Something about the Economy

Written on 2/04/2009 12:21:00 am by sikapitan

A lot has been said about our economy and the problems we are facing. Datuk Nazir Razak today mentioned that throwing out race-based policies would help. I am particularly impressed by Tengku Razaleigh’s recent speech (published in The Edge and Off The Edge) where he clearly and specifically state what needs to be done.

There’s no such thing as a quick fix. I can see where this might be true. Some of the long-standing issues like accountability and transparency require fundamental changes in the system, which will not, I’m afraid, be quick. Most of the solutions given thus far will take 2-3 years of preparation, of political willingness, of public buy-in, before it could even be implemented.

But we NEED a quick fix, a band-aid solution that will stop the bleeding, and a bandage to hold up the ever-widening wound, before something gets infected so bad that we have to amputate it. Phew...that’s another way to describe our economic crisis.

That’s where the stimulus package comes in. 7 billion before, and another 10 billion declared today. Before people say that it’s not enough (and a lot of experts are), we have to remember the issues we have with execution. I was reliably informed that some of the mega corridor projects still has HUNDREDS of MILLION of allocated money not yet spent, so giving them more is not the answer.

A lot has been said about using the stimulus package for high-impact projects and hopefully, the market will efficiently distribute the wealth to as many people as possible. Somehow, though I’m a believer in the free market, I think it does have its weaknesses.

Think about it - companies and basically individuals in a free market want to earn profit. So the bigger the project is, the more likely it is to be awarded to a few companies only. These companies, in turn, are supposed to distribute the project to sub-contractors. However, they would have made their profit cut in the first instance, thus reducing the amount to be distributed when sub-contracting.

The bigger the project, the bigger the company, thus the more profit they need to reap in. Thus, although in theory giving a RM 1 billion project to a company seems like a great way to stimulate the economy, in reality, the wealth would only be distributed to a few companies and ultimately, a few individuals.

Not only that, the execution period of bigger projects is much longer, and what happens is that these companies would continue to receive money years after the economy has recovered. Is that fair and equal distribution of wealth?

I prefer using a substantial amount of whatever stimulus package we have to provide opportunity to as many people as possible. It might mean that no one earns profit in the millions, but it would definitely ensure a lot more people would survive and earn good income which hopefully they would spend on a lot of little things.

For example, giving a mega project would allow someone, who is already more than wealthy, to purchase another BMW or Merc. Identifying smaller, lower-cost, projects to be distributed over a larger base, would allow 10 people to buy Protons or even Peroduas.

Another quick-fix that I think would help is easy credit. It is an extension to my belief that economic stimulus must be distributed directly to as many people as possible. And we can start with just utilising RM1 billion of the stimulus package.

1 billion might not be a lot. I might be wrong, but if we were to given 25 million Malaysians a share of the pie, each would only get RM40. Clearly not enough to stimulate the economy. But if we talk about a RM100, 000 low-interest quick loans for small businesses like restaurants and services, then it will directly benefit 10,000 businesses. Split it further to RM 50,000 (enough perhaps for 10 months rental at RM 5000 a month), then you’d help 20,000 businesses.

Execution is a bane; therefore, leave it out of the hands of the government. Distribute it through conventional banks, and ensure it is distributed within a certain time frame. The banks will be in charge of vetting the requests, and doing their normal due diligence test, assign the necessary amount to the necessary people.

People say that it is difficult to ensure that these businesses will use the money for business sake or will they waste and spend it. In my mind, using the money to spend, although it is not ideal, is not the worst case scenario. Spending is ultimately what we want to achieve, either through the mega projects or my proposed “wide, direct distribution” model. So if these people waste the loans by buying a new bike or whatever, it still creates demand, thus driving up the whole economic cycle.

I mean, I could discuss this further, but I’m just a bit tired of writing. Hahaha...plus, Jimmy Kimmel is on. I’ll explore this issue further, if I feel like it. Go figure.

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