Let's Talk About Economics

When it comes to economy, people often think about supply and demand. To a certain extend this is true but these are not the fundamentals of an economy. I will use several examples from selective countries but the main focus is on the U.S, China and Malaysia as I have been in those countries. A countries supply (productive output whether it is goods or services) hinges on a few factors. I'm not touching on demand simply because the world is big enough for any country. Humans grow to want more than just necessities so there is nothing to worry.

1. Population: the source of future workers but it is not to say that a bigger country will be more economically powerful . E.g. China is bigger than the US in population but it's economy is only 1/3 of the US. It is the combination of population + productivity (how much workers earn) that determines economic growth. In ideal case, you need both in to grow efficiently. Note that population growth can come from immigration as well. The next two factors determine how productivity is determined.

2. Investments: in order words you need capital which means putting good use of the nation's wealth. By building more infrastructure, investing in land or equipment. Spending capital has a downside, it can only do that much. With 10 workers, you can add 10 trucks but adding another one more truck will not improve productivity as much unless it is being used.

3. Ideas: innovative and creative thoughts bring forth new inventions that enables us to overcome the investment downside. These come in the form of better processes or newer products. I like this phrase "Economic growth springs from better recipes, not just from more cooking". 

Lan Houng (Vietnamese model)

Having said so, it is crucial to have a honest and trustworthy government because it encourages investors & innovators to take on more risk for greater rewards. And not forgetting, investment in education is important to ensure that we can take advantage of the latest trends/ideas and also for future generations.

France: One of the most productive countries in the world with most people working in a 4 day work week and about 7 hours of work/day. Yet is Europe's darling next to Germany. Fertile country and not short of investments and ideas, it is an economic powerhouse.

Singapore: This is more interesting. Without Malaysia, it is a dead country so love your country also la. Population growth came primarily from Malaysian migrants. This is later coupled with sound investments and a more open economy, an up-to-date education system that gave birth to ideas that pushed it up to the high-income status it is enjoying right now.

Indonesia: Population is not a problem. Due to rampant corruption until now, the country lacks investments and ideas. It is slowing emerging from its long slump.

China: Population is a sort of a paradox. They need to grow yet they cannot grow too fast. This could be a problem in the end as this might be a case where the country "grows old before it gets to be rich". Investments and ideas are not lacking. In fact, teachers are the highest paid workers in China. Can you imagine how much they invest in infrastructure and education in the last decade!

United States: Population growth is one of the highest in the advanced economies. Not short of investment but prioritizes are not set properly. What is beginning to lack is an overhaul of the education system. The details are shabby but I can see there is much talk on this issue.

And we have Malaysia:

• Population growth is not a problem BUT we are attracting low skilled workers e.g. constructions estate/odd-job workers from very economically weak countries! Plus we have this problem of a major exodus of skilled Malaysian to other countries. Double whammy!
• We put too much investment into infrastructures that are either not being utilized, not required and not properly maintain. Private sector is doing a better job indeed but when you look at most of the GLCs...you get a big sigh in the end.
• Ideas. Lacking in short. We are not investing properly into education nor are we even trying to fix the fundamentals. When you add the migrants, you are fast losing good talents. When it reaches a point of equilibrium where you lose as much as you get and it continues, we will have a generation knowledge gap. This is bad because instead of going up the value chain, we go back to the basic of agriculture/manufacturing based economy.

These are the 3 most basic elements in any growing free market economy in the modern world. If we could compare countries around the world, you will see that Malaysia is in a gloomy state indeed. So whatever is bring preached outside that Malaysia's future is good, think again. Think again before buying an overpriced automobile or a house hoping to earn some money fast, our economy is on the route of bubbling out/collapsing and its a matter of time before we would experience some sort of hyperinflation (the tell tale signs are there already). "Roti up, fuel up, electricity up, astro up, sugar up...everything up la except our god-damn salary."

Inflation woes~!

You are better ought saving your money and invest in your children's future. Just like ICAP, I think it is wise that you slowly move your investment assets (Bursa) out of the country this decade or minimize the risk by choosing a local company with a global presence (you should already know that I do that with my choices).