Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on October 31, 2022 - November 6, 2022

MANY countries whose economies had developed well in the past may not continue doing well if they fail to do one thing, says development economist Prof Ha-Joon Chang, author of several well-discussed policy books, including 23 Things they don’t tell you about Capitalism, Kicking Away the Ladder, Economics: The User’s Guide and most recently, Edible Economics.

That’s true even for his home country South Korea, which is experiencing a rise in soft power across the globe on the back of the “Korean Wave” and is home to several global corporations that have achieved miracles that most would have thought impossible less than 50 years ago.

The audience at the 2022 Khazanah Megatrends Forum in Kuala Lumpur, for instance, chuckled in agreement when Chang said if someone were to take a time machine, go back to 1976 and told people an unknown glorified car mechanic would be bigger than Ford and General Motors in 30 to 40 years, he or she would be deemed crazy and put into an institution.

But today we know Hyundai — which made 10,000 “ridiculous looking Pony-s” in its first year of production in 1976 when Ford made 1.9 million cars and GM made 4.8 million cars — overtook Ford in about 30 years in 2009 and made more cars than GM in less than 40 years in 2015. Similarly, LG which dominates the global TV display market today, started out as a low-grade subcontractor for US-based RCA Corp that pioneered colour TV. There are people who are still alive today who knew Samsung as a grocery trading store in 1938.

Yet successes in a “capitalist-dominated world” came with widening inequality that makes upward social mobility “tougher and tougher” — a common theme in many popular Korean dramas, including the Oscar-winning film Parasite, Emmy-recognised Netflix megahit drama Squid Game and more recently, the Korean drama Little Women, says Chang, who teaches economics at SOAS University of London.

“Parasite, Squid Game and the latest offering Little Women — which is loosely based on the American classic — are all about poverty and lack of opportunity [for social upward mobility]. If you have a society like that, you become very susceptible to short-term-oriented populist promises,” he tells The Edge in an interview.

Hope and security

“[Hope] is one thing that we all really need. Short-term-oriented populist governments are so popular across the world because people don’t have hope. When you have hope, you think long term. If you say we have a five-year plan and 20-year vision to upgrade the economy [that requires short-term pain], people will only buy into that when they think there is hope for the future, that there is social mobility and they will dare to move forward when there is a safety net that will catch them if they fall through the cracks during that 20-year [development] journey.

“So, you need to build an education system and implement a system that promotes social mobility [alongside] a retraining system because people want to be assured that there is a second or third chance if they lose their jobs [as the country develops],” Chang says.

To ensure there is hope for young people and people can feel secure in the long run, policymakers “need to create enough jobs that are fit for people’s education and aspiration”. And that, he says, requires an upgrade to the economy to be sustainable for the long haul, and at the same time, the alignment of education as well as the jobs market with the requirements of the real economy — not just today but where the country is heading.

“If you’re insecure, you become conservative. If you feel that you can start a little business, you can accept acquiring certain skills that may not be required 15 years later because you can be certain you’re not going to die [if you fail] and you can be retrained to get another job [down the road]. I don’t want to idealise the Scandinavian countries but they understood that security is important for innovation, for accepting changes.

“This is also why Sweden is one of the most automated economies in the world. The workers are not worried about getting replaced by machines because they can get another job,” he says, relating how workers in a nickel mine in the northern part of Sweden are happy because robots have been introduced to go into the cold and dangerous mine while they are being retrained as engineers to take care of the robots. “This is the kind of job replacement that you ideally want. If you don’t have that social system for retraining and redeployment, people who used to work as technicians could be flipping burgers. That’s a waste of human resources.”

Not many who enjoy Korean fried chicken with beer, for instance, would know that South Korea once had the largest number of fried chicken shops per capita in the world as there was protection for small businesses but many of these small shops were driven out by larger chain stores following liberalisation.

“When you’re kicked out of the labour market and there is no retraining system like in Finland, what do you do? You take your severance pay and open a chicken shop and eke out a living but over the years after all sorts of deregulation (liberalisation), you can’t even do that, so you end up in a semi-basement apartment folding pizza boxes,” Chang says, noting that both the head of the Kim family in Parasite as well as the main protagonist (Gi-Hun) in Squid Game had failed in fried chicken restaurant ventures “before going into that ridiculous survival game”, Chang says, a nugget of information that may have been lost in translation to most viewers.

Also related to hope and security, the main protagonist in Little Women expresses how having a comfortable apartment to live in would change the family’s fortunes and give her courage to better face daily challenges.

Here’s where Chang reckons policymakers need to rethink what constitutes meritocracy and the kind of adjustments to the system that needs to be made in favour of social mobility, taking into account that those with more resources would not only be living in a better environment but also have the time and money for special classes to cram for better grades and arrange prestigious internships to bolster their résumé.

Chang says the need for retraining as well as a greater welfare state rises when economic growth slows and there is less support from the traditional extended family when a family member loses his or her job and faces economic difficulty.

Supporting innovation

Policymakers that need to make sure a country’s economic prowess is sustained for the long haul have to gain buy-in from the people because a great system will take time to build.

“Yes, it requires a lot of resources and effort [and] building a whole system of learning, training and retraining in line with economic aspirations cannot be built overnight. It will take five, 10 years to build but you have to start and you have to start as soon as possible because if you keep producing people with skills and knowledge that are not in line with your economic future, you will keep experiencing problems,” Chang says, noting that countries should not limit themselves to what is available today but take definitive steps towards realising what can be possible in future.

Middle Eastern countries have a lot more sand, which contains silicon that is required to make semiconductor chips, but they are not the leaders in that industry.

“I’m not saying natural resources are not important and you should deliberately not use it … but you cannot stop there. The problem is a lot of countries have stopped there. If you have US$40,000 per capita income on oil, why should you bother? But sooner or later, people who do not have those resources will find a way to destroy you,” Chang says, pointing to how Peru and Chile once profited handsomely from bird guano that can be used for gunpowder and fertiliser but it ended when a German scientist found a way to make ammonia and artificial fertiliser “literally [by isolating nitrogen] out of thin air”.

Singapore, for example, “literally had nothing in terms of natural resources and has become one of the richest countries in the world”.

“We really need to get away from this thinking that somehow your development has to be tied to your natural resource space [because] industrially successful countries are countries that have done things completely different from their natural resource space, including Malaysia itself. It was initially colonised for tin and the British [brought] rubber plants from Brazil and oil palm was imported from West Africa. It is not native to the region. You’ve moved into electronics [but] other countries have done more. If you are always fixated on the natural resources that you have, you will never go far. Don’t forget that a lot of natural resources are not natural,” he says, noting that it is important for policymakers to recognise that countries that are rich are usually not only good in the services industry but also manufacturing.

Speaking in general when asked about why economic growth stagnates in certain countries, Chang has this to say: “Usually when countries stagnate, there are a few things that are wrong. One is the lack of ambition — not the whole nation but the elite lack ambition (complacent). In some Latin American countries, there are some people who become fabulously rich by just exporting wheat, soybeans, beef and they’re not interested in raising productivity, they’re not interested in entering high tech but because of that, economic growth stagnates and the people suffer, have no jobs and there are protests. That is often a cause.

“It could also be that a country failed to build a political consensus around a vision, [perhaps] the government keeps changing, the vision keeps changing and no one knows exactly what you’re trying to do. So, you need public consensus of basic things that will survive across different political regimes. The third common cause is the system is not updated enough — it was working quite well for the things that you used to do, but you need to get into new things but you are changing only the tip of the iceberg,” Chang elaborates, noting that not having enough workers that can manage the production process could also be a cause for economic stagnation despite resources being put into creating top-notch research think tanks, for example.

Why economics matter

Investments to maintain economic vibrancy are important for a country’s long-term well-being.

“When a country’s living standard stagnates, a lot of young people who go to university may find that there is no job that fits their education and they work in small companies and supermarkets and they’re unhappy. That’s an example [of] a country that has become too comfortable with what they have achieved.”

Chang, who through his books attempts to “bring economics closer to people”, says he does it because “it is so important for people to have at least some understanding of economics because otherwise the democratic process becomes like voting for contestants in a talent show … whereas so many of these collective decisions in a capitalist society are inevitably bound up in economics”.

“Of course, economics is politics. When it was first born, economics was called political economy … Basically, the market itself is a political construct. If you want to change what’s happening in the market, you have to basically do it through political machinery. That is why politics is the most important profession, really, because that’s how you get things done. Despite what people might think because of the dominance of individualist ideology, humankind achieved what it has achieved because it found a way to cooperate with each other, build structures that can bring many different people together.”

Finding the right formula for a country will need “conversation, coordination, cooperation and consensus” because any new top-down strategy will not work without buy-in from the people.

His general advice to everyone, not just Malaysians, when choosing leaders: “Vote for leaders who think about the future more than the short term. It is very easy to get short-term popularity by promising all sorts of things but try to see who is really worried about the future. Especially for young people, that matters more: who has got the best idea to bring about those [needed] future changes.”

 

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