Do not do mindless consumption for vanity

别为虚荣盲目消费

Economics always assume that you can do only two things with your income (money), namely consume (spend) it or save it. An interesting question is how about “burn” it? Some may consider burning money as “spending” but it does not create the multiplier effect as when money are actually spent.

The more important matter is which one is more preferable? Spend or save? Parents, particularly in Asian countries, will tend to advise their children to save as much money as possible for rainy days. Government may prefer us to spend to boost the economy. Through banking system, economist may assume saving equal investment. The money households save in the banks will be lend to companies for investment (consumption).

In a macro-institutional-economics perspective, an important aspect is how the government spends public fund. Is money being spend on essential economic “needs” or just unnecessary “want”? “Needs” is something necessary for human to life a healthy life. In economic sense, “needs” is necessary elements or conditions for sustainable development. “Want” is some sort of emotional desire. Thus, it can be related to “economic ego”, which function may be merely for self-boosting.

Unfortunately, the temptation to spend on “want” is way too strong to resist for developing countries including Malaysia. To a paraphrase the famous Nike’s slogan, Malaysia’s government’s “just spend it” attitude on particular two aspects needs to be moderated. First aspect is unnecessary financial burden spending on large public sector. Second is appetite on building mega projects, perhaps for glory?

(i) Public sector costly responsibility

If we take economic analysis as human anatomy, public sector is like our blood vassals. It must not be too large or too small but must be efficient to enable blood (economic activities) to circulate to all over our body (whole economy/country). If public sector is getting too big, unnecessary spending is required to support it. Worst case is this sector grows until become “too-big-to-fail” and thus, becomes too costly to be downsized. Unfortunately, Malaysia’s public sector is too big, but still can be downsized to a more effective level with strong political will.

Based on Table 1, Malaysia’s federal government’s expenditure is relatively higher than all five selected Asian countries (Thailand, Singapore, Indonesia, Japan and South Korea). It is relatively lower than selected European countries (Germany, United Kingdom, Greece and Iceland), United States and Australia. Nonetheless, this could be due to high social welfare expenditure for senior citizen and unemployment benefit given by those Western countries but not Malaysia. Therefore, Malaysia’s federal government spending is not relatively overly high but there are two glaring aspects for improvement.

First is compensation to employees (public servants) is too high. World Bank defines this “compensations” as “all payments in cash (e.g. salary), as well as in kind (such as food and housing). Malaysia’s compensation to public sector employees is highest, comparable only to Singapore.

Table 1: Expenses and Cash Balance

Countries	Expense (% of GDP)		Compensation of employees (% of expense)		Cash surplus/deficit (% of GDP)
	2011/12	Average	2011/12	Average	2011/12	Years of deficit
Malaysia	21.65	18.83	29.45	27.85	(4.53)	14 out of 14
Thailand	20.98	18.10	37.15	36.55	(2.15)	4 out of 10
Indonesia	16.53	16.53	14.43	12.44	(1.67)	8 out of 8
Singapore	12.74	14.35	28.72	29.76	8.70	zero
Japan	19.39	17.36	6.32	7.24	(7.99)	8 out of 8
South Korea	18.90	17.90	10.12	10.91	1.69	zero
Germany	29.15	30.88	5.63	5.54	0.14	12 out of 14
United Kingdom	44.71	40.24	14.11	14.34	(5.80)	11 out of 14
United States	23.89	22.08	10.34	10.43	(7.52)	12 out of 12
Australia	26.35	25.57	10.52	10.40	(3.04)	5 out of 14
Greece	54.03	46.28	20.64	22.74	(9.40)	14 out of 14
Iceland	35.90	33.78	24.08	27.92	(3.41)	8 out of 14

Note: Average is from 1999 to 2012; number of years subjected to availability of data

Source: World Bank

However, in term of public sector’s efficiency, Singapore is well known as much better than Malaysia. Table 2 shows some analysis of Malaysia’s operating expenditure as well as brief comparison with Singapore.

Table 2: Malaysia’s Operating Expenditure Analysis

Malaysia (ratios)	2010	2011	2012
Total operating expenditure to GDP (%)	21.02	22.38	23.87
Federal government operating expenditure to total operating expenditure	79.00	80.40	80.76
State government operating expenditure to total operating expenditure	5.21	4.92	4.67
Local government operating expenditure to total operating expenditure	12.57	11.69	11.68
Statutory body operating expenditure to total operating expenditure	3.21	2.98	2.88
Singapore (ratios)	2010	2011	2012
Total operating expenditure to GDP (%)	10.37	10.48	10.07

(Source: Ministry of Finance Malaysia & Department of Statistic Singapore)

Malaysia’s total operating expenditure to Gross Domestic Product (GDP) is twice larger than Singapore. In addition, the Malaysia’s figure has been rising in the three years as shown in the table. Federal government expenditure takes up majority share of total operating expenditure, rising from 79% in 2010 to almost 81% in 2012.

Does those statistic implied that Malaysian public sector has becomes too big to fail? Government may face serious negative consequences from public servants if they try to downsize to force improvement of efficiency. The consequences may vary from protest to loss of votes in general election.

Secondly, the public administration also has various record of unnecessary and/or unaccountable spending. Various yearly Auditor General’s Reports highlighted various unnecessary (and/or unaccountable) spending that included projects delay, cost overrun, assets missing and over-priced purchases. Five general weakness that causes lots of unnecessary spending by public administrators being mentioned in Auditor General’s Report 2102 were “improper payment”, “work or supplies not according to specifications, low quality or inappropriate”, “unreasonable delays”, “wastage”, “weakness in management of products and assets”. These inappropriate spending is waste of public funds that can be used to develop the economy. Yet, why we want to keep on “just spend it” whenever is it regarding public sector?

(ii) Builds mega projects for glory?

Mega projects in Malaysia was cheers by Michelle Gyles-McDonnough, the United Nations System’s Operational Activities as “important and would indirectly enhance labour productivity within the domestic workforce”. Nonetheless, not all mega projects are necessary or important.

There is a story goes like this. Once upon a time, astronauts in space cannot use their pen to write because zero-gravity effect. Then, country A spend lots of money and time to research on solution and new pen that can write on zero-gravity. In contrast, Country B immediate solved it by a simple, cheap and fast solution – use pencil to write.

Applying the moral of the story, are we having no more under-utilized buildings to become Matrade exhibition center instead of building a new one? From cost-benefit perspective, some mega projects do not justify high amount of money spent on them. One may question whether Sepang International Circuit, Warisan Merdeka Tower and Angkasawan Program are needs (necessary) or want (for ego). How these projects can enhance our labour productivity or welfare? Given that Bukit Bintang area already well-known and there are so many other shopping attractions in Klang valley, is there also a need for Bukit Bintang City Centre?

On a smaller scale one may frequently see very good condition roads being “re-furnished” again and again. Will money be better spent to upgrade soil road in suburban areas? Will losses on government-linked-mega-companies better utilized on other development projects? Not all but there are few gardens in Putrajaya and around Malaysia need plenty of money to build and maintain. Do these gardens have many visitors consistently to justify the cost spent?

On the other hand, there are some mega-projects where money is well spent. High cost on five economics corridors (Iskandar Malaysia, NCER, ECER, SCORE and SDC) and MRT Project could be justifiable by huge benefit to the economy and society in future. Nonetheless, progresses of those corridors are to be seen. MRT is built to ease traffic congestion on the road. However, some MRT proposed stations are not near town, hence defeating its purpose to provide convenience transport.

Conclusion

Having million or billion of public fund sitting idle in the treasury is not a good practice for any level of government, be it federal, state or local council. Yet, over-spending too much until public debt accumulated is even worst. Since long time ago in ancient Western Zhou Dynasty, its government followed public finance management principle “to limit expenditure in accordance to income”. Thus, please don’t “just spend it”. Instead, spend public fund prudently and on economics “needs”, not “want”.

[Chinese version published at Nanyang Press, 6th October 2014. Available online at http://www.nanyang.com/node/654057. This English version may be slightly different from the Chinese online/printed newspaper version]

70 million Population Puzzle

7000万人口的迷思
夏伟文 & 陈薛卉 (8th Sept 2014)

All of a sudden, countries around the world are awakened from the nightmare of dwindling population growth rate. Current population growth rates are seen too low. In contrast to the mid 1960s to mid 1990s era, rapid population growth rate has coined phrases like “Generation-X”, “Generation-Y” and “baby boomers”. During those years, especially in 1990s, South East Asia, Korea and few other countries see “miracle” economic growth in thanks to increasing labor supplies.

Statistics from the World Bank show that population growth rates for year 2013 are lower than average between 1960 and 1990 for all 14 Asian countries selected (see Table 1). Relative lower population growth rate also recorded in 11 out of 14 other randomly selected non-Asian countries. Australia and Germany do not show significant different while United Kingdom recorded positive percentage changes.

Table 1: Selected Population Growth Rates

Country	Average I (1960 - 2013)	Average II (1960 - 1990)	Average III (1991 - 2013)	2013
ASIA
China	1.35	1.77	0.78	0.49
Hong Kong	1.65	2.14	1.00	0.46
India	1.93	2.19	1.59	1.24
Indonesia	1.96	2.34	1.46	1.21
Japan	0.61	0.96	0.13	(0.17)
Korea, Rep.	1.34	1.83	0.69	0.43
Lao PDR	2.19	2.31	2.03	1.85
Malaysia	2.45	2.69	2.13	1.62
Philippines	2.51	2.88	2.01	1.73
Qatar	7.22	7.68	6.59	5.60
Saudi Arabia	3.68	4.55	2.50	1.89
Singapore	2.32	2.19	2.49	1.62
Thailand	1.71	2.44	0.74	0.34
Vietnam	1.79	2.12	1.33	1.05
OTHERS
Australia	1.54	1.71	1.32	1.78
Brazil	1.93	2.42	1.27	0.86
France	0.67	0.77	0.53	0.53
Greece	0.53	0.66	0.36	(0.55)
Germany	0.20	0.31	0.06	0.24
Netherlands	0.74	0.91	0.51	0.29
New Zealand	1.14	1.15	1.12	0.85
Russia	0.36	0.73	(0.14)	0.22
Spain	0.81	0.82	0.80	(0.24)
Sweden	0.47	0.45	0.50	0.77
Switzerland	0.81	0.82	0.81	1.05
Turkey	1.90	2.25	1.42	1.26
United Kingdom	0.38	0.30	0.49	0.63
United States	1.07	1.10	1.03	0.72

Source: World Bank; highlighted are the so-called “miracle economies” of the 1990s

Malaysia population growth rate for 2013 is mere 1.62, which is 1.07 percentage point lower than its population boom years of 1960 to 1990. Is Malaysia’s National Population Policy (1984) to reach 70 million populations by 2100 still ongoing or already been forgotten? Does high population compatible with current Malaysia’s Economic Transformation Policy (ETP)?

Population Control Policies U-Turn

The most stringent population control policy is China’s one child policy which is established in 1979. In November 2013, the Chinese government relaxed the policy by allowing families to have two children if one of the parents is an only child.

Singapore also makes a U-turn. To counter rapid population growth after World War II, Singapore promoted anti-natal policies known as “Stop at Two” (two children family) as well as sterilization during 1960s to 1970s. In the 1980s and thereafter, they completely reversed the population control for “Have Three of More children if you can afford it” program, “Graduate Mothers’ Scheme”, “National Night” on 9^th August 2012 for couples to have babies as their civic duty as well as various incentives. Lack of citizen is believed to be among the main reasons Singapore economy being over-dependent on supply of foreign labors especially from Malaysia and China.

South Korea also implemented population control policy from 1960s to 1990s but has it U-turned in the 2000s. In the 1970s, its government urged their citizens to have only two children so that they can raise them well and avoid poverty. This was further tightened in 1980s with slogan of “let’s just get one child and raise him/her well”. Dramatic U-turn was announced in September 1994 that seen its population policy slogan in the 2000s changed to “Papa, I don’t want to be alone. Mom, please have my younger sister or brother”. 

Malaysia population policy also made U-turn. To curb high fertility rate in the 1960s, National Family Planning Act (1966) No.42 and National Family Planning Board were established to bring down population growth rate from 3 percent in 1966 to 2 percent by 1985. Yet, from the World Bank statistics, these policies seem less effective. In 1984, Mahathir replaced family planning with the National Population Policy that targeted 70 million populations by 2100. Given World Bank’s estimation of Malaysia’s current population at 29,716,965 and year 2013 growth rate of 1.62%, this target is easily. To be exact, we will achieve 70.78 million populations by about 54 years from 2013 or year 2067.

Big Population: ETP’s Sweat Dream?

Economic Transformation Program (ETP) did not specifically plan for high population. However, it has highlighted concern that Malaysia’s relative small population could limit the number of areas that its economy can specialize in and be truly globally competitive. Big population particularly in Greater Kuala Lumpur (estimated to approximately 6 million) is expected to create economic agglomerations that contributes about RM263 billion (30% of total) to the nation’s GNI.

Figure 1: GDP growth vs. Population growth, Average 1960 - 2013

Figure 1 plots average GDP growth rate against population growth rate for the selected countries as in Table 1. China, South Korea and Philippines are excluded as they are outliers. The figure and statistical interpretation reveal that average population growth rate explained 77.6% of average GDP growth rate. It also shows a positive relationship, hence justifying hypothesis that claims the 70 million population policy can help boost economic growth.

To support rapid expansion towards achieving developed nation status by 2020, Malaysia needs great amount of skill labors both from within and abroad. Huge domestic market base provide economies of scale as enjoyed by country like China also crucial to achieve many Entry Point Projects (EPP) of ETP.

In addition, ETP has even prepared itself for possible aging population. For example, under “Healthcare” National Key Economic Area (NKEA), three of its Senior Living EPPs already planned mobile healthcare service, institutionalized aged care and retirement villages for the old folks. Thus, if our population keeps growing steadily, any aging population’s negative effect can be minimized. In contrast, there will be more young people energizing the economy with their new idea, consumption and labor supply.

Big Population Nightmare

The biggest nightmare from Malaysia’s 70 million population policy should be Malthusian trap. According to Thomas Malthus, population increases are limited by subsistence and misery. On subsistence aspect, food production needs to be increased. So far, Northern Corridor of Economic Region (NCER) has been planned to boost modern and commercial agriculture.

However, Oliver De Schutter’s United Nations Special Rapporteur on the Right to Food – Malaysia (visit date 9 to 19 December 2013) do importantly highlighted some serious concerns. Quoted his report in length, Malaysia’s food trade deficit grew from RM1 billion in 1990 to RM13 billion in 2013. The country is self-sufficient in some food commodities, such as poultry (self-sufficiency rate of 128 per cent), eggs (115 per cent) and fisheries (101 per cent), but not in others, such as rice (71 per cent), fruit (66 per cent), vegetables (41 per cent), beef (29 per cent), mutton (11 per cent) and milk (5 per cent).

National Agrofood Policy 2011 – 2020 does focuses on the issues of food security, competitiveness and sustainability of agrofood industry as well as income level of agriculture stakeholders. Yet, do all our efforts enough to ensure sufficient food for a greatly enlarge population in near future? Many factors can further deteriorate food production such as current unpredictable prolonged drought, fast mutating crops virus, food wastage, haze, use of food for bio-fuel and loss of local interest in staple food plantation due to urbanization and higher profit from commodities agriculture like palm oil and rubber.

Not only food security, does the country create enough job opportunity for the increased supply of labors? Will lots of labor from big population hinder our production to move towards capital intensive to achieve higher competitiveness?

Conclusion: The “70 million Population” Puzzle

Having big population is a puzzle as it comes with both benefit and detriment. On one hand, big population may be a sweat dream to future economic growth. On the other hand, unable to address the peril from big population, like food security and job availability, may turn our dream into nightmare. Malaysia should put more effort to mitigate the nightmare to ensure a sweat 70 million population dream.

[Chinese version published at Nanyang Press, 8th September 2014. Available online at http://www.nanyang.com/node/647732. This English version may be slightly different from the Chinese online/printed newspaper version]