Boosting the economy through competition


  • Business
  • Thursday, 29 Nov 2007

September was another month where Malaysia’s exports disappointed. Year–on-year,exports rose only 1.1%, hardly any improvement from the 0.8% rise in August.September’s export figure should and must surely ring alarm bells in the ears of ourpolitical leaders and policymakers. 

LOOKED at in any way, from any angle, Malaysia’s export performance in 2007 is probably one of the most frightening aspects of the Malaysian economy. The chart shows the year-to-date export performance of 10 Asian economies in US dollars.  

Among these economies, Malaysia recorded the weakest export growth. It is really amazing. How can Malaysia’s export growth be slower than high-income economies like South Korea, Singapore and Japan? Moreover, Malaysia is a net energy exporter and a major commodity exporter, prices of which have risen very strongly. Why is this very disturbing trend unfolding? 

i Capital has written plenty about the current global boom called the i Capital Long Boom. The world economy has never seen such a strong and broad-based economic expansion before.  

As a result of the widespread impact of China’s massive transformation on literally every country, the global economy is enjoying the best of times. The current global economic boom is unprecedented in terms of length, depth, and breadth.  

Given this extremely favourable backdrop, one would have expected a small open economy like Malaysia to boom like crazy. The sad fact is that it is not; Malaysia still has to resort to budget deficit aided growth. 

The poor export performance cannot be really blamed on the stronger ringgit. Other regional currencies have appreciated even more. The main factor causing the absence of strong export growth is that Malaysia has, in 10 to 15 years, lost its competitiveness.  

Malaysia is simply not competitive any more. It cannot compete with low-wage countries like Vietnam, Indonesia and Thailand. At the same time, it cannot compete against the technologically more advanced economies like South Korea, Japan or even Singapore and China.  

Due to the wrong economic policies previously adopted and still not rectified, Malaysia is trapped by a labour force that is demanding high wages but unable to learn new skills and adopt new technologies fast enough to move up the value chain. 

At the high-income end, Japan can remain competitive in exporting cars; South Korea in ships; Singapore in oil rigs.  

At the low-income end, Vietnam is competitive in exporting furniture; Thailand in auto parts; Indonesia in various commodities. Malaysian-made cars cannot even compete in her own home market; Malaysia needs to buy liquefied natural gas tankers from South Korea and needs foreign labour to work its plantations.  

In the end, what is the Malaysian economy?  

From an economic structure that is more centrally planned than most centrally planned economies, from a population that is totally protected with expensive subsidies, the Malaysian economy now is so rigid and totally inflexible. The economy is totally incapable of adapting to the fast changing economic conditions.  

This is mainly due to out-of-date and irrelevant economic policies, coming from the mindset of politicians and policymakers who still live in a totally cloistered world of their own. 

The solution for Malaysia is really simple. It needs to reform on a massive scale in many dimensions. It needs economic policies that can make its economy more competitive on a global scale.  

To be competitive, it needs policies that are free-market driven, imbued with more laissez-faire elements, economic policies that reward performance and are meritocracy-based.  

In addition, Malaysia needs to create an environment where innovation and creativity are prized and rewarded. There must be an environment where new ideas can be efficiently tried out and their successes and failures to be determined mainly by the free market forces.  

Imagine if the Malaysian economy performs like Nicol David, it would be world class by now. In short, discard policies that are doing more harm than good. In the long run, having more competition is good for every Malaysian. Take the KL-Singapore air route for example.  

If only SIA or Malaysia Airlines is operating the KL-Singapore route, you can be sure that the airfares would be much higher and the service level much lower. Human nature is such that complacency and taking things for granted attitude would set in when there is no competition. So, having two airlines compete is good for everyone.  

However, the benefits of competition are lost when the two airlines collude and there is no de facto competition. Hence it was a good idea to let two budget airlines serve the KL-Singapore route and add more competition. Done properly, having more competition should lead to either lower airfares or better service or even both. As with any competitive environment, everyone, except the self-denying ones, will benefit. 

Even more appealing is that having and allowing more competition does not cost much to the whole country. Let us take our KL-Singapore route example a step further. There have been proposals to construct a high-speed multi-billion ringgit train service between KL and Singapore. Fortunately, the proposal has not been implemented.  

Do not get i Capital wrong. It is totally aware that high speed, efficient train service is making a successful comeback in many parts of the world, especially in Britain and Europe.  

In the case of Malaysia, there are many better and more realistic alternatives. Instead of building an expensive but high-speed white elephant (pardon the paradox), one can make better use of the existing KTM facilities. We could, for example, have a slow but good quality executive train service that could leave KL at, say, 10pm and arrive in Singapore at, say, 7am the next day.  

The passengers would save one night's hotel accommodation in Singapore (this savings alone can more than pay for the train tickets), arrive early enough to start business at 9am (which the current flight schedule does not offer) and finish all the business within a day and leave Singapore at, say, 10pm again.  

However, to attract the busy executives and discerning business folks, the quality of the train service and train stations must be vastly improved.  

There must be a coach serving food and drinks for supper, breakfast, etc; high-speed Internet connections and other communications facilities available on the train and train stations; clean facilities for showers and cleaning up either on the trains themselves and or at the train stations in KL and Singapore; bookings for tickets and check-ins must be made available online and there should be proper departure lounges at KL Sentral and Tanjong Pagar.  

All we need are three or four daily departures from KL and Singapore. The advantages of our executive train service are many. One, instead of costing RM6bil to RM8bil, it would cost, at most, RM150mil to RM200mil.  

Two, the commuters would have more and better transport choices and would be able to make better use of their time. Three, the two countries would benefit greatly. Any takers for i Capital’s brilliant idea? 

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