Wednesday, May 11, 2005

Three Addictions of a Nation

I laud the Prime Minister’s speech at Harvard Club about the three addictions of our nation the other day. Let me reproduce part of the speech here.
1. Firstly, we are still addicted to cheap foreign labour. Rather than making the necessary investments to become more labour-efficient and adopting high technology, the preference is to form strong lobby groups and pressure for more cheap foreign labour. Over-dependence and social ills are then seen as an acceptable price to pay for this seeming necessity, in almost all sectors of the economy.

2. Secondly, we are addicted to subsidies. Rather than investing to become more energy-efficient, we fight to keep prices artificially low. Never mind that the money can be better spent on schools, hospitals, and other facilities to benefit many more people, especially those in need.

3. Thirdly, we are addicted to rent seeking; we would rather go for “know-who” than “know-how”. Rather than investing to become better than our competitors or to add value in our products and services, we try to find a way in by other means and seek to leverage on our sense of privilege and entitlement to get somewhere in life. We seem to think: surely someone else, at the very least the government, owes us a living?

I ask you, ladies and gentlemen: can the government sustain the costs of maintaining these ‘props’ to our competitiveness? The answer is no. As is plainly obvious to all, the treasury’s coffers are limited. As other countries become more competitive and innovative, it will also become more and more difficult to rely on such strategies to grow our incomes. Furthermore, as a matter of principle, the government cannot continue to nurture habits that reduce the incentive to increase efficiency and productivity. We cannot go on masking our true competitiveness in the global marketplace via subsidies and the like.
On the issue of cheap foreign labour, while the Prime Minister’s speech clearly states his view, the Minister in charge of labour issues made media statement about bringing in workers from Pakistan and other countries to work in construction, agriculture and manufacturing. A stopgap measure? Cheap foreign labour has always been used by previous civilisations in their nation building; Americas is an easy example. Millions of African were shipped across the Atlantic and enslaved to build the riches of Southern States USA, the Caribbean, and Brazil. Not much different than indentured labourers from India working in rubber plantations of Malaya and Javanese shipped to Dutch West Indies to work in sugar plantations. Even the Egyptians were building the great pyramids using the labours of the Jews.
So we are only following their examples, bring in foreign labour, use them to all their worth, and then when we finish with them, send them back to their countries, minus their due wages if possible (some companies are taken to court by Indonesian representatives, and our Minister was not happy). In my opinion, this is not ethical; we are using our neighbours’ human resources, profit from them and send them back to their country when they are old and cost a lot of money in healthcare. 21st century new form of slavery. Why can’t we invest in our own people, a better technology, machinery, working condition and wages would attract some of the unemployed into the sector concerned, not to forget higher productivity. If we don’t stop this soon, we would be following the path taken by Gulf Arabs, e.g. unemployment among Saudi citizens is as high as 30%, yet there are more than 6 millions foreign workers across the kingdom. Saudi citizens have high expectations about the jobs they are willing and want to do, leaving the menial jobs to foreigners.
Henry Ford in his memoirs wrote about his policy of paying higher than average wages, “We wanted to pay these wages so that the business would be on a lasting foundation. We were building for the future. A low wage business always insecure. The payment of five dollars a day for an eight hour day was one of the finest cost cutting moves we ever made.”
$5 a day back in 1914 was a big sum of money when Americans were working 12-14 hour day for $2 to $3 per day. To explain simply, this is efficiency wage theory.
Subsidies and tariff distort economics signals. The billions spent on petrol and diesel subsidies could be better spent elsewhere to those in need – healthcare, early childhood education or improving service delivery in government departments. Unfortunately, those who are better able to lobby always win, regardless of the consequence for the rest of the populace. Do we have the will and gumption to remove those subsidies and tariffs? Like a baby, we all have to be weaned off sooner or later. I couldn’t agree more Prime Minister.
Noor Yahaya Hamzah

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