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Submitted by The FT on
Danny’s optimism is commendable but the NEM reforms could turn out to be a second (or third) best means of driving growth. My logic agrees that Innovation should be the prime driver, while the second best option is a structural reform package without a strict innovation focus:- “Innovation led growth” will be difficult if not impossible to achieve without the requisite human capital base. Analogizing Ibn Taymiyyah, Copernicus, and most recognizably Gresham – The playing field is unbalanced such that a couple “bad guys” have driven the good innovators ones out, and will continue to do so. This human capital bottleneck is illustrated via your typology of 3 kinds of innovation – Product Innovation; brain flight of product innovators, Organizational Innovation; distorted incentives and moral hazard has thoroughly corrupted the Organizations, and, Process Innovation; staff turnover leading to lack of institutional memory which could drive said innovation. To elaborate on latter point, the employee reaching a level of education or experience capable of driving process innovation will leave or is poached – it’s an artificially tight market for such talent. The second best option (Danny’s “the more besides”) is not feasible – precisely because these “other” reforms have are driven by a flawed government:- Government structures are corrupt; and worse, widely perceived as corrupt. Years of abuse have made the public disbelieving and cynical. “Trust” or social capital has been destroyed to such a large extent to make government driven reforms relatively ineffective. Yes, Malaysia’s existing structures are improving – recent reforms (the GTP) have shown encouraging results especially with regards to efficiency and, dare I say – “productivity” – of delivery. BUT, climbing back out of the hole will take a lot more resources than is able to be mustered based on the prevailing political will for reform. I’ll end with a name drop of a related and more recent theory – that of Ersatz Capitalism or Lemon Socialism – referenced to by no less than the eccentric laureate Stiglitz. Moving away from the individual perspective to a company level one, the government is driving good companies out by supporting weak ones. Your argument of facilitating vs orchestrating would seem relevant here. The pessimism might change as our work progresses – but my frank assessment is that we will have to live to fight another day.