Thursday 28 Mar 2024
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This article first appeared in Forum, The Edge Malaysia Weekly on April 11, 2022 - April 17, 2022

In David Rooney’s excellent book, About Time: A History of Civilization in Twelve Clocks, he describes how in 1842, an attempt by Swiss entrepreneur Pierre Frederic Ingold to set up a watchmaking factory in London failed after sustained attacks from established local watchmakers, who petitioned the British Parliament. The British watchmakers refused to believe that foreign manufacturers could outperform them and “… they carried this prejudice with them as the industry twitched and kicked in its death throes”.

The arrogance of the British watchmakers was both surprising and unsurprising. It was unsurprising because at the turn of the 19th century, Britain was producing around 50% of the world’s watches. On the other (watch) hand, it was surprising because by 1840, the Swiss sold 10 watches for every one British watch. So, it was not as if the rise of the Swiss watchmakers was a brand new trend in 1842. As it turns out, by 1870, Switzerland produced over two-thirds of the world’s watches by value, leaving British watchmakers far behind in the dust.

In more recent events, at Bank Negara Malaysia’s Annual Report 2021 launch, Bank Negara Governor Tan Sri Nor Shamsiah Mohd Yunus stressed on the need for Malaysia to prioritise structural reforms “… to enhance the economy and resilience for future jobs, while raising capabilities for future competitiveness”. In particular, she highlighted strengthening innovation capacity, improving active labour market policy and the social protection system as well as enhancing economic complexity as key structural reforms.

The governor is correct — these are all necessary. The country faces a wide variety of socioeconomic challenges that, in reality, have been simmering for some time. These include, among many others, domestic issues such as growing wealth disparities, poor job opportunities, sluggish economic growth and an underperforming public equities space, and international issues such as geopolitical tensions between the US and China, competition from fast-growing nations like Vietnam, Indonesia and Bangladesh, and, of course, climate change. Structural reforms to deal with these challenges are entirely necessary.

But these calls are not new. They would not have been out of place 10 years ago in 2012 or even 20 years prior in 2002. In fact, the unfortunate reality of Malaysia’s economic landscape is that these calls are still entirely accurate and relevant in 2022. It isn’t just the governor and Bank Negara who have been making calls for Malaysia to undergo structural reform — nearly every economist and economic agency have been saying the same thing for many years. So the question is: Why do the same calls keep coming on repeat like a broken record year after year?

The standard answer in Malaysia is “execution”. But, to me, that is more of a symptom than a cause. We know that if we really wanted to get something done in this country, we can make it happen (for better or for worse). So why do some things get done so rapidly and some other things seem not to move at all, or if they move, at a glacial pace?

The reality of change is that it can really only happen if there is sufficient force of motion to break inertial conditions. Put another way, change can happen only if there is enough groundswell and desire, particularly by those who can execute that change, to undertake our requisite structural reforms. It is not enough for policymakers to announce important ambitions and policy promises, we need all of Malaysia’s collective brain — our institutions, our cultural norms — to want to change as well. And that can be difficult.

Looking at economic history can help us identify what the barriers to change might be, even as we know that there are far better alternatives out there. The British establishment watchmakers are a great example. Those who are privileged from the status quo will always seek to preserve the status quo. Furthermore, it is almost a historical tautology to say that political choices are made according to the interests of the politically powerful, with important consequences on economic growth. According to economist Jared Rubin, if the politically powerful are the merchant class, then we can expect commerce- or business-friendly policies. If the politically powerful are the military class, then we may expect more defence-oriented (or offence …) policies. We should ask ourselves — what might the non-progress of structural reform in Malaysia tell us about our status quo?

That being said, in a democracy, politicians do, at least in theory, respond to the wishes of their voters as well. Perhaps voters are resistant to change, especially the ones who might have a J-curve of sorts — some short-term pain for long-term gain (think of the GST in Malaysia, for instance). And it would be wrong to discount their preferences — if people have to worry about putting food on the table today, can we really say that they are wrong for not prioritising our long-term growth? This, of course, is also a symptom of stagnating economic growth. Only with more inclusive prosperity that provides good jobs for the many can people start looking to the future.

Strangely, Malaysia’s climatic stability might also contribute to a cultural resistance to change. According to economists Paola Giuliano and Nathan Nunn, societies with more stable historical climates tend to have more fixed cultural norms. This is because established practices are less likely to be challenged in areas where the environment was more stable. Thus, the historical attitudes and practices that worked so well for our ancestors over hundreds of years may also work well for our more recent ancestors and thus continue to get handed over to present-day Malaysians. Change would therefore take on a whole establishment encompassing generations and be tantamount to challenging “the wisdom of your forefathers”.

Interesting research on English universities during the 17th century also provides some potentially helpful insights. Julius Koschnick at the London School of Economics asks whether English universities were important to break traditional ideas and transmit new ideas of the Scientific Revolution during the 17th century. He finds that innovative teachers made a huge difference by making their students more likely to pick up ideas of the Scientific Revolution. He also finds that more intellectual diversity in the classroom made the adoption of new ideas more likely. While we should always be cautious in extrapolating historical lessons to present-day situations, it is worth asking if our universities lie more on the progressive side or the traditionalist side. Perhaps one channel to foster the idea of change and progress is via our university professors and lecturers, but if and only if they themselves are more bent towards progress.

In 2032, we would have failed in our attempts to engineer real structural reform in the economy if the Bank Negara governor at the time makes yet the same calls as the Bank Negara governor of today. And if I were to write roughly the same article except with updated research, that would be very depressing. Thus, we need to really understand what makes our institutions and culture want change, and drive it as such. We know this country can really move if it wants to — but if we don’t, we may suffer the fate of the 19th century British watchmakers.


Nicholas Khaw is an economist and head of research at Khazanah Nasional Bhd

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