By Wong Chen, MP Subang
For this article, I will be reproducing an excerpt of a long speech that I recently gave to Malaysian students studying in Australia. My speech focused on the broad issue of sustainability. Sustainability has three basic pillars; (a) economics, (b) the environment and (c) society. Sustainability activists in describing economics, use the word “profits”, for the environment they use the word “planet”, and for society, the word “people”. Sustainability thus can be summarised as “Profits, Planet, People”. This article will discuss economics/profits of sustainability.
The foundational thinking of modern economics can be traced back to Adam Smith’s The Wealth of Nations, where he discussed concepts of market, supply and demand and interestingly some left-wing policies, on sharing and equality. His ideas and concepts were hailed, accepted and adopted as a guide and to explain the modern capitalist world that we know today. Prior to capitalism, the world was run mostly on feudalism with monarchies, where the supply of goods and services were dictated often by rulers and powerful landlords, and property rights were very limited. Then the industrial revolution heralded a period of big technological changes and wealth creation. This in turn created unsustainable unequal growth in the late 1800s up to the early 1900s. These changes brought sufferings too and gave rise to alternative thinkers such as Karl Marx, who challenged the goodness of the free market.
The economic and the political shifts that came with the industrial revolution created a lot of disruptions; in the same way that artificial intelligence is disrupting our modern world. Two World Wars, followed by great political and social changes, led to the dominance of two broad economic philosophies, one from John Maynard Keynes and the other from Hayek and Friedman.
What we experience today is the dominance of the neo-liberal economic ideology of Hayek and Friedman over the past 40 years. However, in the last decade or so, we are seeing a limited revival of Keynesian economics. In the midst of all these financial flux, the question of a sustainable economic model has become supremely important. Since the Asian Financial Crisis of 1997, and subsequently the Global Financial Crisis of 2008, there have been a lot of questions about the sustainability of neo-liberal economic order.
Some thinkers believe that we have to go back to the 1950s up to the 1970s, where we saw higher level of equality. The Keynesian model of government intervention in the market was partially implemented when central banks intervened in the market via quantitative easings, post 2008. Can we go back to the past, to resolve future issues? I think a more nuance economic philosophy, a hybrid of neo-liberal and also Keynesian economics can give birth to a new, much more sustainable and resilient model.
Economics today in the year 2020 is on uncharted territories where everything is still possible. Data analysis today is much more superior, data driven policy decisions on economics is more assured and at the same time smart machine learning can better predict economic models and outcomes. So basically we have far greater tools today to predict and prescribe economic problems than what we ever had in the past few decades. This fact gives us hope of new solutions coming through; solutions to resolve the fundamental issues of economic prosperity, growth and yet the need to ensure sustainability.
Now let’s turn briefly to Malaysia. In Malaysia, we generally just follow the prevailing global economic thinking. If the world liberalise, we are tempted to do the same. However, the prevailing economic model we have largely adopted since the 1980s, has been the developmental state structure. Yet we do have many problems. We are grappling with whether we should liberalise or should we continue to protect our markets, and in particular how to evolve the bumiputera policies. At the ground level, cost of living issues and low wages are real life challenging matters.
When I was a young lawyer in the 1990s, I could afford a small car, and I could afford a down payment for a reasonable middle class apartment, and I could afford to eat out in Bangsar. My first pay was RM2,000, and that was in 1991. Today, young graduates also have very similar pay, starting at RM2,300 to RM 2,500. If you put in inflation in terms of wage value, and if you put in the cost of cars, food, housing, I was way better off back then, than you are today. Therefore, the current economic model is clearly not sustainable from my generation to your generation and from your generation to the next generation. I am a Gen X yuppie, the generation before me are known as the boomers. My generation I must say, did better than the boomer generation but Gen Y has not done as well as us, and Gen Z which is you guys, is likely to be even worse off. Therefore, on the first pillar of sustainability, economics, it doesn’t look sustainable anymore for the next generations to come.
But, as I have said earlier, advances in machine learning and data and coupled by awareness of the younger generation on social issues, I am reasonably confident that your “woke” generation will be able to find a solution.
Earlier, I touched very briefly on the great economic thinkers, Smith, Marx, Keynes, Hayek but most if not all their thinking were then predicated on the basic issue of the supply and demand of “needs”. That situation does not really exist anymore in today’s world, as most of the “needs” have been met. We are now in the territory of the economics of “wants, entertainment and frivolity”, which needs new economic models to explain. I would add that we also need a higher engagement and understanding on new tools like big data and behavioural economics. Another fundamental challenge is the supremacy and over reliance on fiat money and the globalised debt economy.
It sounds very negative, but after 2008, the implementation of quantitative easing, a policy to create money to cover existing debts, seems to have no immediate negative effect on the global economy at all. We could be entering a new type of economics where we could perpetually create more and more paper debts with impunity. What then we clearly need to do, is to stabilise this feckless policy by implementing stricter policies to evenly distribute the money that is created. In other words, the ability to create money must be matched with a strict responsible system to distribute fairly that same money. Only perhaps then, can we try to begin to solve the most pressing global financial problems.
Now, I’m not an economic expert, nor do I profess to have any economics degree or diploma, but I like to think that I am a decent observer of many things. I’m sure there are many smarter people out there who are considering these issues. As long as clever people are thinking and finding solutions, I am happy to express that I am “worried but not terribly negative” on the issue of economic sustainability.