A Plausible And Yet Probably Way Of Driving Us Out Of Stagflation ll

According to the law of comparative advantage, even if Malaysia has an absolute disadvantage in the production of goods for export with respect to other third world countries like China, there is still a basis for mutually beneficial trade. But how you may ask, can Malaysia export anything to China if it is less efficient than China in the production of these goods? The answer is that the technological innovations in Malaysia might be significantly higher than our Chinese counterparts. It will enable Malaysia to engage in high value added ventures that make use of more advance technical innovations in the production of such goods at a cheaper rate where it will attain the economies of scale from the production landscape in China. On the other hand, wages in China will be significantly lower than wages in Malaysia so as to make the price of high tech goods (the commodity in which Malaysia has a comparative advantage) lower in Malaysia, the wages in China lower in China when both commodities are expressed in terms of the currency of either nations.

This is the case where China by itself is experiencing relatively high unemployment in its absolute terms (due to its large population mass) even though its unemployment rate is low in relative terms compared to some western countries. This simply means that China has excess capacity in its labour forces which has not been harnessed in the first place. If its human resources are properly allocated for efficient use, it should be in the position of providing exporting nations with relatively cheap and amble labour.

A Plausible And Yet Probably Way Of Driving Us Out Of Stagflation l

Stagflation is defined as a systematic slow down of an economy as it is also accompanied by a condition of uncontrolled price hikes. Many felt that this situation could not last forever where the government had announced a host of budget concessions in our budget lately to relieve the hardship of our people. Such tax reliefs, rebates together with concessions are not sufficient to patch our economic woos up; rather it merely helps our lower and middle income taxpayers to put back more of the disposable income into their pockets.

Perhaps the application of game theory in itself might be well at our disposal of providing us with a remedy; a solution that will drive our nation towards sustained economic independence and integration. In recent years, some economist like MIT's Paul Krugman have argued that governments by supporting their companies in international competition, may be able to raise national welfare at another country's expense. This is usually accomplished through capacity expansion or with the assistance of subsidies. The decision of whether – and if so, how much – to expand production capacity is one of the most important strategic decisions made by companies. Some companies adopt a preemptive strategy that is, they try to expand before their rivals do, thus discouraging their rivals from building extra capacity of their own. If the future growth of demand for a particular product is known with reasonable precision, such a strategy may be effective.

Such preemptive strategy can be adopted in light of the rising utility overhead as a result of price hikes for fuel. Malaysia might need to look into the possibility of adopting the usage of alternative energy substitutes against the reliance on crude oil as its price has risen in a more or less ricocheting fashion. Owing to the fact that Malaysia is progressing towards an industrialized nation, utility overhead has far out stripped labour wages in terms of its greater sizable share in the composition of our production costings nowadays. The recent increase in our energy tariff makes it more prominent so to speak. Given that a cheaper fuel substitute is used for generation of power, this enable us to deliver cheaper utility rates to consumers. A cheaper utility rate implies longer machine production hours which is the case where most of the production high value added goods are no longer labour intensive rather capital intensive in nature. However, this might require concerted efforts both from the initiative taken by the government and our independent power producers in the quest for cheaper and more sustainable energy consumption. Through a lower rate of energy consumption, this enables our nation to produce more goods at a cheaper rate and thus improving our international pricing competitiveness. An improved competitiveness in the production of goods strengthens our trade surplus and thus bridging the gap in our nation's balance of payment in the future.