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Focusng on the Asian frontier under the theme 'Scaling the Efficiency Frontier - Institutions : Innovation : Inclusion', Tan Sri Dato' Seri Utama Nor Mohamed Yaakop expressed a strong point on the severe depleting status of economic resources. Malaysia cannot rely on its current resources forever. It (Malaysia) needs to adapt to changes necessary to survive the world economy
HAZANAH NASIONAL BERHAD ('Khazanah') has once again held a very informative session with its trade mark event, Khazanah Megatrends Forum 2014. The forum has taken a different approach from previous years when it focuses on the Asian frontier under the theme 'Scaling the Efficiency Frontier - Institutions : Innovation : Inclusion.' The opening speech was swiftly given by the Deputy Chairman of Khazanah, Tan Sri Dato' Seri Utama Nor Mohamed Yaakop, who is also the Chairman of Khazanah Research. Tan Sri Nor expressed a strong point on severe finite and depleting status of economic resources. Malaysia cannot rely on its current resources forever. It (Malaysia) needs to adopt to changes necessary to survive the world economy.
The event was also graced by His Royal Highness ('HRH') Sultan Nazrin Muizzuddin Shah Ibni Almarhum Sultan Azlan Muhibbuddin Shah Al-Maghfur-Lah, Sultan of Perak Darul Ridzwan. HRH declared that the world should look at Asia. It is now the Asian century. The Gross Domestic Product ('GDP') of emerging Asian economies has grown at 2 times the rate of the World GDP growth. Such rapid expansion requires innovation for the growth to sustain. The average income and the living standards of the Asian countries are still well below that of the developed countries. China and Malaysia, for example, only have GDP per capita of one fifth and one third, respectively, of the GDP per capita of the United States of America ('USA'). The widening inequalities in Asia is also higher than the developed countries. The rich are a few and the poor are widespread. If the disparity is not addressed, it will lead to an unhealthy polarisation.HRH then presented his idea of an ideal 'World View' to address the so called disparity. These views should be appreciated from the heart and not from the brain alone. The salient points of those views are:
Paradigm of Production: Production alone cannot be the measurement of growth. An anti-myopic view is required to ensure that what has been utilised for production is also preserved to ensure a long term sustainability of the growth itself. One must not explore the best way to exploit but should also explore replenishment of what is exploited.Paradigm of Maximisation: There has been too much focus on short term maximisation. Many corporates in the developed countries strive to ensure highest earnings possible with a view of a fat cheque as the remuneration to its executives. They buy back shares from the market and forces the earnings per share to shoot up. In the end, the Chief Executive Officers get paid handsome bonuses. A true business should reinvest the surplus to expand its investment horizon. In short, Optimisation is the key word, not Maximisation.Paradigm of Resources Ownership: Resources are often deemed to have been owned. We, humans, are mere stewards on this Earth. We do not own the resources. Our right to derive profits from the resources is temporary and we owe the duty to ensure resources sustainability for future generations.
The event was also made complete by a heterodox economic expert and an institutional economist specialising in development economics. His name is Dr. Ha-Joon Chang, currently a Reader in the Political Economy of Development at the University of Cambridge. Dr. Chang echoed what HRH implied - Asia is in middle income trap and that inequality is still very high. Also, most Asian countries fail to produce national firms that compete at the top end of the world market save for a few like Korea and Japan. Asian countries must strive to achieve high income nation and develop a productive capability human resource. By the World Bank definition, a high income nation has to breach the USD12,746 income per capita. So, how do we develop 'productive capabilities'?
Dr. Chang pointed out his views of what could help Asian countries to embrace the culture of productive capabilities. His views are:
Do not develop what comes naturally: Being rich is not necessarily being economically developed. We cannot be blinded by the fact that we are rich with natural resources. Korea for example was rich with tungsten. Had it relied on that fact alone and be content with its strong economy that was solely backed on such resource, it would have probably be under developed now. Instead, they took a turn. Tungsten was there, yes, but a new frontier was warranted. They needed to go beyond what they naturally had. The result is magnificent. Who would have thought (back then) that Korea can be one of the leaders in World technology?Do not develop by following comparative advantage: We must not capitalise on our strength alone. This will turn us blind to other opportunities that are not so apparent when compared to our identified strength. We must not think that we are good merely because we are good at it. We must decide to be good at it. For example, why is Swiss good at making chocolates when they had never produced cocoa agriculturally? The African nations thought that their strength is only producing cocoa agriculturally and they missed the opportunity to further develop other strength - which was obviously hijacked by the Swiss.Encourage Entrepreneurship: An economy should be deregulated to support entrepreneurs so that they (the entrepreneurs) can take a leap of faith to face risks of unlimited liabilities. Entrepreneurs deserve a second chance. A failed entrepreneur should not be deemed a loser. On the contrary, they should be further supported as they have developed themselves further by virtue of learning through failure. The USA's Chapter 11 of the Bankrupcy Law embraces this restructuring and forgiving attitude. Some welfare states in Europe also have conducive environment for entrepreneurs. You can gauge this by looking at their (e.g. Finland and Sweden) income per capita growth of 2.7% that is higher than 2% registered for the USA.
Inclusive Development: Empowerment and affirmative actions for disadvantage groups (e.g. ethnic groups, women, poor families, etc) is also crucial in ensuring a more dynamically inclusive development that is both equitable and sustainable - intertwining economic platform with social platform. A powerful ingredient to achieve this is to institutionalise innovation that is inclusive of the society as a whole.
The forum was also blessed to have the Indonesian Finance Minister, Gita Wirjawan, to share some statistics on his country. indonesia has 25 million tax payers out of 250 million population. Its income per capital is at USD4,000 and the GDP grows at 5% per annum. 60% of the GDP is fuelled by consumption and 32% by capital expenditure. This clearly shows that its people are the main driver of the economy. They need the population to achieve higher income and more people to pay taxes. An ideal number is thought to be 120 million tax payers. This can ensure larger pool of funds to develop the country further. A good yardstick of how poor the development status is is the human capital development. Indonesia only allocates USD2.4 trillion out of the USD60 trillion GDP for the coming 20 years on education. This priority must have remedy.
Dr. Mohammed Abdul Khalid of Universiti Kebangsaan Malaysia joins the forum by rocking the boat when he questioned, "Is GDP the right tool to measure performance?" Dr. Khalid believes that GDP is too narrow minded. It does not take into account other important elements of life. What are those important elements that are missing? Well, to name a few, pollution levels, black market contribution, social stress and many more. He also illustrated the point on social stress whereby traffic jam is used as an example. The rows of cars in a traffic jam will burn more petrol. This is good for the economy as far as boosting the consumption of petrol is concern; but what about the health of those who inhale the pollution? What about the social life of those stuck in the traffic? Another really, really good indicator that is left out by GDP is the homeless statistics as well as disparity in income. When the top 40 rich people in Malaysia owns 23% of the economy, a mere total sum (i.e. GDP) is no longer a good representation of the entire population's wealth.
Shankkar Aiyar of India, the author of Accidental India: A History of the Nation's Passage through Crisis and Change and a noted journalist-analyst, further reinforces the disparity of income problem. In India, only 33 million out of 450 million population pays tax. The question arises on what is an ideal composition for equitable distribution of wealth. Shankkar believes that the top 4% should be the rich people and the bottom 4% should be the poor people. Everybody else should be the vast majority who earns moderate income. This way, the total of the wealth can be a good indicator of the country's economic status. But of course, the reality (in India) is far, far from this. One must remember that surplus does not necessarily mean success. Surplus (as well as deficits) must be redistributed. Gain and pain should be felt by all walks of life. Having said so, to merely redistribute wealth without making sure fair growth in the economy is not the way to go for it will only mean that we are redistributing poverty. To promote growth, catalysts such as education, technology and business opportunities must be created - and the Government should lead this. 
Chandran Nair, a Singaporean poet and retired Director and Mediator of UNESCO in Paris, rocks the boat even further by saying that the 21st Century is going to be bleak! Why? Because of divergences. What divergences? Well, firstly, we think we can have everything. We buy what we don't need with the money we don't have to impress people we don't like. Capitalism is exclusive in this sense, which is the total opposite of what everyone is preaching (i.e. Inclusivity). Secondly, technologies are thought to save the world when in fact, it will not. For example, internet is the most dangerous invention of all time. You have average kids today watching pornography at the age of 10. How is that safe? Thirdly, More is not Better. How much is enough? Maximising agriculture produce by applying chemicals is not necessarily good. Lastly but not least, we believe what we think is worth believing but it may not be consistent with the way of peace and harmony....... what a great quotation (by Chandran) to end this blog post :) - but wisely, we should remember Dr. Ha-Joon's wisdom in addressing our economy's needs (as follows):"Natural resources do not equate to economy. We need to go beyond that and not rely solely on our strength that will blind us from opportunities. We must decide to be good at what we want and affirmative actions will help ensure a more inclusive, equitable and sustainable economy" - Dr. Ha-Joon Chang
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