Archive for November, 2010

Malaysia in the Era of Globalization #42

Sunday, November 28th, 2010

Chapter 5: Understanding Globalization (Cont’d)

Maximizing the Benefits and Minimizing the Downside of Globalization

Understanding the consequences of and the forces driving globalization would help us maximize its benefits and minimize the risks. Globalization has its own dynamics, and like the mighty Mississippi, there is no point in trying to stop it and getting swamped in the process. Malaysians would be better off trying to channel and tame the beast to benefit them. Levees along the Mississippi created vast expanses of rich fertile farms while at the same time controlling the floods. Channels and locks converted the river into an efficient and vital transportation artery. Likewise, damming provided cheap hydroelectric power as well as vast recreational lakes.

Thus instead of bemoaning the erratic cycles and the seemingly overwhelming power of globalization, Malaysia would be better off preparing her citizens to meet this new challenge and making it benefit the nation. Malaysians should concentrate on building the equivalent of channels, levees, and dams to tame and exploit globalization so it could benefit Malaysians by taking advantage of this massive global flow.

To pursue my earlier metaphor of a tidal wave, Malaysia should train its citizens to be skillful surfers so they can ride the crest. Failing that, we should teach them to be swimmers so they would not be drowned. At the very least we should instruct them on how to build their own kayaks and personal flotation devices so they could stay afloat and not be swamped. Preparing and adapting are more productive than wasting energy at thwarting the inevitable. We only hurt ourselves by striking out at phantom enemies.

The government has a duty to prepare its citizens for this new reality and to ensure that no one will be swept away. The second part of this book explores the various avenues and mechanisms to achieve this goal of reducing the social price of globalization and maximizing its benefits. With any change, there will be those who are dislocated, and the government must be prepared with the necessary programs to take care of them.

Americans are already paying some of the stiff price for their government’s lack of preparation of its people to face globalization. Highly paid unionized factory workers are being laid off by the thousands, their jobs permanently exported to Mexico and China. Similarly, with computerization and the diffusion of information, layers of middle managers are made redundant. Many of those laid-off have been successfully re-trained, but many more for a variety of reasons could not make the necessary adjustments.

America has a variety of generous social safety net programs like taxpayer-supported training schemes, unemployment insurance, food stamps and welfare, and social security. Despite that, many still could not bear the burden or slip through the system. In my suburban medical practice in California I see these casualties. They are real and not just some statistics. Viewed on a broader scale however, for every American worker thrown out of a job, many more Mexicans are taking his place.

A few years ago Dysan, a major computer disc maker in my California town, closed down its factory and moved to Malaysia. There was an uproar locally as hundreds of well-paying jobs disappeared forever. I sympathized with those workers (many are my patients) but at the same time, California’s loss was Malaysia’s gain. To its credit, instead of lamenting and railing against the inevitable loss, my city reacted proactively. Today the site of the old factory is now a major shopping outlet. I meet more Malaysian tourists there than anywhere else. Perhaps some of them are employees of Dysan Malaysia!

I disagree with those who characterize globalization as a “race to the bottom.” To those workers in Malaysia and Mexico who has benefited tangibly from globalization, it is a race to the top.

Globalization may be the only means of dealing with such emerging transnational issues as pollution, terrorism, natural disasters, transportation safety, and international crime. These issues are beyond the control and reach of individual states. Malaysia was reminded of this not too long ago with the smog emanating from neighboring Indonesia. Transpolar airline routes are made possible only through international collaboration. Such co-operations are greatly facilitated through globalization.

Contrary to Mahathir’s understanding, globalization does not guarantee “good for everyone, at all times, [and] in every way.” No system can promise that. There is no “truth deficit” in the message of globalization. Its message is simply this: those who adapt thrive; those who cannot will be left behind. This applies to any major social change; there is no mystery to that.

The alternative to not embracing globalization would be to insulate oneself a la Myanmar, Libya, and North Korea. True, the recent economic crisis hardly affected them, but then not too many Malaysians would want to trade places with the citizens of those pathetic nations.

There are of course many negatives and imperfections with globalization. For one, America and Western European nations, despite their commitment to globalization, still have significant tariffs and subsidies, for example, in agriculture and steel. Malaysia should challenge them to dismantle those barriers. With our warm climate, year-round growing season, and cheap labor we can be competitive with them in agriculture. Tell the Americans that if they were to buy our natural rubber they would not only get a superior quality product but also spare themselves the pollution from their synthetic rubber industry. Besides, doing so would make Malaysians wealthier so they could in turn buy American software, attend American colleges, and buy Boeing planes.

Globalization is a win-win proposition. Yes, there are shoals and sand traps along the way towards achieving its lofty goals. We avoid them by being better prepared and vigilant. The flaws and inequities of globalization are being addressed to by many able minds. The fact that they have not come to an agreement suggests that the problems are either not easily solvable or that there is no consensus as to the appropriate remedies. There is no need to ascribe sinister motives to anyone.

American trade unionists, its Ralph Naders and Pat Buchanans, are as much against globalization as Mahathir. Rest assured that Nader’s and Buchanan’s preferred remedies would not be to Malaysia’s liking.

Malaysia benefited immensely by welcoming foreign investments and joining the global mainstream. This is not the time to retreat. In the ensuing chapters I will elaborate on the necessary strategies for Malaysia in preparing for globalization.

Malaysia’s future lies with her rejoining the global mainstream. Globalization does not mean cultural homogenization or even Western cultural hegemony. Quite the contrary! If Malaysia is successful and thriving, then we are more likely to maintain and be proud of our national identity and heritage. Imagine what it would do to our literature and culture if more Malaysians could afford to buy our books and attend our cultural shows and concerts! American artists and writers are successful because affluent Americans can afford to do those things. In contrast, many gifted Indonesian artists and writers are starving simply because their poor fellow citizens cannot afford to buy or patronize their creations.

It is fashionable with many Western leftist and Third World intellectuals to belittle economic growth and prosperity, equating material comforts and affluence with spiritual poverty. I argue the very opposite. It is easier to be generous and tolerant when you are prosperous and comfortable than when you are poor and struggling. In poverty, you would be fighting over little bits of scrap, and life becomes very cheap indeed.

We are more likely to have a civil society if we are prosperous and economically successful than if we are starving and struggling. As for the spiritual aspect, Malays have an apt saying, Kemiskinan mendakiti kefukuran (Poverty begets impiety). A visit to neighboring poverty-stricken Indonesia will convince anyone of the wisdom of that ancient observation.

The surest and best way for Malaysia to get out of economic stagnation is to enthusiastically embrace globalization. Malaysia should concentrate on preparing its people and institutions for this new reality, and to build the necessary safety net for the few who would inevitably be dislocated. As a prelude to this, we must first take stock of the nation and assess its strengths and weaknesses. That will be the gist of the next chapter.

Next: Part II: Transforming Malaysia

Malaysia in the Era of Globalization #41

Sunday, November 21st, 2010

Chapter 5: Understanding Globalization (Cont’d)

Globalization and the Free Movement of People

Earlier, I alluded to the fact that unlike imperialism where there was mobility of labor, today’s globalization does not have the comparable freedom of movement of people. Unlike goods, services and capital that can slip in and out of borders readily, people still have to go through tedious immigration controls. Leaders like Mahathir challenged advocates of globalization to also equally liberalize immigration, that is, to make the movement of people as free as that of ideas and capital.

Much as I agree with this ideal, it is unlikely to happen, given present-day realities. Western countries that are today’s champions of globalization have elaborate social safety nets for their citizens. Indeed the greatest asset one can have at birth is not one’s set of genes, rather one’s birthplace. There are significant benefits just by being born as Americans or Western Europeans regardless whether you are contributing or not. These include free education and other generous entitlements. No wonder these citizens want to restrict immigration; it is a manifestation of the classic “rent seeking” economic behavior.

Despite the various immigration restrictions, there is nonetheless considerable mobility of workers today, but only for those at the two extremes: the highly talented and the unskilled. Someone with a Wharton MBA or Caltech PhD will have no difficulty securing a permanent residency status in America or elsewhere; so too talented artists and athletes. American college recruiters scour African villages for potential basketball players and track runners. Cuba and the Dominican Republic have little chance of retaining their marquee baseball players; they are sucked up into America.

These highly desirable individuals do not have to line up at the nearby American embassy for their visas. Their coaches or corporate lawyers would do that for them. For these fortunate souls the market for their talent is truly global, oblivious of national boundaries.

At the other extreme – the unskilled and the desperate – for them national borders too are irrelevant. Every day thousands of Mexicans slip through the porous southern border of America. Immigrants from Africa and Asia smuggle themselves in by a variety of ingenious and dangerous ways. Every so often a rusty trawler full of desperate Chinese or Indians would beach upon American shores.

The challenge for Third World countries today in the face of globalization is how to retain their highly skilled and talented citizens so they will not succumb to the lures of the developed world. In the past, appeals to nationalism and patriotism would keep them at home (at least some of them), but today such calls would fall on deaf ears. The only way to retain them is to give them their dues. This means paying the going global rates, not puny local salaries. Some countries like Singapore are aware of this and are appropriately rewarding their talented citizens with world-class pay. Many others, Malaysia included, have yet to learn this elementary lesson and are still in the mode of appealing to emotions. Sometimes that works, but most often not. There is a limit to what people would sacrifice.

Leaders like Mahathir who advocate the free movement of labor have to be careful for what they wish, for if it were to become true, the losers would be Third World countries like Malaysia. Imagine if anyone can enter America and Britain; what chance would Malaysia then have in retaining her brightest and talented citizens? They would all emigrate and Malaysia would be left with the losers, and the unskilled illiterate immigrants from Indonesia and Bangladesh.

With the spread of ideas, there would inevitably come a convergence or agreement on what is valued and what is not. That is, the emergence of a global standard or yardstick. I do not refer to the value system or the sense of esthetic, but more to mundane issues like quality of medical care and education. When Malaysians read about new advances in heart surgery elsewhere, they would not be satisfied if their local doctors were to stick with the old remedies. Malaysians too want the best for themselves and their loved ones. If they cannot get that at home they would go abroad. It is not just the King who goes to Singapore to get his pacemaker; every Malaysian too would sacrifice to get the best.

The only way for Malaysia to stop the exodus of local patients would be to train local experts to meet international standards. When Petronas was building its Twin Towers, it searched the world for the best architects and engineers; there were no nationalistic considerations given for such a high profile project.

The growth of private colleges in Malaysia is due to the widespread perception that local public institutions are not doing a good job. How do ordinary Malaysians know this? Well, they read about the achievements of leading universities elsewhere and then draw the conclusions.

Further, when local parents see graduates of foreign universities and local private colleges being eagerly sought for and paid more by employers, these parents would save hard to send their children to such institutions.

Singapore has very few private colleges because its public ones are so superior; private colleges could not compete easily. Only the prestigious foreign ones like Johns Hopkins, INSEAD, and the University of Chicago could compete in such a competitive environment. East London University need not bother entering; it would not survive the rigorous competition.

Medical care and education are only two examples. I can cite many more. Malaysians, having flown in the best airlines and stayed at the best hotels, would not patronize Malaysia Airways and local hotels if they do not have comparable levels of services. Just being a Malaysian establishment no longer sells. Like it or not, we have to adopt international norms and standards because our people demand them.

Next: Maximizing the Benefits and Minimizing the Downside of Globalization

Malaysia in the Era of Globalization #40

Sunday, November 14th, 2010

Chapter 5: Understanding Globalization (Cont’d)

Correlates of the IT Revolution

What marvels me is that this IT revolution has not even reached its maximal potential. Each day promises even more dramatic improvements and new achievements. Today’s personal computer is a quantum leap in performance over those of only a few years ago. Bill Gates is planning to encircle the globe with low orbiting satellites to enable any one anywhere to get Internet connectivity. While such a development may not seem impressive to someone in America who already has convenient Internet access, imagine what it would do for areas like East Malaysia and Africa. They would leapfrog into the IT age overnight. There would need to wait for the local government or telephone company to lay phone lines and cables.

With ease of communication, ideas and information would spread easily. News is no longer controlled by any one authority. Whereas in the past citizens had to rely on one government-controlled source (as in Malaysia) or a few commercial outlets controlled by powerful groups (as in America), today we have literally limitless sources of news and information on the Internet. Malaysia’s independent web daily is now more popular than the established media. During the Afghanistan bombing in the war against terrorists following the 9-11 attacks, with the mainstream American media not doing any frontline reporting, readers could still follow the news by tuning into the Arab television channel Al Jazeera (available on cable and the Internet).

This democratization of news and information is both boon and bane. Citizens can now have independent access to information and are less likely to be influenced by blatant propaganda from any one side. The most effective antidote to propaganda is the availability of alternate sources of news and views. This porous spread of information is the best offensive against totalitarian regimes. Even the Chinese government that has a penchant for controlling every aspect of its citizens’ life cannot filter and control the Internet, though not for lack of trying.

Were there to be another Tiananmen Square incident today, news and visuals of the horror would spread quickly via the Internet. The recent successful demonstrations against the World Trade Organization’s (WTO) annual meeting in Seattle and Prague were made possible through messages sent over the Internet. Diverse groups from all over were able to be mobilized and effectively organized through chat groups and e-mails. Law enforcement agencies were not able to track, much less anticipate, the demonstrators’ moves.

Internet also made possible the booming new phenomenon of electronic commerce. Billions worth of air travel and vacations that used to be booked through travel agencies are now done directly by consumers via the Internet. I have not used a travel agency now for some years. Imagine an entire industry – travel agencies – being wiped out!

The same technology that allows me to book my vacations online could also be used for a whole lot of unsavory things. The most pernicious and widespread is the peddling of pornography. E-commerce now provides lucrative marketing tools for purveyors of filth. The leveling effect of the Internet is such that some small backroom operators in a slimy corner of Bangkok could compete with well-heeled hustlers in Hollywood.

The Internet is now the medium of choice for neo-Nazis, racist organizations and terrorist cells. Cybercrimes, ranging from simple hacking to the spreading of destructive viruses and stealing of sensitive information, are costing companies billions. A major subsidiary industry spawned by IT is the development of security measures to protect the data on the Internet. And as we are now finding out, the Al Queda terrorists are using the Internet to communicate and plan their operations.

As most of the innovative ideas in IT originate in the West, the rest of the world erroneously assumes that globalization is exclusively the preserve of the West. Far from it! Such inventions originate there simply because the Western milieu encourages these trailblazers. It is instructive that many non-American born Chinese and Indians start many new “hi-tech” enterprises in Silicon Valley, California. Why do they start in California and not back in India or China? Obviously conditions back home are not conducive or supportive of their entrepreneurial spirit.

Occasionally we do get bright ideas emanating from outside the West. Case in point: the micro credit lending scheme of Grameen Bank started by the Vanderbilt-trained Bangladeshi economist, Muhammad Yunus. Again thanks to modern technology, his ideas have spread globally. America now too has its own Grameen Foundation, with similar programs in its inner cities. Grameen has also exploited modern technology by buying bulk satellite and cable time wholesale and reselling them to individual subscribers in the villages who have bought cellular phones from Grameen. These individuals then become the communication centers for the villages. Jute farmers in the remotest part of the country can now access the latest market information directly by phone instead of relying on the middleman. With this one maneuver those simple villagers leapfrogged into the modern age. They become empowered, freed from the information captivity of the middleman.

Grameen now has a comparable program for equipping every mosque and village center with a personal computer so that the entire village could be connected to the Web. Imagine the transforming effect: they are now exposed to the wide world of ideas. A similar program in Nepal enables villagers there to market their handicrafts directly to consumers worldwide, bypassing the whole chain of middlemen. A similar program in Sarawak enables those villagers to market their handicrafts directly to the world.

Though the initial technology may have been invented in the West, the ingenuity to extend its reach elsewhere is limited only by the imagination of individuals anywhere. Those who view globalization as a new form of colonization have it wrong. They are missing the point, and more than likely will miss the boat too.

Next: Globalization and the Free Movement of People

Malaysia in the Era of Globalization #39

Wednesday, November 3rd, 2010

Chapter 5: Understanding Globalization (Cont’d)

The Corollary to Globalization

A corollary to globalization is the development of a common acceptable standard, or to use the language of computers, a common platform, or at least a compatible operating system. In the computer industry, a common platform enables my computer to link and communicate with thousands of other computers. One of the common platforms of globalization is language. There is a need for a common language to facilitate communication. By default English is now assuming that role. This is not a dictate from Britain or America but simply the result of an evolving pattern.

Another imperative would be a common currency. At present there is no single currency that has successfully assumed the role of a global currency. In pre-Breton Wood days when the dollar was tied to gold, it could probably be acceptable as a world currency. And indeed it was. Currently the dollar is like any other currency, backed only by the confidence consumers and investors have on the underlying American economy. When that confidence is high, the value of the American dollar shoots up; when America runs chronic deficits and its financial house in disarray, the dollar plummets. It has ranged from over 300 yen to under 80, all within a few decades.

It is more likely that eventually the world would settle into a few major currencies, with the others tied to one of them. Western Europe has dispensed with its multitude of currencies into the euro. The dollar is fast becoming the currency of choice in the Western hemisphere.

Panama and more recently Ecuador have dollarized their economies, dispensing with their own currencies. The more currencies there are, the more exchange rates there will be, and more opportunities for currency traders to exploit. The best way to put these traders out of business is not to rant and rave against them or label their activities “unnecessary, unproductive and immoral” (Mahathir’s phrase), but to have a single world currency, or at least only a few.

In the Caribbean and Mexico, the dollar is the de facto marketplace currency; only government employees are paid with the national currency. Everyone else, especially taxi drivers and airport porters, insist on the dollar. Before Ecuador dollarized its economy in January 2000, its sucre was gyrating from 14,000 to 26,000 to the dollar. Ridiculous! You would need a wheelbarrow full of notes to execute even a single transaction, reminiscent of pre-Hitler Germany. With dollarization, confidence was immediately restored and Ecuador’s GDP, which contracted by 8 percent in 1999, was poised to expand by an impressive 4.5 percent in 2001. Meanwhile inflation dropped from a dizzying 90 percent in 2000 to the mid teens in 2001.

Dollarization brings its own peculiar and unanticipated problems. In Ecuador, airport porters who once were gleeful with a few hundred sucres in tips (pennies in US currency), now belittle “only a dollar” tip!

Illiterate peasants who once could value paper money by its size and color are now easily confused by the similarity of the various dollar denominations. Many Ecuadorian retailers now refuse to accept denominations over $20.00 for fear of counterfeit notes.

Adopting the dollar means more than just simply replacing worthless local notes with the greenback. It commits the nation to some very profound economic and non-economic changes. Henceforth that nation would be linking its economic and other fates with America. The Federal Reserve Bank and Washington, DC, would determine its monetary and other policies. For most Third World countries, seeing how incompetent their leaders are, that would represent a significant improvement.

Dollarization or even strict dollar linkage is no economic panacea. Argentina gave up its peso-dollar linkage recently because the stronger dollar made its exports more expensive and thus less competitive vis a vis its neighbors. Even though Malaysia is not dollarized, nonetheless by pegging its ringgit to the dollar, she would also be made similarly vulnerable. The current major economic threat to Malaysia is if China in particular were to devalue its yuan, then Malaysian exports would be at a significant disadvantage price-wise.

Mahathir never fails to rail against currency speculators whom he blames for the economic crisis of 1997. There is another simple and effective way to prevent speculations on the ringgit. Get rid of it, by dollarizing the economy. No one will miss the ringgit. There are plenty of other places where we can put the picture of the king’s head.

This idea that every little nation should have its own currency, central bank, and even airline is nonsensical. Were California to be an independent state, its economy would be the fifth largest, yet it does not have any of those expensive state symbols. When Malaysia imposed capital controls in1998, Bank Negara had to recruit hundreds of new workers. But they were not employed to monitor wayward banks but to check on travelers entering and leaving the country, and to process the now voluminous paper work necessary for routine foreign fund transfers. Totally nonproductive work, essentially paper pushing activity!

Had Malaysia adopted the dollar, Bank Negara would be relieved of these tedious non-productive chores. It would then be able to concentrate on doing what central banks are supposed to do – keep close tabs on local financial institutions. Had Bank Negara been diligent in its primary function, Malaysia would not have had the Bank Bumiputra debacle or the massive dud loans now strangling the Malaysian banking system. The incompetence if not malfeasance of Malaysian bankers was what aggravated (or even contributed to) the economic crisis.

By adopting the dollar or any other major currency, Malaysia would be demonstrating its commitment to embracing globalization. I prefer the dollar for many reasons. One, Malaysia’s foreign trade is already 80 percent dollar-denominated anyway. Two, we are more familiar with it than with the yen or euro. Last, and most important, I have more faith in the American economy than that of the European or Japanese.

Mahathir’s proposal for an ASEAN currency has no merit. Not many Malaysians would trust the central bankers of Indonesia, Thailand, and Philippines to maintain the value and integrity of their hard-earned money. Mark Mobius of Templeton Fund had a similar idea, but he added the important proviso that such a currency be backed by gold to prevent those bankers from printing money at will.

The Islamic world had a universal currency based on gold (dinar) and silver (durham) that Muslim enthusiasts are now trying to resurrect. In concept this is commendable but beyond academic seminars and political posturing, there is not much being done to bring the idea to fruition.

Having a gold-backed currency alone is not enough. There must also be trustworthy and reliable banking systems to go along with it.

Next: Correlates of the IT Revolution