by M. Bakri Musa

Millions of Chinese had a rude awakening when they returned last month from celebrating their Lunar New Year in their villages. They discovered that the jobs they had in the cities before they left only a few weeks earlier had now disappeared. Tragic though that may be to them individually, the aggregate loss pales in comparison to that suffered by their government through its massive investments in the stocks of American companies and other paper assets like bonds and Treasury Notes.

If only the Chinese government had invested in its people, imagine the good that would do to them, and to China. If their government had spent the funds to build better schools, Chinese schoolchildren would not have dangerous physical facilities that collapse with the slightest tremor. Had those funds been used to build affordable apartments, the Chinese people would have been better housed. That would at least help alleviate their miserable existence.

The Chinese people suffered twice. First, they worked incredibly hard under intolerable conditions and insufferably meager wages so the West could enjoy inexpensive consumer goods. Then the foreign currencies earned by their government from the exports created through their hard work vanished with the downward spiral of Western economies.

When Western consumers could no longer afford to spend, the Chinese were forced to work under even harsher conditions so the products they make could be sold cheaper still. This is just a modern twist to the old “coolie” concept. In the early part of the last century, millions of indentured Chinese were brought to America to work on the gold mines and railways. Today the coolies remain in China; America brings in only the products of their hard labor.

China is not alone in engaging in this folly of investing abroad instead of in their people, so is the rest of Asia. Singapore lost a hundred billion dollars on its American investments. On a per capita basis, Singapore’s loss is massive and readily dwarfs that suffered by China.

Granted, Singaporeans live in a different universe from those folks in China, at least with respect to the creature comforts of life, though not in personal freedom. That notwithstanding, imagine how much better off Singaporeans would be if only their government had invested in them instead of being enamored by the fancy financial papers hustled by those Ivy League-educated white boys on Wall Street.

A Singaporean friend who owns a subsidiary in Silicon Valley lamented that the secretary to the head of his American company enjoys a lifestyle far better than his: larger home, a decent car, more social amenities, and better opportunities for her children. Meanwhile back in Singapore my friend has to make do with one of the pigeon holes of a home in those monotonous urban high-rises, and his children have to spend what little spare time they have in “cram schools.”

On another level, had Singapore invested those billions in nearby giant Indonesia instead of faraway America, imagine how much good it would do to the poor Indonesians. More pragmatically, a developed Indonesia would be a more high-value market for Singapore’s products and services. Besides, imagine the gratitude and goodwill created through such investments. You cannot put a monetary value to that. Indonesia desperately needs those investments; America could easily do without Singapore’s dollars.

Malaysia Fortuitously Spared

Fortunately in this current global crisis Malaysia is spared this tragic fate of losing its investments abroad. This is not the result of any brilliant foresight on the part of the nation’s leaders, rather the consequences of our own harrowing experience with the Asian economic crisis of 1997. For one, Malaysia has not yet fully recovered from that trauma and thus does not have the extra cash to be investing in any new and exotic financial instruments concocted in the West, those acronym-filled papers that are the “assets” of what former Finance Minister Tun Dain Zainudin derisively termed the “cowboy economics.”

For another, the capital controls implemented by Mahathir, though now largely dismantled, have left a deep impression on Malaysian economic managers, immunizing them against future meddling in such poorly understood foreign “investments.”

That has not always been the case. Prior to 1997, agencies of the Malaysian government were active players on the London Stock Market, as well as the London Metal Exchange and the Foreign Exchange Market.

It was at the London Stock Market that Malaysia executed its famous (or infamous, at least to the Brits) “Dawn Raid” on September 1981 that effectively nationalized the huge British plantation company, Guthrie. That was hailed as a brilliant move that also satisfied our national pride. It proved that we natives were fast learners and could be just as agile as those pros in the City, a much-needed confidence booster for those who require it periodically.

Malaysia’s brash attempt to corner the world’s tin market at the London Metal Exchange also involved mega sums. This time however, there was no rush to accept responsibility for this squandering of citizens’ precious funds. There were other colossal losses, including Bank Negara’s forex debacle, as well as the now defunct Bank Bumiputra’s many expensive foreign misadventures.

Again, I could only imagine the immense good had our government invested those precious funds in our people instead. Although average Malaysians have it considerably much better than the average Chinese, nonetheless our quality of life could always be improved.

Contrary to the soothing but misplaced assurances from our leaders, Malaysia cannot insulate itself from the current global economic storm. There is no “comfort zone.” Yes, Malaysia was fortunate enough not to have been entangled in those highly deceptive newfangled financial instruments with such fanciful acronyms. However, when our biggest trading partner and consumer of many of our commodities is in economic difficulties, rest assured that Malaysia will also inevitably be roped in.

Invest In What You Know

Like other countries, the Malaysian government has also introduced its own economic stimulus in an attempt to deal with the crisis. Our economists too have read Maynard Keynes and understood the rationale for counter cyclical public spending in a downturn.

Understanding the concept is one thing, translating it into reality in our local context is entirely another matter. The challenge is to make sure that our economic stimulus does indeed work, meaning it does spur the economy, and that our investments are indeed investments, meaning they would produce returns in excess of the capital expended.

At the height of the dotcom boom, the legendary American investor Warren Buffet was asked why he was not investing in that sector. He answered, “I invest only in things I know!”

I live in California and know that the real estate dynamics in San Francisco is radically different from that of San Bernardino, so I invest only in my community. I can at least follow the trend. Yet we have bankers in Singapore and Beijing pretending to be knowledgeable about real estate in the entire United States. That is the only explanation for their readily investing billions in securitized American mortgages!

Follow Warren Buffet’s maxim: Invest only in what you know. What do Malaysian leaders know? For one, more than any Western banker or Nobel prize-winning economist, our leaders know our people, their daily needs and living conditions. So invest in them, our people. For another, the economic “multiplier” of such spending is considerable; there is no such local multiplier when we invest in foreign stocks and other paper assets.

Our leaders are aware of the deplorable conditions of our schools especially in rural areas. They also know that these children risk their lives daily in crossing rickety bridges to get to schools. When they return home, their houses are flimsily built and in an unhealthy environment. They also have poor access to healthcare. So why not invest in building new schools, bridges, clinics, and affordable public housing?

Similarly we all know that those rural children could not get good teachers. So why not invest in teacher training and provide greater incentives for teachers to serve in rural areas?

The beauty of such investments is that they generate values way over and above the capital and other efforts we put in. The benefits are also enduring, and indeed “recession-proof.” Should there be an economic downturn, the superb education those children had received would still be with them; likewise their good health. Indeed a populace that is healthy and better educated, and thus productive, is the best weapon against a downturn.

In the last budget, and also in the proposed additional stimulus, considerable sums were devoted to investing in the local stock market and in furthering the government’s already considerable involvement in the private sector. Come another recession or a market misjudgment, such “investments” could easily evaporate. We have already squandered hundreds of billions on Bank Bumiputra, State Development Corporations, and the myriad GLCs. All we have to show for such investments are some old, tattered letterheads. We have not even learned any useful lessons from those debacles.

Let the investment bankers, brokers and other middle men and paper shufflers invest in exotic financial assets; governments should invest in their people, and in infrastructures that would enhance their lives. Those are the only investments that are properly the purview of governments, not company stocks, foreign bonds, or fancy derivatives.

Investing in our people is also the only effective way to prepare them for the increasingly competitive world. More significantly for leaders, that would also ensure that come election time when citizens would make decisions about their future, our leaders would not be rudely awakened to find themselves without jobs.