Every day, our learned politicians urged the people to "change our mindset"; "live in harmony"; "improve our skills", "practice tolerance". Our national newspapers are full of these slogans. No wonder more people are turning to blogs and international papers for real news and debates.
Mahatma Gandhi said, "We must be the change we wish to see in the world.".
To our leaders - please lead by example - have the courage to take the first step.
Tuesday, January 8, 2008
Sunday, January 6, 2008
Defining the National Cake
All Malaysians, including myself, have been beneficiaries of the strong economic growth that Malaysia has enjoyed for the past few decades. Affirmative action in Malaysia, notably via the NEP, has never created any obstacles in my way – whether in pursuit of a good education or a good employment. If the NEP is designed to make Malaysia more equitable, without holding back any one particular group, I say, go for it. No nation can enjoy prosperity, hand in hand with peace, when the minority consumes a huge chunk of the national cake whilst the majority scrambles for scraps. Nor could any country claimed to be truly developed when a significant minority lives in squalor while the country can afford to build the tallest towers in the world or the most beautiful administrative capital.
The NEP has some measure of success. Poverty rate is down, and sizeable middle-class families are created amongst the Bumiputera’s and across other ethnic groups. However, the NEP’s target of increasing Bumiputera’s ownership in the nation’s corporate wealth to 30% still falls short. The question is; is corporate wealth an appropriate yardstick of Malaysia’s economic wealth? Put it another way, is 30% of the nation’s corporate wealth equivalent to 30% of the nation’s economic wealth? Are there any other targets that the government should consider for inclusion?
Taking corporate wealth as the only yardstick is flawed. For one, it is “leaky”, i.e. shares and equity ownership is extremely fluid. It is difficult to ensure it stays within the intended beneficiary group, whether in bad times or in good times. In bad times, certain quarters are susceptible to liquidate their holdings even where the realized value is lower than the initial purchase price, in order to reap some temporary financial reprieve. In good times, some may sell equity/make redemptions to make quick profits, but the proceeds are not channeled to another class of assets which generates returns or capital gains. The fact that the Bumiputera’s ownership of share capital declined during the 1997 Asian financial crisis indicates that wealth retention in the form of corporate equity is inherently unstable. A more “sticky” class of assets needs to be included.
“Sticky” assets in this sense must fulfill two conditions: – Firstly, it must not only retain its value, but the value should grow steadily over the owners’ lifetimes. Secondly, it must equip the owners with the lifetime ability to secure more income and wealth. Home ownership serves the first purpose; whilst education fulfils the second. Indeed, the previous NEP has incorporated programmes to provide housing and education entitlements for the poor. What is lacking, however, is a visible, concrete target for each of these enabling factors. A new programme of poverty eradication must include setting targets for, 1) percentage of home ownership among the low-income groups; and 2) percentage of education participation among children from low income groups.
A home is a basic necessity that every Malaysian household must possess. Good homes provide a conducive environment to raise harmonious and productive family units, in addition to providing a sense of financial security to the household. House values tend to appreciate, at least in tandem with inflation over a lifetime. As house purchases easily constitutes the largest lifetime expenditure of any families, it is even more critical to assist poor families to attain this basic right. The poor has almost no access to bank loans; hence the government has to step in to provide cheap housing loans to the poor to widen home ownership. Bumiputera house discounts should also be restructured. For homes prices exceeding, say RM300, 000, Bumiputera purchasers should pay the full price, and the discount proceeds are channeled to a central housing fund for the less fortunate Bumiputera’s. It is surely an equitable and progressive move to ensure those who can afford expensive homes are not subsidized, whilst there are those who can’t even decent homes.
It is also important not to create clusters of cheap homes merely to fulfill the objective of increasing home ownership amongst the poor. Those from low-income groups also demand, rightfully, houses of adequate quality, and they do not wish to be segregated into “poor neighbourhoods” reminiscent of the ghettos and slums in the US. The government must integrate poor families into the mainstream Malaysian society, and not sidelined them into a separate environment where despair and low self esteem is allowed to fester.
A second target, the percentage of children from poor families enrolled in primary to tertiary schools, must be defined. Households who fall below the poverty line (or indeed, just above) tends to neglect education for their children. Poor families tend to have larger families, and thus have a high dependency on their off-springs to bring home some income to sustain the whole family. Hence, these underprivileged children will never have the opportunity to break free from their parents’ financial predicament. Generations to come are mired in a low-income trap as their job opportunities are extremely narrow without any solid academic credentials. The enrollment percentages must be continuously monitored, to ensure every underprivileged child completes his or her education all the way to attaining a university degree. This can be achieved via an assortment of full scholarships; incentives to parents for every child put through school; and if necessarily, reserved quota of university places.
John F. Kennedy once quoted, “a rising tide lifts all ships.” The fruits of strong economic growth are spread, though not necessarily equitably, among the low-income groups to the high net worth individuals. When the national cake is expanding, each citizen’s slice, though unequal in size, gets bigger. That keeps most happy. Nevertheless, there will come a time when the Malaysian economy stop growing strongly, or even contracts. When that happens, income and consequently wealth distribution will be even more skewed. Should the Malaysian economy stalls, then redistribution will be a zero-sum gain, a term economists coined which basically means someone else’ gain will be someone else’s loss. Poverty eradication works best when the economy is still expanding, and when measurable targets that matters to the man on the street are set. No Malaysians can be disenfranchised from the abundance of fruits that our blessed nation has to offer. The NEP, or any other poverty eradication programme, must be sustained until this poverty scourge is eliminated from our society, albeit with some serious policy changes.
The NEP has some measure of success. Poverty rate is down, and sizeable middle-class families are created amongst the Bumiputera’s and across other ethnic groups. However, the NEP’s target of increasing Bumiputera’s ownership in the nation’s corporate wealth to 30% still falls short. The question is; is corporate wealth an appropriate yardstick of Malaysia’s economic wealth? Put it another way, is 30% of the nation’s corporate wealth equivalent to 30% of the nation’s economic wealth? Are there any other targets that the government should consider for inclusion?
Taking corporate wealth as the only yardstick is flawed. For one, it is “leaky”, i.e. shares and equity ownership is extremely fluid. It is difficult to ensure it stays within the intended beneficiary group, whether in bad times or in good times. In bad times, certain quarters are susceptible to liquidate their holdings even where the realized value is lower than the initial purchase price, in order to reap some temporary financial reprieve. In good times, some may sell equity/make redemptions to make quick profits, but the proceeds are not channeled to another class of assets which generates returns or capital gains. The fact that the Bumiputera’s ownership of share capital declined during the 1997 Asian financial crisis indicates that wealth retention in the form of corporate equity is inherently unstable. A more “sticky” class of assets needs to be included.
“Sticky” assets in this sense must fulfill two conditions: – Firstly, it must not only retain its value, but the value should grow steadily over the owners’ lifetimes. Secondly, it must equip the owners with the lifetime ability to secure more income and wealth. Home ownership serves the first purpose; whilst education fulfils the second. Indeed, the previous NEP has incorporated programmes to provide housing and education entitlements for the poor. What is lacking, however, is a visible, concrete target for each of these enabling factors. A new programme of poverty eradication must include setting targets for, 1) percentage of home ownership among the low-income groups; and 2) percentage of education participation among children from low income groups.
A home is a basic necessity that every Malaysian household must possess. Good homes provide a conducive environment to raise harmonious and productive family units, in addition to providing a sense of financial security to the household. House values tend to appreciate, at least in tandem with inflation over a lifetime. As house purchases easily constitutes the largest lifetime expenditure of any families, it is even more critical to assist poor families to attain this basic right. The poor has almost no access to bank loans; hence the government has to step in to provide cheap housing loans to the poor to widen home ownership. Bumiputera house discounts should also be restructured. For homes prices exceeding, say RM300, 000, Bumiputera purchasers should pay the full price, and the discount proceeds are channeled to a central housing fund for the less fortunate Bumiputera’s. It is surely an equitable and progressive move to ensure those who can afford expensive homes are not subsidized, whilst there are those who can’t even decent homes.
It is also important not to create clusters of cheap homes merely to fulfill the objective of increasing home ownership amongst the poor. Those from low-income groups also demand, rightfully, houses of adequate quality, and they do not wish to be segregated into “poor neighbourhoods” reminiscent of the ghettos and slums in the US. The government must integrate poor families into the mainstream Malaysian society, and not sidelined them into a separate environment where despair and low self esteem is allowed to fester.
A second target, the percentage of children from poor families enrolled in primary to tertiary schools, must be defined. Households who fall below the poverty line (or indeed, just above) tends to neglect education for their children. Poor families tend to have larger families, and thus have a high dependency on their off-springs to bring home some income to sustain the whole family. Hence, these underprivileged children will never have the opportunity to break free from their parents’ financial predicament. Generations to come are mired in a low-income trap as their job opportunities are extremely narrow without any solid academic credentials. The enrollment percentages must be continuously monitored, to ensure every underprivileged child completes his or her education all the way to attaining a university degree. This can be achieved via an assortment of full scholarships; incentives to parents for every child put through school; and if necessarily, reserved quota of university places.
John F. Kennedy once quoted, “a rising tide lifts all ships.” The fruits of strong economic growth are spread, though not necessarily equitably, among the low-income groups to the high net worth individuals. When the national cake is expanding, each citizen’s slice, though unequal in size, gets bigger. That keeps most happy. Nevertheless, there will come a time when the Malaysian economy stop growing strongly, or even contracts. When that happens, income and consequently wealth distribution will be even more skewed. Should the Malaysian economy stalls, then redistribution will be a zero-sum gain, a term economists coined which basically means someone else’ gain will be someone else’s loss. Poverty eradication works best when the economy is still expanding, and when measurable targets that matters to the man on the street are set. No Malaysians can be disenfranchised from the abundance of fruits that our blessed nation has to offer. The NEP, or any other poverty eradication programme, must be sustained until this poverty scourge is eliminated from our society, albeit with some serious policy changes.
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