If it is as simple as this......
Hey, I put some new shoes on,And suddenly everything is right,I said, hey, I put some new shoes on and everybody's smiling,It so inviting,Oh, short on money,But long on time,Slowly strolling in the sweet sunshine,And I'm running late,And I dont need an excuse,'cause I'm wearing my brand new shoes.
This is the follow up to Kasut Atas Kepala post in which I jentik permukaan air sikit on the topic of NEP, the issue on Distribution Channel Mafias and its impact to Our National Economic policies.........( I would also recommend you to read the comment section as well before reading this post)
The time has come for us to revisit that topic since at the end of this month.. Jibngong is supposed to announce a New Economic Model that he claims will double our income in 10 Years.......yeah rite.......I will bend over and let u fuck me in 10 years time if you can do that......and if you lose I will get Parpukari to sumbat the whole of Anwar Ibrahim up ur ass.....apemacam deal no deal?.....inflation adjusted numbers of course Jib...........
Emotions aside we must be able to look at it from a holistic perspective........in order to do so we must have a "framework" to look at things........
Building an Economic Model requires careful understanding on the existing economy, its constraints to growth and its available resources at the disposal of the policy makers.......
Before such a model can be put forward......we must evaluate first.....takkan nak main lompat aje kan.......
So how to do this.....
In 2004 Rodrick, Hausmann and Valesco introduced the Growth Diagnostic Framework
Minus the cacing cacing econometric formulaes in the paper......what the Framework tries to do is
It tries to identify the most binding constraints and figure out policy priorities with biggest impact on the basis of second– best thinking.
say what!...english english....
It is actually a strategy for figuring out the policy priorities. The strategy is aimed at identifying the most binding constraints on economic activity, and hence the set of policies that, once targeted on these constraints at any point in time, is likely to provide the biggest bang for the reform buck
How to identify the most binding constraints?..........black underwears? White towels?fuck me.......yuck.....why la you all put these tots in my head.....madefaker betul la gua sumpah lu 9 keturunan.....
Simple (not really) first identify proximate determinants of growth (eg: savings, investment, education, productivity, infrastructure etc).
Next try to figure out which of those post the greatest impediments to higher growth, then identify the specific distortions behind the impediments.
Once you can figure out the Binding Constrains.......Rodrick proposes...a choice of Reform strategies to target these constraints.....
Strategy 1
Sapu Bersih semua binding constraint.....i.e Wholesale Reform by eliminating all distortions, to do this one MUST have complete knowledge on all prevailing distortions and also have the capacity to remove them in their entirety..........mmmm sounds like a job for an economic Tuhan.......can your wooden Jesus do this?
Strategy 2
Do as much reform as you can, as best as you can........
This one sounds like one of those Asiaworks pyscos workshop pep talk....in this one the usual desperate mafakers will go for whatever reforms seems to be feasible, practical and politically doable....(with what ever political capital left on the table)
Such an approach typically assumes that any reform is good, the more areas reformed the better, the deeper the reform in any area the better......
Rodrick says this is the most dangerous because the reformers simply don't understand the interactions between the variables that distort the growth i.e the individual reform strategy may not produce the intended objective once it interacts with the other binding constraints.......orang singapore bilang buang karan aje.....
The current Jibngong team of "Con"Sultans.....seems to favor this type of approach..
Strategy 3
Second Best Reform Strategy.......it is less ambitious than the wholesale reform but more sophisticated than Strategy 2, this reform strategy takes into account the interaction among the binding constraints across different markets that have the potential to augment or counter the positive effect of the reform strategy....in this strategy...the reformer will give higher priority to reform agenda that provides good positive effect across markets and avoid or downplay those that can cause adverse effect....
eg: Trade Reform and Capital Account Liberalisation in a market that has an underdeveloped Financial Markets and state subsidized high export oriented economy.........more like a recipe for disaster...
The big problem with this strategy is that one must have a very good sense of behavioural consequences of policy changes across different markets and activities
Strategy 4
Target the Biggest Distortions!
the whole second best logic is if you cannot do the above then try to do this....
so if it is impossible to remove all distortions....and it is also impossible to figure out the interactions.....you are now left with the Biggest Distortions....distortions for example can be taxes or government interventions in specific sectors
Focus on them......problem here is that you need to have a full list of distortions...and to do that you must be the "eye" in the Lord of the Rings...will a distortion be noticeable if you are not looking for them?....
even if you have them....the problem of sequencing will arise on how to prioritise which reform to execute......so expect to buang karan again in the short run
and Finally Strategy 5
Focus on the Most Binding Constraints
In this final strategy the reformer re-look at the the binding constraints but now focuses on the Marginal Welfare Benefits (or the cacing lambda in the paper) that will improve if the Binding Constraints are eliminated.......this is the biggest bang for the reform buck.....
In other words go for reform that alleviate the most binding constraints.....
So now where do we go from here.......
the paper put forward a template to map out the initial constraints......re below..
Our growth planners must now look at how we fare first in the above before they begin to design this New Economic Model......
The problem tree provides a framework for diagnosing critical constraints to growth. The diagnosis starts by asking what keeps the level of private investment and entrepreneurship low. Is it low social return to investment, inadequate private appropriability of the social return, or high cost of financing? If it is low social return, is that due to insufficient levels of complementary factors of production—in particular, human capital, technical know-how, and/or infrastructure?
If the impediment is poor private appropriability, is it due to macro vulnerability, high taxation, poor property rights and contract enforcement, labor-capital conflicts, information and learning externalities, and/or coordination failures? If high cost of finance is the problem, is it due to low domestic savings, poor intermediation in the domestic financial markets, or poor integration with external financial markets?
At each node of the problem tree, the diagnosis looks for signals that would help answer the question. The two types of diagnostic signals that one can look for are price signals and nonprice signals. Examples of price signals are returns to education, interest rates, and cost of transport. For instance, if education is undersupplied, returns to skills/education would be high and unemployment for skilled people would be low. If investment is constrained by savings, interest rates wouldbe high and growth would respond to changes in available savings (for example, inflows of foreign resources). If poor transport link is a serious constraint, bottlenecks and high private costs of transport would occur.
The use of nonprice signals is based on the idea that when a constraint binds, it results in activities designed to get around it. For example, high taxation could lead to “high informality” (e.g., under-reporting of income, resulting in lower tax revenues); poor legal institutions could result in high demand for informal mechanisms of conflict resolution and contract enforcement; and poor financial intermediation could lead to internalization of finance through business groups. Cross-country and cross-period benchmarking and results of business surveys are useful means to gauge whether particular diagnostic evidence signals a binding constraint for the country concerned.
Well folks over the past 30 odd years our economy have grown considerably with the NEP of course, in 1997 it suffered a massive shock which sent the markets reeling and put the Economic Managers into an overdrive mode to find solution on how to save the country and its stakeholders.
Right now policy makers must ask themselves did the growth that they had over the years inclusive enough for the poorer segment of our population?
Or did the growth path that they have taken, created a wider gap between the rich and the poor?
And how can the policy makers chart a sustainable growth path for the economy taking into account the need to reduce the Income gaps and erradicate poverty?
All of these questions requires a carefull understanding of the micro-structure issues embedded in the Government delivery mechanisms, the Private Sector Risk Taking Appetite and its distribution channel.
What is paramount is that proposed growth strategy should be sustained over the long term, broad based in nature whilst ensuring greater inclusiveness from the perspective of the equality of opportunity in terms of access to markets, resources and unbiased regulatory environment for business and individuals.
Sustained, high growth rates and poverty reduction, however, can be realized only when the sources of growth are expanding, and an increasing share of the labor force is included in the growth process in an efficient way. The main instrument is assumed to be productive employment. Employment growth generates new jobs and income for the individual - from wages in all types of firms, or from self employment, usually in micro firms - while productivity growth has the potential to lift the wages of those employed and the returns to the self-employed. Inclusive growth is not only about employment growth, but also about productivity growth. Moreover, it is not only about wage-employment but also about self-employment which means that returns to capital, land and other assets matter to the income potential of the population.
The availability of productive employment opportunities is a key to a household's ability to improve their livelihood. However, even if the economy succeeds in creating decent and productive employment, this would not automatically lead to poverty reduction unless there is equal access to these economic opportunities. Inequitable access to economic opportunities can be attributable to weak human capabilities and/or uneven playing field, both of which can prevent individuals from participating and contributing to the growth process on an equal basis regardless of their individual circumstances.
In such policy makers must take into account the key determinants of our intended growth path and formulate growth strategies that can aim to maximise the Social Opportunity Function representing the Average available opportunities in the Economy and how the access to these opportunities are distributed in the population
To do this one must define the variables and map them accordingly as per the opportunity curve framework I introduced in the Kasut post.....
Once a clearer picture of the situation is seen...the specific laser guided recommendations or reforms can be introduced
Well Jibngong......i hear you're now menggelabah asking for help with your tak siap lagi New Economic Model..ayoyo....bikin malu aje la pakcik....