Shared Growth; Feasibile? or Detrimental?

Small Businessman with Small Software and a small .... ?

It seem's that Lee Myung Bak is either a people's man or is just desperately trying to gain public support as he came under fire for another one of his antics on shared growth. A feasibility study was conducted by Korea Economic Research Institute (KERI) which claims that the "profit sharing" proposal he came up with does not carry positive impacts on the economy. But despite the report published by KERI, Lee's administration continued to search of areas in which they can help SME's grow, by developing a "Chaebol Shield"; which technically bars certain companies from participating in certain "SME Designated" industries. This however is still criticized by certain parties as the regulation set is non-conforming (not legally binding / entirely up to corporation's discretion). This however did not stop the Korean government from expanding the chaebol shield to include certain products such as tofu, and industries such as expendable office supplies and IT contents with further designation SME-protected industries to be developed in the future. Although many disagree on this policy, there are others who are completely behind it citing that Chaebol's ability to dominate the market through their suppliers and ability to receive cheap financing as factors that should change the non-conforming ordinance into a legally binding one. Not to mention that since most of the Chaebol's are family owned, wealth distribution is narrowed and limited to certain few - something which the Koreans call "top 1%".

Out of curiousity, I did a mini-search on the number of South Korean corporations listed in Forbes 2000, the number of employees in which they employ, and compared the number of employment to the country's population. For benchmarking purposes, I chose Taiwan and Turkey since they have roughly the same GDP Per Capita as South Korea;

	Taiwan	S. Korea	Turkey
Population (Million)	23	49	73
Employees (Per 100 Thousand)	0.8	0.4	0.2
Ratio Population : Employment	3.48%	0.82%	0.27%
Forbes 2000 Listed Companies	42	52	11

The results are quite interesting. We can see clearly from the table that although South Korea have corporations which are more globally recognizable compared to Taiwan (at least from my view), it seems that Taiwan is winning in terms of developing a more distributed form of competition, and that the corporations they develop employ more people according based on the Ratio Population.

So the question now is, would the "Shared Growth", "Profit-Sharing" and "Chaebol Shield" system proposed and implemented by the government would lead to a better wealth distribution system? My personal view would be Yes (with the exception of the Profit-Sharing policy), however, it would take time, and changing such a concept will not be easy. It all depends on what the people want, whether corporations are willing to oblige, and whether South Koreans themselves are willing to shift away from having a "Chaebol-oriented" mentality to a one focusing more on a "United Growth".

But at the end of the day, I guess its just all about greed.

Socialism vs. Capitalism

Picture not associated with post ... at least not directly.

I think it should be more like Article(s). JoongAng Daily daily reported huge tensions between the business community as well as the lawmakers of the country, to the extent that a politician dubbed a chairman of a  shipping company a 'murderer', some even calling 'stupid'. It seems that a similiar situation is also growing in Germany where industry players claim that the government led under Chancellor Merkel have stopped listening and taking feedback from coporate leaders.

On another note, we have North Koreans travelling to Canada to do their Masters in Business Administration. Seems that they are trying to pickup a thing or two from the free-market system which could be taken back home.

Thing's are moving and changing a bit too fast don't you think?

Production vs. Consumption Economy?

O noy weech shud I chooz??

I got bored of reading this 160 paged report on my organization's Strategic Plan so I wandered off on the net and found this really interesting argument on Production-based Economy and Consumption-based Economy. So it started getting my brain running; which is better? Production-based, Consumption-based, (what about Export-based?) or a mixed form of both?

The way I see it, each of the two articles had their own valid points; when it comes to production based economy, you produce goods - which either directly or inadvertently generates jobs and economic activity. The Pro-Production-based cited that the economic slowdown is due to the fact that Americans have developed a sense of debt-funded consumer spending, and have been gearing towards too much spending while moving their productions overseas; resulting in a slowdown of economic activity. So the issue here to him is; they need to increase investments (in production of goods) and get back producing goods rather than outsourcing everything and not encourage consumer spending as that alone is insufficient in getting back an economy on track.

For the consumption based argument the author disagrees by stating that the whole point of moving your manufacturing overseas is so that goods can be manufactured at a cheaper rate - saving consumers money to spend on something else. As manufacturing jobs involve low-skilled workers, this would allow companies in America to focus more on high-skilled jobs and innovation; a much more value producing activity. To put it simply, outsourcing manufacturing jobs overseas actually benefits the economy, and the whole point of economic activity is so that consumers can consume.

Now, I don't really know much about economics but I must say I do enjoy reading about it. These two authors do have their own valid points but the fact right now is simple; America is much more of a Consumption or Domestic based economy rather than a producer - with certain exceptions such as Defense Equipment & Machines, Aerospace Machineries etc. Apart from this, I don't think its such a good thing (intuitively) if a country were to run a straight trade deficit for 40 years. Its a good thing if you move low-skilled workers overseas in order to focus on high-value jobs locally, but that means there won't be any jobs for low-skilled workers (more could be argued on the importance of low skilled workers from countries like Japan where it is heavily automated and Singapore). Although the production aspect of the economic activity is moved overseas, the financial benefits is retained domestically through increased profits; to which could be spent on more investment in other high-value or innovation-based areas.

So it's a bit of a trade-off, I think the best mix is, to mix it. Production driven may result in over-production, which may lead to an export based economy which has its own drawback. Consumption driven squeezes the lower end of the social hiearchy due to lack of jobs, and primarily focuses on benefiting the higher echelons of society. A mixture of both would be perfect however, in a globalized world, specialization is the key to a country's success.

So which would we better?

Korea and External Uncertainties

O RLY? NO WAI!

In a report done by Morgan Stanley taken from JoongAng Daily, South Korea was rated last amongst Asia's emerging economy (including Malaysia, Philippines, China, Taiwan & Indonesia among others) in terms of ability to handle any external financial shocks. Now as much as I somewhat agree on this issue (since almost any export-dependant country might have difficulties in handling external financial turbulances), why was did Morgan Stanley classify South Korea as an "emerging economy"?

With a 1 trillion dollar economy, and per capita income way above World Bank's threshold for 'high income economy', would they be already have a developed economy? But it seems like there's a difference between "emerging economy" and "developed country".

Nonetheless, even local South Korean think tanks, LG Economic Research Institute (they seem to have a lot of corporate funded economic research organizations) mentioned that due to the Debt Crisis plaguing America and Europe, they too think that Korea's economy will not meet its projected GDP growth.

Maybe it's time they should switch to a more domestic based economy rather than relying on exports.

Government Subsidies; Helping or Spoiling

Can you blame them for leaving?

I was sitting outside having a smoke and enjoying a cup of coffee while writing a University Assignment for my Chinaman friend (which he paid me to do), somehow I drifted off about thinking about the level of competition in Malaysia. Then I recalled about this one article which I read in The Star about how Malaysia is stuck in the middle-income trap, and if the government changed certain policies, future developments would soon ensue. One of the policies which the article suggested changing was government subsidies.

But wait, aren't subsidies meant to help people? Millions of Malaysians can buy rice, sugar, and more importantly petrol, at much lower rates compared to our neighboring countries? Wouldn't it be better to help our poor economy if the government kept subsidizing shit and feed it straight into our pie-holes? I came up with a perfect illustration on the effects of the government subsidies. Let's make things simpler, and look at it from a different angle;

Assume you have a kid, old enough to talk. Now as he grows, you'll need to continue feeding him, and pay his share of housing costs, utilities, school or university fees, parking tickets, and in some cases, you inadvertently give your kids money to go clubbing or buy drugs. When the time comes, he'll graduate, gets his own job, and you stop paying his fair share of costs; although this depends exactly on when he moves out. So as a parent, you want your kids to grow up, get a job, and stop depending on you right?

Don't you think Malaysian's are at a stage where they're old enough to get a job, so that our parents (our lovely government) don't have to subsidize (pay) for our living costs anymore? If you keep giving money to your kids, wont they end up being too dependent on you?

And more importantly, why are they subsidizing retarded things? The logic of subsidizing things, to me, is to help things grow, develop, and mature (e.g. Transportation, Renewable Energy, Education). So let's take a look of the things in which the government subsidizes;

1. Rice - For what purpose? I'm pretty sure without subsidy it would still be affordable. Did the government want us to eat a lot of rice and end up being fat, then die from obesity, depriving the government the ability to tax us?

2. Sugar - It's sweet for the government to do so, but I think Malaysian's should also taste the bitter side of life. Does more sugar intake result in an increase in economic development? Does more intake result in better employment, higher education, or technological development? No. It results in deaths, and one less person to pay taxes to the government.

3. Petrol - The heart of the global economy. I can understand the subsidy from a commercial perspective, so why not subsidize trucks or commercial vehicles only? Why not fix it at a certain percentage to the market price? Cheaper petrol results in more cars (obviously profiting Perodua and Proton, especially Petronas) but it also creates an environment where citizens dont pressure the government enough to develop a more efficient Public Transportation system (e.g. South Korea and Japan). I'm still waiting for the KVMR which the government promised to build 100 years ago.

4. Controlled Prices - Controlling the price of Chicken constricts developer's profits - also a form of subsidy, turning us into cowards or more accurately, we become chicken shit. Beef? Why bother controlling the price of beef? I didn't know that if you control the price of beef, it would have vast effects in developing our intellectual capacity?

I smell corruption.

The effects are simple. When you end up subsidizing bullshit things, the government can't spend effectively to develop a country, resulting us being stuck in the middle income trap, and a butt load of Malaysians moving overseas to countries where they don't subsidize things which a 12 year old would need.

I know most of the things I just said are nothing more than mere rants, but I do know that some of it is true and factual; so now we know about it, what do we do with it?

How To Be Positively Weird

Turn left at innovation drive pls

Think Different. Schumpeter, The Economist.

An article about innovative-thinking, including a quotation from Clay Christensen and his book, "The Innovator's Dilemma" which popularized the term Disruptive Technology. Learned a thing or two from it.

Good read.

America's Debt Crisis

"Investors won't learn much new from S&P's announcement. Politicians should."

Downgrading our politics. The Economist.

Corporate Strategy : The Bad & Ugly

Teh biznez cat has spokenz

This is a very interesting article on how most companies would blindly set coporate strategies and directions without much thought on whether the strategies and directions in which they set are correct and beneficial to the company. In it, the author noted several key points in why most Corporate Strategies set by organizations fail;

• Failure to identify current challenges and problems.
• Mistaking goal, vission or mission as strategy.
• Bad strategic objectives; focusing on multiple objectives, instead of a few.
• Flulffs; using sophisticaed words which masquerade an otherwise direct strategy.

The author also noted the reasons why people tend to make common mistakes listed above as well as several good tips on how to create an effective strategy. What caught my attention in the article was the "Condorcet’s paradox" or also known as Voting Paradox.

I wonder why they coined it in French.

The Yen, Gold and Swiss Francs.

Show me teh moneyz!

    Here we have the Bank of Japan intervening in the Yen to US Dollar exchange rate which hit an all time low (but I thought that was meant to be high?) since the Post-World War II. Apparently the bank did this by purchasing the Dollar on mass, with a major selloff of the Yen which helped the Yen to climb back up to 78 Yen, with the Nikei showing gains as well. But it seems like the efforts were futile as at the end of the day Nikkei went down, along with other major markets across Asia as a result of the massive sell-off taking place on Wall Street. 

    The effect of rise of the Yen against the dollar is apparent; much like any export reliant countries, a strong domestic currency would definitely hurt its economy. South Korea is currently facing similiar problems as well - both as a direct result from the collapse of Wall Street, shaken as a result form the loss of investor's confidence on America's & Europe's debt crisis. I'm so sleepy I feel like dying  One thing which grabbed my attention is how the price for Gold & Swiss franc would normally increase during economic recessions. I can understand swapping your investments to Gold, one month low-yielding government bonds, but why the Swiss Franc? Even the Swiss Central Bank had to lower its domestic interest rates to cope with its the sharp increase which would have had adverse effects on its economy.

I should look into this.

Cronny Capitalism In America

Fiscal Indulgences, The Economist.

An article related to America's Fiscal Policy which enacts tax expenditures which favors certain industries, sub-industries, corporations and individuals, being compared to the church's practice in selling indulgences.

I thought only Asians practiced cronny capitalism?

Well, at least thats what the Western Media  taught me.

What a joke.

China's Economy : Export or Domestic Driven?

Y u no tell me teh tru storeh?

    In a recent article by McKinsey Quarterly which I nearly fell asleep reading, the author suggested that the perception that China is turning into a major Export-driven economy (much like South Korea and Japan) is somewhat untrue. The author proceeded to introduce his own theory called Domestic Value Added Exports or simply abbreviated as DVAE which calculates China's exports by subtracting total exports from imports used in the production of goods and services which subsequently are meant to be re-exported. This is done to counter the following issues when dealing with conventional methods;

• Overestimation by failing to remove imported goods (raw materials or components) which are used for manufacturing and subsequently re-exported. This is particularly evident when measuring the contribution of total exports to the GDP.
• Underestimation as a result of the inclusion of finished imported goods which are then used for domestic consumption when using the Net Exports method (export less imports).

    The results from the application of DVAE (see article) in measuring China's actual exports indicated that China's exports seems to be overestimated, and actually slowing down within the past couple of years. Personally, I do think that the perception of China being an export-driven country is somewhat untrue. I think that come 10, 20 years, they would shift away from being a manufacturing-based country into a domestic-led economy, as evident in most developed countries. Let's face it, Chinese people are good at making money. They're a lavish good spender too.

    In another article relating to China's rising domestic consumption and disposable income, much has been discussed about the Chinese mentality of parading their personal belongings, coupled with a thrifty attitude, unlike their western counterparts. This sort of mentality is apparently a direct result from the constant years of the oppression by the communist state. But whether they will continue their domestic consumption will continue or not, much depends on whether the government is competent enough in battling key issues such as the country's inflation rate, risk of overheating, and its fiscal or monetary policies. The last thing the country would want to face after years of constant growth and trade surpluses is to end up in the middle income trap.

That would suck.