The Paradox Of Economy

Dear My Blog Followers,

I still remember during my MBA class, one of our Professor thought us on the topic of the economics of productivity. Along the way during his class, he kept mumbling about the enormous population of India and how that can be translated into future growth. He relate population with growth opportunities. Well, we all did wondered why is this guy keep positively mumbling about India, the capacity of India and what not and didn't even mentioned China as a matter of fact. Later we found out that he IS from India and an Indian National (that's explained his weird accent). Today, I want to talk about "Volume" and the paradox of it.

If you are a business owner, you would like to expand your sales internationally, because you want to increase your market share, moreover if your local market is small, like Malaysia. But in the other hand, if you're a government, you would want to increase your local market and do not really rely very much on international market. Why is it like that my friends?

Malaysia is a small country with population about 28 million people. Business cannot grow if they relied solely on local market due to its' size. Business will grow if you increase your sales. And sales will grow if you increase your market. But the international market is volatile and contagious as well. Moreover, it's more expensive to invest overseas. Because of that, local market plays an important role for the stability of a country's overall economy. China and India has lots of capacity because their local market are big. They do not have to depend to the U.S market that has shown its vulnerability during the sub-prime crisis. That's why Y. Bhg. Tun Mahathir once has promoted Malaysians to have more children per household. A bigger population is better for Malaysia.

But a bigger populations will need a bigger and better infrastructure. Infrastructure is not cheap these days. Good infrastructure is crucial to bring the economy towards a knowledge-based economy. Without infrastructure, talents will not coming and capital will not be flowing in.

I would like to take China as a good example. China has a population of about 1.34 bilion as at 2011 (wow!). China has a lot of capacity due to its big local market. FDI will come, solely because of its big population. And it's company can grow just by selling to its own Chinese natives. And of course, along the way, FDI will be flowing in to capture its enormous markets, hence creating job opportunities and keep unemployment rate low. During the earlier stage when they are reaping profit from the low Yuan value, the Chinese government invest heavily on human capital and infrastructure....how clever they are! They send Chinese government officers to attend highly respected Leadership Program from Harvard and other well respected western universities, fully sponsored, for free. They invest in infrastructure, building roads, high-speed trains, telecommunication, and IT. And now, they are well prepared for the knowledge-based economy bandwagon.

Malaysia, on the other hand, are stuck in the middle between Marketing based economy and knowledge based economy. We want to move our economy to a knowldege based, but we do not have enough talents. At the same time, we cannot stay in our current position as we are losing competitiveness due to the increase of labor cost. And our local market is small. Waaaa.....that's sounds deep shit isn't?

Indonesia is coming very strong. They are politically stable under the leadership of Mr. Susilo Bambang Yudhiyono and steps are being taken to eliminate bribery in the government agencies. And, the plus point is, their local market is big, very big. Their population is about 237 milion. Vietnam is also developing very fast. They took a very liberal approach in the management of the economy. FDI is coming in a very higher speed as the government willing to listen to every demand from the investor. They even give land for free there. Bangladesh, just fresh coming out from political havocs of civil war. Their population is 142 milion and their labor is very cheap. These are all competitors for Malaysia, just to name a few.

In this junction, I view the introduction of New Economic Model (Model Baru Ekonomi) is very crucial to move our economy to the next value chain. The only problems we had is time. Investments in human capital will need time.