Wednesday, November 2, 2011

Economic Transformation Programme: One Year On

So, I was sitting in the audience yesterday, with some mixed feelings. On the one hand I’m troubled by the flaws in the worldview presented as its raison d'etre. And on the other, I’m truly fascinated in this experiment in public policy implementation – perhaps the best example of its kind in the world, or even the only one of its kind. It serves a big purpose in terms of changing the psychology of citizens, businesses and consumers regarding Malaysia’s prospects. All that investment is nice, too, and Idris Jala is as ever an engaging speaker.


But let me get my troubles with the ETP off my chest:

  1. Malaysia is in a middle income trap – sorry, there’s no empirical or theoretical basis for the middle income trap.
  2. Investment creates economic growth – research into this interesting question suggests the causality runs the other way, except in the case of FDI. That is, growth causes investment and not the other way around.
  3. We need 6% GDP growth over the next ten years – not exactly. It depends on the assumptions made, and the assumptions in the NEM were pretty conservative. More importantly, the high income target we’re trying to achieve is set in nominal USD, not inflation adjusted Ringgit. A slightly higher inflation rate and an appreciating Ringgit, plus the demographic transition of having more workers as a ratio to the population, means we might only need 4% real growth.

If the fundamental basis of the ETP is flawed, what does that say of the program? Yet I can’t and won’t dismiss the ETP projects entirely. For example, I fully agree with PEMANDU that an MRT is absolutely essential for KL – we won’t be able to handle rapid urbanisation otherwise. And the successes so far achieved are gratifying enough, even if they don’t bring us closer to becoming a “high income” nation.

And that I think is why I’m generally favourable towards what PEMANDU is trying to do – the bottom line is not becoming a high-income nation, but becoming a nation fit to live in. You’re not likely to find that in the numbers.

Technical Notes:

The latest update is available here. Yesterday’s presentation slides can be downloaded here.


  1. I find it impossible that anyone can accept a program that will create 50% urban poor in 2020.7 mil earning below 1500 in 2020.
    Whilst the EPP gets interventions from the top to ensure smooth passage n reap profits,labor is just their silent component.
    And MRT is not Pemandu's baby.We are waiting for a GKL Masterplan with full picture of transport needs.
    Wat Pemandu does is to legitimise the mode of implementation of the MRT i.e bastardisation of best practises.
    And friend. .we will have at the end of day most expensive MRT in the world,70 bil without land acq n trainset.
    We will escape mid income. . .but to low income

  2. I was right in the thick of the MSC, Cyberjaya, Putrajaya, KLIA, Bakun Dam, privatisation programs and so on.

    History is repeating itself right before our eyes today, hishamh.

    Were you around at that time and involved in them?

    And i don't think many will be able to take comfort there is no empirical or theoretical basis for the notion of middle income traps. How can anyone today take comfort from anything out of the dismal science itself?

    The two terms 'high income economy' and 'middle income trap' are used differently by people who analyze economies from people who are experiencing them.

    This is especially dangerous when govts use expediencies to bypass due tendering process, such as the recent direct offer to Syed Albukhari for the two IPPs.

    And i have been dying to hear from you your views on PPSMI.

    Hishamh, give us the real coin of your mind.

  3. WHAT about this bankruptcy-by-2019 thing idris jala is talking about, again.

  4. @anon,

    I might be concerned if I thought the ETP was actually going to do what it's supposed to do. I don't actually think it's relevant in terms of Malaysia becoming a high income nation. The ETP's real impact will be in changing the mindsets of investors - and I think that's happening already.

    As far as the income share of labour and capital, that's a completely different battlefield. The ETP is concerned only with topline revenue - how we share it is going to be up to us to change. Start a blog my friend - the more voices out there, the better chances it will be heard.

    As far as the MRT goes - honestly, RM100 billion would be cheap relative to the benefits. We desperately need it.


    Yes, I was around, but no not involved. But I think there's a difference.

    An observation: during the presentation, the slides were displayed on one side and the live twitter feed on the other, with Idris Jala in the middle. Every time Idris made a point, the guy sitting next to me nodded his head like a puppet. Seconds later would come a twitter response from someone that completely undermined that point e.g. Idris: USD171 billion in investment! *nod of head* *twitter response - half of that coming from only two projects*.

    Can you imagine something like that happening in Mahathir's time?

    As far as the middle income trap theory - my whole point is that it doesn't come from the dismal science at all. There's almost nothing in the economic literature about it except some scattered papers about how to get out of one (meaning, they don't have any foundation).

    On PPSMI: I've now run about 4 classes for unemployed graduates over the last couple of years. My observation, for what it's worth, is that the problem is not poor command of the English langauge, but poor communications skills in general and an awful lack of confidence. PPSMI might help, but I doubt it.

    If they can't communicate in BM, it's a bit hard to see how improving their English will help matters. Maybe about 5% of the students I've taught have the guts the stand up and say something, even if they're wrong. For the rest, I think any spirit has been (metaphorically) beaten out of them a long time ago.

    It's not the teaching of English that needs to be improved, it's the whole approach taken to education. Rote learning will not cut it anymore.

  5. @anon5.32

    The issue's been overblown...again. He was asked at the Q&A about his remarks last year, so he tried to explain the reasoning. In retrospect, he should just have brushed that question off, because it's an indefensible position.

  6. Bear in mind the ETP is a Program not a plan.There is active intervention to ensure all EPPs will move fwd at lightning speed.

    The EPPs will hv heavy invstments by Govt,Petronas,GLCs,PNB etc.The private sector invstments comes with enablers/facilitation that may tie us down for years to come.If the world economy cooperates with the Pemandu's endorsed perceptions during the 2 month labs we will get BIG RESULTS FAST.If it doesn't we will get even BIGGER RESULTS FAST.

    Your postulations of "no trap" and "no big deal" to achieve USD 15k/capita is accepted by many.Its so impossible to micro manage something pretty organic esp by one who didn't do too well in forecasting short term fuel trends.BUT.. ETP is a now a national mission and EPPs becomes the report card for Cabinet and civil servants.Its the vision,the mission do or die battle.
    Tucked in Chapter2 Pg 88 of ETP Guidebook is the projected Employee Compensation,That in itself will be the reference point for wage policy.It will be used by investors as a govt promise when they put in their ringgit.

    So,yes...its true that Capital n Wages is different issue.But they are obligations that will prevent Govt from taking steps to hv a truly free market for labour (especially the low 40%) i.e for instance introducing restriction on foreign labor.

    I hope I m not talking rubbish

  7. No, you're not talking rubbish.


    "The EPPs will hv heavy invstments by Govt,Petronas,GLCs,PNB etc"

    I know for a fact PNB nor the companies under its control are involved. Except for the opaque MRT, most of the rest are private sector investments.

    And as far as foreign labour is concerned, the issue is being taken out of our hands. I'm somewhat amused to find that the minimum wage in Indonesia is actually higher than the going rate for low-skilled workers here. The Indian High Commission has also applied a higher minimum wage for workers imported from India.

  8. the 2 biggest EPPs accounting for 60% of annced to date i.e Petronas RAPID 60 b n MRT 36.6.Most others hv elements of "govt related" . .n not truly pure consumer mkt play.

    And in horizon r the 1MDB,EPF big real estate plays.
    PNB skyscraping invstment still in the works?I think its one of MRT fixed points.

    By the way MRT may be 70 bil b4 rolling stock n land acquisition.
    We truly hv lot to worry abt.

  9. "PNB skyscraping invstment still in the works?"

    Yes, it's still on track - but Warisan Merdeka actually predates both NEM and ETP. It was originally announced in 2009, and I don't remember anyone making a fuss back then.

    Ref: MRT - Idris Jala admitted the MRT won't come in on budget, not that I ever expected it to. RM70b? What's a few billion here and there? We still need it.