The Nexus Of Corruption And Higher Income Part I

[I’ve been working on this for over a week now, hope you enjoy it. Since this is a very long post, I’ve split it into three parts. This is Part I]

This post isn’t a defense of corruption. It’s not an April Fool’s joke either.

There’s no doubt that corruption weighs on an economy and on society through many different channels – through higher costs of doing business, to redistribution of income, through reducing the rewards of entrepreneurship, through social and economic inequality, through reducing the level of trust in society (indirectly contributing to all the problems listed above, and more).

But…

There’s this meme I’ve been hearing and reading that if we can just handle corruption, Malaysia would easily become a high income nation.

Comparing Wages

There’s this great article on the Beeb yesterday:

Where are you on the global pay scale?

If there were no rich and poor, and everyone had an equal share of the world's total pay packet, how much would they earn?

The total value of world income is closing in on $70 trillion (£43.9tn) per year, and there are seven billion people in the world, so the average income is heading towards $10,000 (£6,273) per person per year. Easy.

But not everyone has a job and some of those seven billion are children. So another question you could ask is: "What is the world's average wage?"

That is more tricky to answer, but a group of economists at the United Nations' International Labour Organization (ILO) has had a go, though they have never gone public with this information. Until now.

What follows is a discussion that highlights the problems inherent to international comparisons of data, and how sparse some of the data actually is.

But the best and most fun part of this article is an online wage comparison tool which also includes data on Malaysian wages – hit this link to try it out!

No Datuk Seri, Restricting Competition Doesn’t Encourage Higher Productivity

I think I’m going to barf (excerpt):

Local veggies only by 2015

KOTA BARU: All farmers’ markets and National Agribusiness Terminal (Teman) outlets will no longer be allowed to sell imported vegetables by 2015.

This move is to give support to the local farmers, said Agriculture and Agro-based Industry Minister Datuk Seri Noh Omar.

“From 2015, all farmers’ markets and Teman outlets should source their vegetables locally.

“The move will indirectly encourage productivity in the country’s agricultural sector.

The Fuzziness Of Economic Forecasts

Economists do forecasts – or at least, people think economists have some kind of competitive advantage in forecasting economic variables. But the fact of the matter is, most economists have only a passing familiarity with forecasting and all that goes into it.

The reason why economists, and especially financial market economists, do forecasts is pretty disappointingly prosaic, and the essence of which can be captured by this joke:

“Economists don't answer to questions others make because they know what the answer is. They answer because they are asked."

We’re asked to give forecasts, because it’s presumed we know what’s likely to happen – but that’s based on the presumption that an expert on economics is also an expert in forecasting. But those are two very different fields.

Nomura On Malaysia’s Minimum Wage

In the Star today (excerpt):

Implications of minimum wage

Dramatic rise in wages poses upside risk to inflation…

…The minimum wage is likely to be set anywhere between RM800 to RM1,000 per month. If we assume RM1,000, this would imply a significant 17% rise in the wages of unskilled workers, which according to Malaysia's Employers Federation 2010 Salary Survey, are earning an average RM852 a month.

To put this in perspective, it compares with the average increase of wages in the manufacturing sector of only 6% per year.

This poses an upside risk to inflation, in our view. First, overall labour productivity growth, which has been slowing in the last few years to an average of 2.7% (versus 5.3% pre-1998), is likely to substantially lag the potential increase in minimum wages, resulting in a rise in unit labour costs.

February 2012 Consumer Prices: Under Currents

Last week’s inflation report showed price increases slowing down (log annual and monthly changes; 2000=100):

Headline inflation fell to 2.1% in log terms, while the pain index was down sharply to 2.3% (it was 3.6% in January).

Social And Economic Equality: It’s Not Enough To Be Equal, You Have To Work At It

In the US, it’s always been the practice to measure the “equality” of society more along the lines of economic and social mobility rather than purely through income or wealth measures.

The idea is to have people begin at more or less the same starting point, then proceed in accordance to their own ability and willingness to work – pure meritocracy. Economic mobility means in this sense that whatever your personal circumstances, you can reach the top of the social and economic ladder.

January 2012 Employment Report

The seasonal adjustment revolution marches on. This time, the employment numbers get the treatment, though sadly, they don’t go back through the whole available series, nor has DOS provided anything more than the unemployment rate itself. I suppose beggars can’t be choosers though.

In any case, employment increased marginally in January (remember, it’s CNY):

My own seasonal adjustment suggests that employment growth probably should have been a lot higher (about 177k more), but data for this January is so skewed this year, I have trouble believing in any of it.

The unemployment rate has dropped again, though the new seasonally adjusted DOS figures show a sharp drop:

Comparing the series, it seems as if DOS’ series is a lot more volatile. Be that as it may, all three series are turning down. Coupled with my reading of the remarks at yesterday’s analysts’ briefing with BNM yesterday, I think what we have here is an economy that’s heating up ever so slightly. I thought core inflation was on the high side last year, and it seemed as if it came from more than just the pass through of prices from the supply side. This year looks like more of the same, though we’ve got far more investment projects coming on stream, and growth is already back on its long term trend.

I’m not about to call BNM hawkish, but if there is any bias towards monetary policy this year, I suspect it will increasingly be towards raising interest rates.

Technical Notes:

January 2012 Employment Report from the Department of Statistics (warning: pdf link)

BNM Annual Report 2011

Yesterday saw the release of Bank Negara’s annual report for 2011. The big news of course is the lower official forecast for the year, with GDP growth for 2012 downgraded from 5.0%-6.0% to 4.0%-5.0%. Given all that’s happened the past few months, and the initial data that we’ve seen in January, it’s come as no surprise to anybody. External demand is expected to be weak (again, no surprise), while investment is expected to pick up some of the slack, particularly public investment.

All in all though, I do think we might see growth this year on the upper side of that forecast bracket.

Idris Jala Sings The Bankruptcy Blues

In the papers today (excerpt):

Why Malaysia won’t go bankrupt

The Government is not in dire financial straits right now. By all measures its finances are good, but as in any situation involving finances, this is not to say it cannot be better.

I AM frequently asked why I said Malaysia could go bankrupt by 2019. I have had many queries asking for clarification and this has become one of my transformation blues…

DIY Fiscal Sustainability Analysis

I apologise for the lack of posts, but I’ve been very busy this last week and will be busier still this week. BNM will be releasing their 2011 annual report this Wednesday and very likely we’ll see a reassessment of the government’s 2012 growth forecast of 5%-6% – watch this space.

In the meantime, here’s something that’s been on my “must blog about” list for the past week – I’ve taken the liberty of reproducing the entry in full:

IMF Unveils Template for Computing Structural Fiscal Balances

The IMF has created a new online template to help countries form a clearer picture of their true budget position and, as a result, get a better idea of how much they can spend or save.

The innovation is now more relevant than ever as many advanced economies strive to bring debt down to sustainable levels. In the following interview, Abdelhak Senhadji (Assistant Director), Iva Petrova (Economist), and Marcos Poplawski-Ribeiro (Economist) of the IMF’s Fiscal Affairs Department talked about what the tool does and how it can help policymakers.

January 2012 Industrial Production: Some Congrats Are In Order

Not for the numbers, they aren’t that encouraging…in fact they look downright bad. But rather DOS is slowly but surely rolling out seasonally adjusted  numbers that account for the peculiarities of the Malaysian calendar. It started last year with the trade numbers, and this month we’ve got a seasonally adjusted IPI. Thumbs up guys.

If I have a complaint, the English notes on DOS’ seasonal adjustment procedure read like they came out of Google Translator. It’s not laugh out loud funny as some of the Ministry of Defense’s, but still…