats like the mangrove swamps; they, as we now know, help protect against the ravages of the waves. We cannot prevent the inevitable torrential tropical downpours, but if we do not denude our forests in the greedy pursuit of profits, we would be spared the erosion and consequent silting of rivers and destructive flooding.

Next:  Presumed Primacy of Biology

 

Get Out of The Student Loan Business!

Sunday, May 6th, 2007

Get Out of the Student Loan Business!

M. Bakri Musa

It is an astounding admission by the Public Services Department that about 10 percent of its over 100,000 student-loan borrowers have not paid a penny on their loans.  Some of the defaulters had completed their studies over 20 years ago.

            The government through MARA, JPA, and others has disbursed the colossal sum of over RM12 billion over the years.  Additionally, the GLC National Higher Education Fund (PTPTN – its Malay acronym) had given out nearly RM19.06 billion to 982,000 borrowers since its inception.  Even if those figures represented rupiah or pesos instead of ringgit, they would still be a huge sum.

            To say that the involved departments were inept and inefficient in their loan disbursements and collections would merely draw a yawn.  What else is new?

            The reality is that such activities as credit assessment and loan processing are alien to these civil servants; they are wholly unsuited by training and temperament.  Those activities properly belong to banks and financial institutions.  The only realistic solution to the government’s present mess would be to get out of the student loan business by privatizing it, and selling off the existing outstanding loans.

 

Privatizing Student Loans

            Giving loans for students to continue their education is good investment.  The rate of returns to the individual as well as to society more than justifies such investments.  Beneficial though student loans are, this does not mean that the government should be doing the actual lending.  Malaysia would do well to learn from the experiences of other countries.

            In America, the government is not directly involved in the student loan business.  Instead it merely provides the regulatory and administrative framework; the loans are given out and collected by participating banks and other lenders.  The government determines the maximum amount of loan for which the student would qualify (based in part on the family’s income), and caps the interest rates and other terms of the loans.  This in effect is an indirect subsidy.  There is also only one application form, thus simplifying and reducing the administrative costs.

The lenders are of course free to offer loans at more favorable rates and terms.  Many indeed do so because of the competitive marketplace pressures with students free to find the most favorable loans from the various participating lenders.

            The government does give out direct student loans (a program comparable to the Malaysian one), but that constitutes only a very small fraction of the program and applies only to the needy.  Likewise, students could bypass the government’s program and borrow directly from private banks and be subjected to the banks’ regular credit and lending criteria.  Private banks in Malaysia offer similar services.

            By getting out of the business of direct lending to the students, the government would substantially reduce its bureaucracy, quite apart from enhancing the efficiency of the program.  The loans would also be disbursed more quickly and the delinquent rates significantly reduced as banking professionals instead of civil servants would now be servicing the loans.

            The American program is not without its drawbacks.  The recent scandal where many college financial aid officials were indicted for receiving kickbacks from lending institutions in return for referring students attest to the fact that even a well laid out program can be subjected to abuse and corruption.

            Malaysia could improve on the Americans.  Instead of guaranteeing the full amount of the loan, the government could guarantee only a portion (80 percent) of it.  That would prod the banks to be more diligent in their collections as they would share the loss with the government.

 

Auction Off Existing Loans

            To complete the government’s withdrawal from the student loan business, I would recommend selling off all existing loans.  Package them in marketable quanta of RM1-200 million.  I would also group them based on geographic units, for example, loans taken out by students from East Malaysia or Klang Valley.  Other groupings could be based on where the students studied.  Thus student loans from those attending Australian universities would be packaged together and separately from those studying in United States or Britain.  This would encourage Australian, British and American banks to bid on these loans as they could use their vast domestic database to trace the borrowers.

There could be groupings based on the field of study.  Loans given to would-be doctors should fetch a premium price.  Those doctors would be easy to trace, and they are also likely to have a high income.

Selling these student loans would effect immediate savings in at least two ways:  one by dispensing with the current massive but ineffective bureaucracy, and two, by getting a fresh infusion of badly needed (albeit discounted) funds right away from the commercial buyers of these loans.

As with America, I would give these borrowers the option of forgiving their loans in whole or partially if they were to enter public service, provided of course their services and skills are needed.  I have in mind here especially the doctors and other professionals.

 

Income Contingent Repayment (ICR) Loans

An innovative scheme, the brainchild of the late Nobel laureate in Economics Milton Friedman, is the Income Contingent Repayment (ICR) loans.  Unlike traditional loans with their defined interest rates and amortization periods, borrowers would repay their ICR loans based on a percentage of their future income and for a specified period.

I propose 10 percent of the borrowers after-tax income for a duration double the loan period.  Thus if the loan was given out over four years, the student would have to pay 10 percent of his or her income for eight years after graduation.

If the student were to secure a lucrative job, he or she could end up paying considerably more.  Conversely if the student chooses a less well-paying but professionally more satisfying career like research or teaching, he or she would not be severely burdened.

Students would have to choose this option at the time the loan is being disbursed.  Yale had this kind of program.  It was doing so well that the financially successful borrowers were complaining that they were paying way beyond what they had borrowed.

This ICR scheme has an element of risk sharing associated with it; thus it should be more Sharia-compliant as compared to the traditional student loans with their fixed interest rates and repayment schedule.  Additionally, it might just encourage our young to opt for lower paying pubic service jobs like teaching.

The government’s present student loan scheme needs a major overhaul.  It is expensive, inefficient, and not serving the needs of the students or the nation.

Towards A Competitive Malaysia #4

Wednesday, May 2nd, 2007

PART I:  On Being Competitive

Chapter 2:  Ideas On The Evolution of Societies:  From Ibn Khaldun to Jared Diamond

Verily, never will Allah change the condition of a people until they change it themselves.  (Surah Al R’ad (The Thunder) 13:11—Approximate translation)

 

In the 1950s, the Philippines was sending community development officers to South Korea. South Korea was then just recovering from the devastations of war, while the Philippines was enjoying bountiful American investments.

Today, the fate of the two nations could not be more different. South Korea is now firmly in the First World while the Philippines remains a perennial economic basket case, its people trapped in despair and poverty. This reversal of fortune occurred within the lifetime and memory of many of their current residents.

On a larger scale, at the dawn of the last century South America, with its vast resources and sophisticated populace, was poised to take on the world while North America was still a backward agrarian society. America had yet to come to terms with itself after a vicious civil war. While cities in the Amazonian jungle and Argentinean pampas sported elegant opera houses with divas from Europe regularly performing to packed houses, vast tracts of the United States remained largely entrapped in that aptly descriptive phrase, “The Wild West.” A century later, the difference between the two hemispheres could not be starker.

            To take an even grander perspective, consider this. While Europe was barely emerging from the Dark Ages, China was already using gunpowder, explosives, and printing paper. It even had rudiments of a primitive steam engine. Chinese sailing ships (some as big as World War II-era aircraft carriers) were regularly plying the vast Pacific and Indian Oceans, dwarfing the much-heralded maritime discoveries of Spain and Portugal. China’s fleet of sailing “junks” under Admiral Zheng Ho, with their tiered masts and elegant staterooms, made Christopher Columbus’ Santa Maria look like a mere lake-dinghy by comparison.

The Chinese had all the makings that could propel them into their own industrial revolution. Yet it was the Europeans who started the Steam Age and the subsequent Industrial Revolution. They then went on to conquer the world, China included. (2)

These twists and turns of human history are not predestined; they are the consequences of the activities of humans, not of God. The corollary is that it is within the power and capacity of every society to determine its fate, as encapsulated by the Quranic verse in the epigraph. Studying the fate of societies past and present is instructive in helping us steer towards progress and away from stagnation.

The 14th century Arab historian Ibn Khaldun, in his systematic study of the evolution of societies, postulated that when the ancient nomadic tribes decided to settle down at some oases, that represented a quantum leap in the progress of human existence. Such concentrations of settled humans, a primordial form of urbanization, permitted among others the division of labor, a concept that predated the thinking of modern economists by centuries. He further observed that humans are social beings; we depend on each other for food, comfort, and security. “Consequently, social organization is necessary for the human specie,” Ibn Khaldun wrote. “The existence and persistence of the human specie can materialize only through the cooperation of all men in behalf of what is good for them.” (3)

This feeling of social solidarity—asabiyah (group consciousness)—is what bonds the group together. It is the factor or incentive for cooperation on a larger scale. Groups with powerful asabiyah achieve predominance over others. In Ibn Khaldun’s time, this group feeling resulted only from blood relationships, or something corresponding to it.

Modern social scientists have an equivalent concept, social capital, and its corresponding notion of “circle of trust.” (4) In the Third World and even in the more developed parts of Asia, the circle of trust and social capital, like Ibn Khaldun’s asabiyah, are based primarily on blood, tribal, or ethnic relationships. Only in the developed West does it extend beyond blood relationship and ethnicity. With increased social mobility and urbanization, other bonds like class, neighborhood, and workplace assume greater importance.

One reason East Asian enterprises rarely make the successful transition onto the global arena is that their owners and senior managers cannot extend their circle of trust beyond family, clan, and ethnicity. They are trapped by their cultural and ethnic asabiyah. It is rare to see other than their own ethnic kind in the senior management suites of Japanese, Korean, or Taiwanese firms. Malaysian-Chinese firms too rarely have non-Chinese in responsible positions. A generation ago when clan organizations were strong, it was also rare to see a Hokkien Chinese enterprise employing a Cantonese in top positions.

Even Singapore with its supposedly enlightened and Western-educated leaders cannot escape this tribalism trap. While Singapore awards scholarships to students from fellow ASEAN states, on close examination those are given overwhelmingly to fellow ethnic Chinese. Its modern leaders still cannot escape their clannish mentality, notwithstanding their Oxbridge and Ivy League education.

 

Geography As Destiny

In his book, Guns, Germs, and Steel: The Fate of Human Societies, biologist Jared Diamond postulates that the first civilization developed in Eurasia rather than the Americas or Africa because of the physical geography of that continent.5 When our nomadic ancestral hunter-gatherers in ancient Eurasia successfully domesticated some wild plants and animals, and then assumed a sedentary existence, the idea soon spread to other hunter-gatherer groups. With each spread, the new group amplified and improved on the discoveries of earlier groups. With time, the entire continent was populated by settled farmers rather than wandering hunter-gatherers.

The physical geography of Eurasia, with its rivers and mountains generally lying in an east-west axis, facilitated this development, as those areas would have the same general climate being at the same latitude. Thus plants and animals would readily adapt to their new environment along these rivers and valleys. As these were also the natural pathways of human movement, successful practices in one area quickly spread elsewhere.

Africa and the Americas have mountains and rivers that run on a north-south (longitudinal) axis, and the climate would change along this axis and natural human pathway. Plants and animals successfully raised in one area would not readily adapt elsewhere along the natural path because of the differing climate. Species that would thrive in the sub-tropical Nile delta could not readily adapt to the tropical heat further upstream. Likewise in America, the climate—and the plants and animals it would support—is vastly different in the semi-tropical Mississippi delta as compared to its headwaters up in cold Minnesota and the Dakotas.

Geography influences climate, and climate in turn affects human activities. Ptolemy divided the world into six climatic zones from the hot humid tropics to the cold frozen tundra.6 The zone most conducive to human civilization, according to him, is the middle or Mediterranean zone, where his native Greece happens to be located!

Ibn Khaldun amplified Ptolemy’s observations and suggested, “Environmental differences affect and shape man’s character, his appearance and his customs.” He attributed the “joyfulness, levity and disregard for the future of the Egyptians” to the heat of their climate. “The Fez in Maghrib on the other hand,” he wrote, “lies inland and is surrounded by cold hills. Its inhabitants can be observed to look sad and gloomy, and to be concerned about their future.”3 Hence they work very hard to ensure the success of that future.

The definite seasons of the temperate zone force the inhabitants to accommodate to the climatic rhythm. You sow in spring, tend your crops in summer, and harvest in the fall. In the fall you prepare for winter to ensure an adequate supply of food and fuel. Thus the element of planning is incorporated into the culture. If you fail to do so, natural selection will do its work: You will freeze come winter!

The cold dark nights, being non conducive to procreative activities, are more suited for intellectual and other cerebral pursuits, hence the remarkable intellectual contributions of those in the temperate zone.

With the monotonous climate of the tropics with one day no different from the next, there is no sense of urgency or need for planning. If it rains today, wait for a few hours and it will dry up and you can go out hunting or fishing again. This breeds the manana (tomorrow) syndrome: Why do something today that can wait for tomorrow?

Singapore’s Lee Kuan Yew goes so far as to credit air conditioning as the greatest invention of the millennium.7 By bringing the temperate climate to the tropics it enables tropical dwellers to achieve the same level of productivity as those in the temperate zone. Air conditioning certainly improves the comfort and productivity of not only office workers, but also others. American farmers can work throughout the long hot summer days because they are comfortably seated in the air-conditioned cabs of their tractors and combines.

Climate also impacts economic activities through its influence on the distribution of diseases.8 Malaria and dengue, endemic in the tropics, are both lethal and debilitating, severely impacting workers’ productivity. Malaysia’s remarkable economic progress is in part attributed to the fact that it had successfully controlled such diseases, especially malaria.

Climate also determines the type of crops that can be grown. The temperate climate is particularly suited to intensive single-crop cultivations like wheat, barley and soybeans. They are cultivated on huge farms using modern technology, superior seeds, and efficient fertilizers. In the tropics such large-scale mono-cultivations risk devastations through pest infestations. This is rarely a problem in temperate zones as the cold winter is a natural and effective break to the pest cycle. Not always, however. Vast forests can be devastated in a few seasons by the emergence of a single pest, as with the fungus infestation of California’s “sudden oak death” and the elm tree disease of the Northeast.

The tropic’s safety net lies in its biodiversity. While a square meter of temperate forest might contain only a dozen plant species, in the tropics there could be literally thousands. Were there to be an insect or other infestation, it would afflict only a tiny portion of the life forms.

The intensive commercial mono-cultivation techniques of the temperate zone have been successfully introduced in the tropics (rubber, palm oil, pepper), but the vulnerabilities still exist. A single fungus infestation wiped out the rubber plantation in South America, where incidentally the rubber plant was first discovered.

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