I Agree with Pollyanna
By Zubin Rada Krishnan
The Cynic and Pollyanna
Malaysia's chattering classes - a category, which in this country is a rare unifier across all kinds of socio-economic cleavages - are a proudly cynical lot, especially when the topic is the future state of the nation. Revealing one's support for a public sector initiative or a Minister's promises to a round (coffee) table of amateur political analysts will incite the kind of withering stares normally reserved for men who still sport bellbottomed safari-suits and Travolta-esque sideburns.
So when our central bank governor issues statements declaring that, "[w]e are not projecting a recession for 2009, and our incumbent Prime Minister avows that, "...the government with the full support of all concerned, including the private sector and the people, is confident of avoiding experiencing the economic downturn," - the citizenry reacts with certain derision.
Given the doom and gloom that flows endlessly from media channels, the government might appear a little like Pollyanna - the fictional orphaned girl, bright-eyed and chirpy, who manages to find positivity in every dark cloud. Messages of optimism from the government and Pollyanna's good cheer are easily rejected as unrealistic, and perhaps naïve. But we should not be so quick to dismiss the need for sanguinity in addressing the dire situation we face.
The Importance of Trusting and Believing
Modern free-market economies are carefully balanced on the assumption that people trust and believe each other. In effect, they are diametrically opposed to a zeitgeist oriented around suspicion and doubt. Hence the endemic cynicism that pervades Malaysian society is a self-prescribed poison for our economy.
We can not be fully-informed about the intentions or future actions of the people we interact economically with; so we must believe what others tell us they have done and will do. When we buy steak, beer or a loaf of bread from Adam Smith's proverbial butchers, brewers or bakers - we may research their products exhaustively, and we may have legal recourse if deceived, but ultimately it is because we have trust in the actions and words of our fellow economic agents that we go through with transactions. That notion of faith follows through in every economic transaction - from a banker lending money to a company, to a family buying a car from a used-car salesman - and allows economies to work efficiently.
This lattice of mutual belief and faith is breaking down in the developed world. In the economies of the USA, Great Britain and Continental Europe though, there is a rationale for this collapse. Cowboy-like assessment of credit risk allowed low-income earners to own half-million dollar homes with no money down; suburban lifestyles were fuelled by home-equity credit lines and credit cards instead of hard-earned savings. Consumption and asset bubbles built on false reckonings have come apart, so it is unsurprising that people lack confidence in each others' promises; indeed, a healthy dose of caution is hardly anathema to the current state of developed-world economies.
Our own story does not justify a similar breakdown. A couple of years ago, Malaysia's economy seemed rather boring - we trundled along at acceptable growth rates, but never really shone. Today, hindsight allows us to judge that we were quite sensible (intentionally or otherwise). We live within our means - total outstanding credit card debt per person is about RM900 in Malaysia; in the USA, that figure exceeds RM11,000 per person. We conserve income like spendthrifts, saving at a rate of about 35% of income compared to the near-negative savings rates seen in the USA and Great Britain over the past few years. Bank lending in Malaysia, since the thorough cleanup after the Asian financial crisis, has been responsible and non-performing loans compose only 2.7% of total loans (a remarkable feat considering that little over a decade ago, this figure stood in the low teens).
Sure, no-one can credibly stand on a soapbox and declare that we are faultless - nonetheless our economy and in particular our financial sector, does not suffer from the same fundamental character flaws as those that engendered this crisis. And so it would be an unwarranted disaster to destroy, with baseless cynicism, the linkages of trust and belief that allow our economy to work.
Keynes' Paradox
Malaysians are an inherently paranoid lot - suspicious of the intention of the ‘other' and quick to flood the aisles of supermarkets to stock up on food supplies just in case those text-message-harbingers about shortages or the-May-13-redux come to fruition. Needless cynicism is a high-nutrient feed for this paranoia and provokes another perilous economic phenomenon - the paradox of thrift (a concept popularized by Keynes around the same time that children were still enchanted by Pollyanna) or the simple proposition that if people start to save at a higher rate during a downturn, they will consume less and there will be a resultant lower total demand in the economy.
Widespread belief that our economy is in a grimmer state than it is, can be an undeserved, self-fulfilling prophecy. Families put away more money for rainy days than they already do, leading to less sales for businesses, who will cut payrolls and so on (rinse, repeat until economic misery is certain). When the Malaysian individual hunkers down to avoid the effects of a perceived recession, he exacerbates exactly what he is trying to prevent. We could well be our own worst enemies.
Stop the Self-Loathing
Granted, playing Pollyanna's Glad Game will not be enough to counter the effects of slowing demand for exports and the potential stemming of foreign investment. Without doubt, we need what every government wants: a structured economic plan and a dream team for its execution - delivering the necessary fiscal stimulus through targeted spending and tax cuts, and sensible monetary policy that ensures confidence and stability.
More than this though, we need to shed the unwarranted self-loathing that does nothing but encumber the ability of our country to work through these hard times. Self-deprecation will lead to a collapse in the bindings of mutual trust and belief that maintain economic activity, and cause us to overcautiously put away what we should be spending - the economic equivalent of everyone hiding in caves to avoid Armageddon. It would be tragic if our economy was devastated not by external shocks, structural flaws, or errors of policy, but by the caustic whispers of cynics.
The ability of Malaysia to battle this economic crisis will be less a result of erudite policymaking and more a consequence of the willingness of Malaysians to build an unwavering self-belief.
Zubin Rada Krishnan returned to Malaysia in 2004 after graduating from university. He has spent most of his time since working as a management consultant. Despite what one may infer from his name, he is actually three-quarter squatter and only one quarter of him would be able to 'balik India' should anyone ask him to do so. Zubin came back to his Motherland hoping that one day the first question asked of him will not be, "What are you?"