M. Bakri Musa
www.bakrimusa.com
Millions of Chinese had a rude awakening when they returned last month
from celebrating their Lunar New Year in their villages. They discovered
that the jobs they had in the cities before they left only a few weeks
earlier had now disappeared. Tragic though that may be to them
individually, the aggregate loss pales in comparison to that suffered by
their government through its massive investments in the stocks of
American companies and other paper assets like bonds and Treasury Notes.
If only the Chinese government had invested in its people,
imagine the good that would do to them, and to <?xml:namespace prefix =
st1 ns = "urn:schemas-microsoft-com:office:smarttags" />China. If their
government had spent the funds to build better schools, Chinese
schoolchildren would not have dangerous physical facilities that collapse
with the slightest tremor. Had those funds been used to build affordable
apartments, the Chinese people would have been better housed. That would
at least help alleviate their miserable existence.
The Chinese people suffered twice. First, they worked
incredibly hard under intolerable conditions and insufferably meager
wages so the West could enjoy inexpensive consumer goods. Then the
foreign currencies earned by their government from the exports created
through their hard work vanished with the downward spiral of Western
economies.
When Western consumers could no longer afford to spend, the
Chinese were forced to work under even harsher conditions so the products
they make could be sold cheaper still. This is just a modern twist to the
old "coolie" concept. In the early part of the last century, millions of
indentured Chinese were brought to America to work on the gold mines and
railways. Today the coolies remain in China; America brings in only the
products of their hard labor.
China is not alone in engaging in this folly of investing
abroad instead of in their people, so is the rest of Asia. Singapore
lost a hundred billion dollars on its American investments. On a per
capita basis, Singapore's loss is massive and readily dwarfs that
suffered by China.
Granted, Singaporeans live in a different universe from those
folks in China, at least with respect to the creature comforts of life,
though not in personal freedom. That notwithstanding, imagine how much
better off Singaporeans would be if only their government had invested in
them instead of being enamored by the fancy financial papers hustled by
those Ivy League-educated white boys on Wall Street.
A Singaporean friend who owns a subsidiary in Silicon Valley
lamented that the secretary to the head of his American company enjoys a
lifestyle far better than his: larger home, a decent car, more social
amenities, and better opportunities for her children. Meanwhile back in
Singapore my friend has to make do with one of the pigeon holes of a home
in those monotonous urban high-rises, and his children have to spend what
little spare time they have in "cram schools."
On another level, had Singapore invested those billions in
nearby giant Indonesia instead of faraway America, imagine how much good
it would do to the poor Indonesians. More pragmatically, a developed
Indonesia would be a more high-value market for Singapore's products and
services. Besides, imagine the gratitude and goodwill created through
such investments. You cannot put a monetary value to that. Indonesia
desperately needs those investments; America could easily do without
Singapore's dollars.
Malaysia Fortuitously Spared
Fortunately in this current global crisis Malaysia is spared this tragic
fate of losing its investments abroad. This is not the result of any
brilliant foresight on the part of the nation's leaders, rather the
consequences of our own harrowing experience with the Asian economic
crisis of 1997. For one, Malaysia has not yet fully recovered from that
trauma and thus does not have the extra cash to be investing in any new
and exotic financial instruments concocted in the West, those
acronym-filled papers that are the "assets" of what former Finance
Minister Tun Dain Zainudin derisively termed the "cowboy economics."
For another, the capital controls implemented by Mahathir,
though now largely dismantled, have left a deep impression on Malaysian
economic managers, immunizing them against future meddling in such poorly
understood foreign "investments."
That has not always been the case. Prior to 1997, agencies of
the Malaysian government were active players on the London Stock Market,
as well as the London Metal Exchange and the Foreign Exchange Market.
It was at the London Stock Market that Malaysia executed its
famous (or infamous, at least to the Brits) "Dawn Raid" on September 1981
that effectively nationalized the huge British plantation company,
Guthrie. That was hailed as a brilliant move that also satisfied our
national pride. It proved that we natives were fast learners and could
be just as agile as those pros in the City, a much-needed confidence
booster for those who require it periodically.
Malaysia's brash attempt to corner the world's tin market at
the London Metal Exchange also involved mega sums. This time however,
there was no rush to accept responsibility for this squandering of
citizens' precious funds. There were other colossal losses, including
Bank Negara's forex debacle, as well as the now defunct Bank Bumiputra's
many expensive foreign misadventures.
Again, I could only imagine the immense good had our
government invested those precious funds in our people instead. Although
average Malaysians have it considerably much better than the average
Chinese, nonetheless our quality of life could always be improved.
Contrary to the soothing but misplaced assurances from our
leaders, Malaysia cannot insulate itself from the current global economic
storm. There is no "comfort zone." Yes, Malaysia was fortunate enough
not to have been entangled in those highly deceptive newfangled financial
instruments with such fanciful acronyms. However, when our biggest
trading partner and consumer of many of our commodities is in economic
difficulties, rest assured that Malaysia will also inevitably be roped
in.
Invest In What You Know
Like other countries, the Malaysian government has also introduced its own
economic stimulus in an attempt to deal with the crisis. Our economists
too have read Maynard Keynes and understood the rationale for counter
cyclical public spending in a downturn.
Understanding the concept is one thing, translating it into
reality in our local context is entirely another matter. The challenge
is to make sure that our economic stimulus does indeed work, meaning it
does spur the economy, and that our investments are indeed investments,
meaning they would produce returns in excess of the capital expended.
At the height of the dotcom boom, the legendary American
investor Warren Buffet was asked why he was not investing in that sector.
He answered, "I invest only in things I know!"
I live in California and know that the real estate dynamics in
San Francisco is radically different from that of San Bernardino, so I
invest only in my community. I can at least follow the trend. Yet we
have bankers in Singapore and Beijing pretending to be knowledgeable
about real estate in the entire United States. That is the only
explanation for their readily investing billions in securitized American
mortgages!
Follow Warren Buffet's maxim: Invest only in what you know.
What do Malaysian leaders know? For one, more than any Western banker or
Nobel prize-winning economist, our leaders know our people, their daily
needs and living conditions. So invest in them, our people. For
another, the economic "multiplier" of such spending is considerable;
there is no such local multiplier when we invest in foreign stocks and
other paper assets.
Our leaders are aware of the deplorable conditions of our
schools especially in rural areas. They also know that these children
risk their lives daily in crossing rickety bridges to get to schools.
When they return home, their houses are flimsily built and in an
unhealthy environment. They also have poor access to healthcare. So why
not invest in building new schools, bridges, clinics, and affordable
public housing?
Similarly we all know that those rural children could not get
good teachers. So why not invest in teacher training and provide greater
incentives for teachers to serve in rural areas?
The beauty of such investments is that they generate values
way over and above the capital and other efforts we put in. The benefits
are also enduring, and indeed "recession-proof." Should there be an
economic downturn, the superb education those children had received would
still be with them; likewise their good health. Indeed a populace that is
healthy and better educated, and thus productive, is the best weapon
against a downturn.
In the last budget, and also in the proposed additional
stimulus, considerable sums were devoted to investing in the local stock
market and in furthering the government's already considerable
involvement in the private sector. Come another recession or a market
misjudgment, such "investments" could easily evaporate. We have already
squandered hundreds of billions on Bank Bumiputra, State Development
Corporations, and the myriad GLCs. All we have to show for such
investments are some old, tattered letterheads. We have not even learned
any useful lessons from those debacles.
Let the investment bankers, brokers and other middle men and
paper shufflers invest in exotic financial assets; governments should
invest in their people, and in infrastructures that would enhance their
lives. Those are the only investments that are properly the purview of
governments, not company stocks, foreign bonds, or fancy derivatives.
Investing in our people is also the only effective way to
prepare them for the increasingly competitive world. More significantly
for leaders, that would also ensure that come election time when citizens
would make decisions about their future, our leaders would not be rudely
awakened to find themselves without jobs.
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