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It’s geopolitics, stupid!

Ali al-Naimi, Saudi Arabia’s oil minister, thinks the market will stabilize itself. Photo courtesy of Bloomberg News

Ali al-Naimi, Saudi Arabia’s oil minister, thinks the market will stabilize itself. Photo courtesy of Bloomberg News

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Austerity is nonsense 101

© Chappatte in "NZZ am Sonntag" (Zurich) - from englishblog.com

© Chappatte in “NZZ am Sonntag” (Zurich) – from englishblog.com

Sustainability and New Economic Paradigm

Malaysia’s capital-intensive approach to become the next international education hub

Education tops once again Malaysia’s political and economic agenda. Prime Minister Najib Razak unveiled on October 10 the new federal budget for 2015, in which education receives the largest allocation equal to RM56.6 billion (USD 16.2 billion), or 26% of the overall budget.

Education is recognized as the cornerstone of Malaysia’s Economic Transformation Programme. As such, it has been identified as a National Key Economic Area, with the objective of making Malaysia an international education hub by attracting 200,000 international students by 2020. Already in 2011, the World Bank assessed that Malaysia’s public expenditure on primary and secondary education as a percentage of GDP, was slightly higher than OECD average (3.8% versus 3.4%). In the Asian context, Malaysia’s public spending on education was more than double that of other ASEAN countries (3.8% versus 1.8%), and 1.6% higher than the “Asian Tigers” (South Korea, Hong Kong, Taiwan, and Singapore).

Concerns over deteriorating performance despite enormous investment

Experts in the sector, however, are raising eyebrows over the decreasing quality of education offered as well as the expected return on investment of the 2015 budget for education. Concerns are rising due to Malaysia’s deteriorating performance in the PISA assessment. According to the latest report, Malaysia scored below OECD average and in some areas (science and reading) the country’s performance worsened compered the previous assessment.

Critics underlined that the policy embraced by the government is excessively investment-driven without paying the necessary attention to teachers’ training and development needs. The 1BestariNet project, for instance, has the objective to supply 4G broadband access to all 10,000 schools in the country and promote the use of e-learning techniques by supplying new technological equipment thereby cutting the ratio of student-device to 10:1. Budget 2015 records a RM200 million (USD 57.3 million) increase in “hardware” developments (infrastructure and ICT) but also a RM600 million (USD172 million) cut in “software” services, such as pre-service, in-service and leadership training of teachers. From 1999 to 2010, the Ministry has invested approximately RM6 billion on ICT infrastructure for schools. However, UNESCO states that there is still little evidence that the usage of this technology is actually facilitating creativity, problem solving, and critical thinking.

Risks and opportunities of aligning education to economic objectives

On the one hand, education lobbyists such as Parents Action Group for Education (PAGE) and public think tanks as the Penang Institute criticized the economic-oriented educational system that leaves little room for social objectives and equitable development of students. It appears that the adoption of latest technologies has little marginal impact on pupils in rural areas, where teachers do not receive the necessary training to reap the benefits of ICT infrastructure. On the other hand, the World Bank praises Malaysia for its effort in addressing the mismatch between education and market requirements, a gap responsible for leaving many graduates jobless. The presence of publicly funded high-tech parks – such as Kulim High-Tech Park, Senai Park, Technology Park Malaysia, Kuantan High-Tech Park – distributed on the whole national territory contribute to shape a conducive environment by leveraging R&D potential and profitability for innovative companies.

The internationalization of education

Malaysia is taking advantage of the rising global student mobility. According to UNESCO, the country is the 11th most preferred study destination worldwide and hosts students from approximately 100 countries. Due to steer competition from mid-value manufacturers such as India and China, Malaysia is investing heavily on education as the key variable to accomplish its economic transformation. This move did not go unnoticed to many MNCs that are picking Kuala Lumpur as their regional HQ because of the availability of high-skilled human capital. Private institutions and international schools have been mushrooming along with foreign universities setting branch campuses in Malaysia. EduCity, for instance, a project spearheaded by the federal government and State of Johor, is Malaysia’s first multi-campus education cluster. Ten international education institutions have signed up to set up local campuses in EduCity so far, of which two are secondary schools and the rest are higher learning institution. This provides foreigners with opportunities to send their children to internationally accredited institutions and places Malaysia in the right position to attract new talents from all around the world to fulfill its vision to become an international education hub.

Malaysia: The Gateway to ASEAN

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Here you can download the latest report I contributed to realize on Malaysia. It was recently distributed with The Daily Telegraph.

Take a look at it or download it (it’s free) if you want to know more about Malaysia’s…

  • Business environment
  • FDI incentives
  • Innovation and high-tech cities
  • Telecommunications
  • Regional economic corridors and related investment and business opportunities
  • Education, human capital development, and the transition towards a “knowledge-based economy”
  • The country’s global leadership in Islamic finance, a viable financial alternative for all
  • Oil & Gas
  • Tourism attractions

Comparative Politics Vol 2: Ease of Doing Business. Malaysia vs Italy

Malaysia ranks 6 in the World Bank’s Ease of Doing Business Report 2014.

Source: The World Bank

Source: The World Bank

 

One of the key variables to make sure to become the location of choice of foreign investors is the ease of doing business. As you can see, one of the indicators in the table above is “Paying Taxes.” So let’s take tax incentives and regulations for instance, as I’ve had the opportunity to interview the CEO of the Malaysian Inland Revenue Board, Tan Sri Shukor.

In Malaysia it is possible to file taxes online, through an e-filing system. The e-filing system not only guarantees efficiency for the government and companies in terms of cost and time savings but it also ensures fair treatment to the public (for instance you can get tax returns within 30 days).

Moreover, in line with the government strategy to develop strategic economic activities (e.g. biotechnology industries, operational headquarters, international procurement centers, regional distribution centers, real estate investment trusts, treasury management centers, 4 and 5 Star Hotels in Peninsular Malaysia, private and international schools, provider of industrial design services in Malaysia, child care centers and pre-school education), international investors allocating resources in specific geographical areas or sectors enjoy tax holidays and don’t have to pay income tax for a certain number of years. Dividends are tax-free and companies willing to re-invest in R&D in Malaysia may be eligible to double-deduction.

Companies that are recognized with the Pioneer Status are eligible to a tax exemption ranging from 70 to 100%. In alternative, another tax incentive is the Investment Tax Allowance (ITA) for projects that imply long-term large capital investments.

The government has created a conducive ecosystem for business to thrive and the private sector aligns profit-making with innovation and socio-economic development. All the ingredients are there to make Malaysia an economic case study of excellence.

Italy ranks 65, after all European countries except for Greece, Romania, Czech Republic, and Malta.

 

If we don’t want to get stuck in this recession for decades this is definitely an area that we must reform. We need to simplify procedures and digitalize systems. This is also a way to cut public spending. Let’s get rid of red-tapes and reduce excessive costs (e.g. notary fees); a good idea could be to create a one-stop center for opening up a business where you take care of all paperwork/procedures at the same place. Should there be a need to communicate with different offices, this should be done internally and electronically.

 

Italy

Source: The World Bank

 

Malaysia

Source: The World Bank

Source: The World Bank

 

Let’s compare the “Paying Taxes” indicator. Besides the fact that our tax rate is equal to 65.8% of profits, while in Malaysia is 36.3%; the time and labor tax and contributions are 2/3 times higher in Italy than the average in OECD countries and Malaysia.

In Italy it takes 269 hours per year to pay taxes against 175 as an average of OECD countries and 133 in Malaysia. Labor tax and contributions stand as high as 43.4% in Italy. It’s 23.1% in OECD countries and 15.6% in Malaysia. How can we expect our unemployment rate to go down? It’s simply impossible for many companies to hire more workers with these labor costs.

 

Italy

Source: The World Bank

Source: The World Bank

 

Malaysia

Source: The World Bank

Source: The World Bank

 

In order to be more competitive in the global market we need to increase significantly what here is referred to as “ease of doing business.” Regulations must be simplified; procedures must be streamlined; and systems must be digitalized. A reform in this direction will not only attract foreign investors, but also help us cutting public spending.

Oh, and I almost forgot… English…Because nobody else speaks Italian besides us.

Krugman vs Alesina and the Italian Stalemate – Krugman contro Alesina e l’impasse italiano

What is the economic policy of the new Italian government? I bet no one can answer this question. On the one hand, the Democratic Party (PD)-or at least some of the ministers- emphasize the importance of cutting taxes on the labor market in order to boost employment. On the other hand, B (that just stands for Berlusconi since it’s hard to believe the existence of a structural party behind him) is obsessed with the repeal of IMU (a tax introduced by Monti on real estate). The problem is that PD and B are sitting at the same table, the Government. Both, however, stress the importance of maintaining the promises made to the EU (i.e. keeping the budget in order, whatever it takes) but at the same time say we need more investments to shake up the real economy.

Well, guess what? The two policies are mutually exclusive, especially in times of crisis. We either expand spending or we cut it. We either choose Keynesian economics or we go for Austerity. This choice mirrors the debate going on between Paul Krugman and Alberto Alesina, the first being of course the Keynesian and the second the Austerian from Bocconi. Krugman criticizes Alesina and Ardagna’s paper arguing that there is no evidence that spending cuts lead to economic expansion. In the Euro area, indeed, austerity has produced the situation in the graph below:

Alesina, in turn, replied Krugman saying “My paper has never claimed that every fiscal adjustment is expansionary. It just claimed that there have been examples in which some well-designed policy packages, based on spending cuts and other measures, have been associated with a positive impact on the economy.”

As I already pointed out in my previous post, the bottom line stays the same: it’s the boom, not the slump the right time for austerity. We all know how badly Italian governments have blown up taxpayers money for the past 30 years or more, and how much money ends up in corruption. I do believe there are sectors where spending must be cut (one example above all, eliminating provinces, a useless administrative layer that sucks money and makes our infamous bureaucratic system even slower).

Yet, do we really think that lying off thousands of people right now will help boosting our economy and keep our budget in order? With an unemployment rate at 11,5% and a big credit crunch, our priority is creating employment and this is why we need more spending now. The US went that way and they are getting out of this mess. We, in Europe, are falling even deeper into it.

So what is the incumbent government doing for our economy? Absolutely nothing. First of all because of its inherent weakness (Left and Right can hardly agree on what the recipe should be, assuming they have any idea about what should be done at all). Second, because we don’t have the guts (and the credibility, since the rest of Europe laughs at us seeing Berlusconi once again) to renegotiate the Fiscal Compact within the EU.

The priorities of our politicians are clearly different. While PD proposes to ban “movements” from running for the next elections (clearly targeting the Five Stars Movement), the Five Stars can’t discuss anything else than how much their own elected MPs should spend for lunch or dinner; B, of course, has a more compelling priority in times of crisis and proposes to halve the term of imprisonment for the people charged with association with the Mafia. This will definitely help restore our economy. 

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Qual è la politica economica del governo Italiano? Scommetto che nessuno abbia una risposta a questa domanda. Da un lato, il PD⎯o almeno alcuni ministri⎯mettono al centro la questione della riduzione delle tasse sul lavoro al fine di sostenere l’occupazione. Dall’altro lato, B (perchè tanto è inutile di parlare di PDL dato che non c’è alcuna struttura partitica dietro di lui) è ossessionato con l’abolizione dell’IMU. Il problema è che PD e B sono seduti allo stesso tavolo, il Governo. Entrambi, tuttavia, sottolineano l’importanza di mantenere le promesse fatte all’UE (tenere i conti in ordine, a qualsiasi costo) ma allo stesso tempo dicono che abbiamo bisogno di più investimenti per dare una spinta all’economia reale.

Ebbene, indovina un po’? Le due politiche sono alternative l’una all’altra, specialmente in tempi di crisi. O aumentiamo la spesa o la tagliamo. O scegliamo una politica economica keynesiana o continuiamo con l’austerità. Questa scelta rispecchia il dibattito tra Paul Krugman e Alberto Alesina, il primo naturalmente rappresentante di Keynes e il secondo dell’austerità bocconiana. Krugman critica un paper di Alesina e Ardagna affermando che non ci sono dati empirici a testimoniare che tagli della spesa corrispondano a crescita economica. Nell’area euro, infatti, la politica di austerità ha prodotto la situazione del grafico qui sotto:

Alesina, allo stesso tempo, risponde a Krugman dicendo “Il mio paper non ha mai affermato che ogni misura fiscale porta crescita economica. Dice solo che ci sono esempi dove pacchetti politici ben strutturati, basati su tagli della spesa, hanno un impatto positivo sull’economia.”

Come ho già descritto in un post precedente, la morale della favola è sempre la stessa: il boom economico, non la recessione, è il tempo appropriato per l’austerità. Tutti noi sappiamo come i governi italiani abbiano sperperato denaro pubblico negli ultimi 30 anni o più e quant’altro denaro sia stato mangiato dalla corruzione. Anch’io credo che si debbano fare dei tagli (un esempio su tutti, le province).

Ma siamo sicuri che licenziando migliaia di persone proprio in questo momento di crisi possa aiutare la ripresa economica? Con un tasso di disoccupazione all’11,5% e in una situazione di ristrettezza del credito, la priorità è creare occupazione ed è per questo che dobbiamo aumentare la spesa adesso. Gli USA hanno preso questa strada e stanno uscendo dalla crisi. Noi, in Europa, ci stiamo sempre più dentro fino al collo.

Quindi, cosa sta facendo il nostro governo per l’economia? Assolutamente niente. Prima di tutto a causa della sua debolezza interna (Destra e Sinistra difficilmente troveranno un accordo sulla ricetta, ammesso che abbiano alcuna idea di cosa si debba fare). Secondo, perché non abbiamo gli attributi (e la credibilità, dato che ci ridono dietro in tutta Europa vedendo ancora una volta Berlusconi) di rinegoziare il Fiscal Compact a livello europeo.

Le priorità dei nostri politici sono chiaramente diverse. Mentre il PD cerca di mettere al bando i “movimenti” (ostacolando chiaramente l’M5S), l’M5S è tutto rinchiuso nella sua discussione su quanto debbano spendere per pranzo e per cena i propri eletti in Parlamento. B, naturalmente, ha un’idea ben chiara delle priorità del Paese e propone di dimezzare la pena detentiva per il concorso esterno in associazione mafiosa. Questo sì che aiuterà l’economia del nostro Paese.