Friday, July 29, 2011

Another NKRA…

Decided on in the Wednesday cabinet meeting, we’ve got another National Key Result Area to go along with the six already in place:

PM announces NKRA to deal with rising cost of living

PUTRAJAYA: The cabinet decided Wednesday to add another National Key Result Area (NKRA) to the list of six to make it seven altogether.

Prime Minister Datuk Seri Najib Tun Razak said the new NKRA dealt with the rising cost of living...

...Najib said the government would leverage the expertise of Pemandu to assist the relevant ministries and agencies as well as the Cabinet Committee on Supply and Price headed by Deputy Prime Minister Tan Sri Muhyiddin Yassin.

To this end, the prime minister said existing measures such as the price-control mechanism and subsidy for most essential items would continue...

...The seventh NKRA, he said, covered not only food items but also other essentials, which would be given top priority because they had direct bearings to the people's well-being.

"We have started to implement it. We are now looking at the supply chain, how we can liberalise it, maybe by allowing imports to increase the supply in the market.

"We also want to see if we can utilise idle land for food production and look into the cost of other inputs such as livestock feed...whether we can find a cheaper alternative," he said, adding that all suggestions would be considered for the next budget...

While there’s certainly a political argument for addressing this issue, I don’t know if this isn’t a fool’s errand especially since it provides an excuse for maintaining price controls and subsidies. The fact of the matter is, price controls are part of the problem, not a long term solution. Note that expanding production, unless the production itself is subsidised, is incompatible with price controls at the retail end.

And the drive to reach high income status will come with some uncomfortable structural changes, one of which is a higher cost of living. That’s unavoidable, for higher incomes necessarily entails higher prices of goods (arguable) and services (definitely). I’ve always felt that there would be winners and losers in this transformation process (as this article helps to point out), and I’m under no illusions about high income status translating into “everybody being rich”.

I’m happy that they’re looking at the structure and mechanics of the food supply chain – about ruddy time – but whether we’ll see effective policies that actually reduce the cost of living is in my view unlikely.


  1. For me, the situation is like paying for the next bale of hay when the horses have already bolted from the stable.

    It looks like the present government is caught in the horns of a dilemma from the doing of its political party.

    If places like Singapore, Korea and Taiwan province can surpass us, then they must have been doing something right while we have been doing things wrong.

    We all know what these things are and to deny they need to be solved can only mean the same problems will continue into the next - your - generation.

    What i would like to read is this: whether your stand that the economy should be weaned off subsidies is because you don't additionally think there is a middle income trap in the country inasmuch the sound economic principles for doing so.

    One UM don had noted that our vocational graduates can't do precision engineering; we can't bypass that by going into robotics because it's about thinking power as well when doing maintenance.

    So what is it we can do say five years down the line that will earn higher and real income to dredge all out of the quagmire? I've been looking for an answer for the last twenty five years.

  2. The NKRA should be on income and cost of living.
    If the wage structure is as per current ETP planning,subsidies will be required by the 43% earning less than RM 2k/mth.
    However,if strategy is to increase CE to 45% of GNI instead of current 30% the market needs less support.

    I think idrisjala is completely immoral to continue to expound that we will all be rich when in his own projections 43% earns less than Rm 2k and petrol cost Rm 9.50 per litre.

    My disappointment is no economist n experts have the courage to expose his scam.
    I hope you will do it for the sake of our children.

  3. @Walla,

    I don't believe Malaysia is in a middle income trap, because I can't find any evidence of it. We've underperformed relative to the NIEs, but that's not exactly unusual - almost nobody outside East Asia has been able to match that pace of development. We suffer mainly through having to be compared to them. I think if we factor in the differences in demographics we wouldn't look quite that bad (and begs the question why Thailand has been unable to join them).

    Are there weaknesses? Many and varied.

    But looking at our neighbours, it's hard to single out an "answer" - they've all taken different routes. Korea had chaebol led development, Singapore's a technocracy, and Taiwan really had no planning at all. Funnily enough, none of them are what you might call egalitarian societies either, with highly skewed income and wealth distributions (we're no better).

    I'm beginning to think that there isn't a single "answer" - just a lot of small ones that when added up yield something greater than the sum of its parts. But that kind of approach doesn't have the political cachet of development plans.


    I don't think I'd blame Idris Jala per se, he's just the hatchet man. Rather, it's been a failure of the NEAC to actually identify the core problem. Labour economics hasn't been a sexy subject at econs faculties worldwide for many years, and we're suffering for it now.

    But yes, I'll continue highlighting the problem asmuch as I can.

  4. Idris Jala is immoral for continuing to expound "we will all be rich and for a long time ".He shld know that this is a complete lie as his own Pemandu projections is for 70% earning less than 4k in 2020.Factoring inflation thats certainly at urban poverty if on single income.
    And I certainly his Jalanomics is flawed with hidden "enablers" that will tie govt to long term lopsided contracts.It is also deceit to exclude GLiC invstments as public.And finally the concentration of invstments in Greater KL is a short sighted property play.Man,thats not the way to plan a country's economic future.
    To get a true measure of a man he must be willing to step up and admit his error of judgement of the past.To date,he has not admitted that he is responsible for the billions of ringgit he lost in MAS as a result of the oil hedge.
    I think he will destroy Malaysia cos we have a PM that listens to him and likes the feel good nonsense he spews.
    Unfortunately the real economists are too scared or not bothered enough to expose the Emperor's new clothes.
    I am worried to hell for my children's future.

  5. Thanks for your reply, hishamh. Coming from you, i feel a bit more at peace this very moment of writing. But that could also be due to hunger. Which weakens me too much to think about UBS' "no middle-income trap" piece.


  6. There is no two way about it.
    Wages should be at least 45% of GNI.
    If Malaysia wants sustainability minimum pay in 2020 should be at least RM3000/month.Assuming 3.4% inflation that would be equivalent to about Rm 2300 today.
    No subsidies required.
    No special support for corporates.

  7. Hishamh: "Funnily enough, none of them are what you might call egalitarian societies either, with highly skewed income and wealth distributions (we're no better)"

    We're no better and worse!

    I agree with Anon 6:22pm Salary and wages under ETP shd be moving towards the 45% or 50% bracket and not the present 28%.

    Seems Idirs Jala's ETP in their EBITDA (GNI) and Compensation to Employees (CE)ratio for 2020 remains at about 28% bracket.

    So what's new?

    Neoliberalist they(NEAC) are! All proponents of "structural adjustment programme" and we're not even in default of any IMF or world bank debt!! Sheer idiocy!

    But Idris Jala the implementor, made it worse by rolling out an economic progrom that will further worsen disparity in the years going to 2020.

  8. Alan,

    I don't disagree with the problem that wage income as a share of national income is too low. The thing is, this isn't a phenomenon isolated to Malaysia - globally the share of wages has been in decline since at least the early 80s. That suggests that the problem is something more fundamental in orthodox economic policy, rather than something specific to Malaysia or East Asia.

    And I really have to point out that measures of inequality are worse (though not significantly so) in Singapore and Hong Kong, and only marginally better in Korea and Taiwan compared to Malaysia. All of the countries above however (including us) do considerably worse than developed countries where Gini indexes are half the level of the NIEs.

    Perhaps this has something to do with the social support structure (the state in the West, the family in Asia), or perhaps its the tax structure (which here in the East is skewed towards wage income, while largely leaving capital income alone).

    There's research that points out that fully developed economies tend to be more equal societies, but the evidence of the direction of causality is inconclusive.