As Malaysians welcome the Year of the Snake, dotcoms with regularity turn into dotgones, public-listed companies burdened with debt turned equity tell the same old story, government- controlled monopolies and oligopolies struggle to understand the impact of the Global New Economy, nascent venture capitalists pretend to be pseudo-entrepreneurs and as the social order comes under stress induced by global economic change, there seems to be little clear thinking through this muddle.

Yet there is hope and opportunity. But some things in the process of wealth-creation must be recognised and given due respect. The global wave fast transforming old economic structures with compliments of cyber-speed communications and high quality information have left many governments managing peripheral economies stunned, unable to respond quickly enough in a gainful manner and in some cases stirring social instability out of financial paralysis as if it were an alternative to affirmative actions.

Singapore policy debate

Even Singapore, the most economically-developed city state in Southeast Asia with its enormous war-chest of financial reserves, has not been able to protect itself sufficiently from the ravages of fast-changing economic equilibriums induced by the new global waves.

In a recently concluded "Singapore Policy Debate", the conclusions reached by Morgan Stanley Dean Witter & Co are instructive. The paper states that "... the pillars of its now-obsolete growth model, i.e., high savings and investment, a multinational corporation-foreign direct investment-led export growth strategy and a domination of national resources by the coalition of the public sector, GLCs (government-linked companies) and MNCs... will become structural impediments in the new economic environment".

Pillars turned impediments

The paper recommends that Singapore "ignite private consumption and raise the size of the population, delink GLCs from the government, and scale back reliance on MNCs and utilise the vast external economy to acquire New Economy businesses... by helping Singapore own intellectual property in production and scalable services".

Singapore's "...extremely high national savings (50 percent of GNP), lasting more than two decades, have resulted in excessive investment by both government and corporations". The rationale of "... excessive savings and low private consumption in the context of the New Economy ownership development..." is questionable.

It states:"Singapore's investment efficiency remains deficient despite the nation's impressive growth rates. This stems from... excessive national savings and large domestic investment." The large domestic investment represented by the stock market capitalisation does not reflect major MNC activities such as international financial services, electronics and IT, chemical and life sciences, market-oriented services of the public sector and the large external economy which drive the underlying real economy.

Moreover, evidence is mounting that the recycling of massive current-account surpluses since the late 1980s to build up a sizeable external economy based on Old Economy assets has not generated satisfactory returns. This will retard longer-term growth potential.

In the last 20 years, the Singapore stock market has given investors a mere nominal annual return of 8.5 percent versus an average annual real economic growth of 7.4 percent.

MNC-FDI-led export strategy in question

"Events in the last few years have substantially reduced the usefulness of mass-manufacture export-oriented industries... as China develops its industrial might and subject Singapore's mass- manufacture export prices... to China's pricing dominion."

Added to this, "cheap telecommunications and efficient IT networks cut back layers of intermediation and gives a small country with low domestic demand the possibility of attaining scaleable production beyond her borders".

This paradox suggests that Singapore "could radically alter its development path away from the MNC-FDI-export-led model" to more high value-added activities achieved through indigenous enterprises or joint-ventures with significant Singapore ownership as it moves into an economic structure that thrives on "ownership of intellectual property and scaleable production".

MNC-GLC-government monopoly

The paper goes on to state that MNCs patronise developing countries, resulting in significant economic opportunity costs such as foregone tax revenue and infrastructure development pandering to their needs at the expense of developing local enterprise.

Government-linked enterprises fare no better as government-scholars /civil servants turned corporate managers can excel only in government-sponsored monopolies and oligopolies with their enormous financial clout using public funds - not otherwise. Furthermore, the government, by hiring the best brains, deprives the open economy that increasingly demands knowledge with enterprise as a recipe for success.

Malaysia's open economy, in many ways less evenly developed compared with Singapore's, cannot afford to think in less progressive ways. The country has been labouring to build up an impressive physical infrastructure for an indigenously-based information economy. There will be need for national resolve to develop the needed labour resources and a rebalancing on the direction of national savings to assure the availability of more easily accessible local capital inputs to the techno-starved entrepreneurs to make it happen.

There are many similarities in the conclusions of the old Singapore model with those of the Malaysian development model. Can Malaysia afford to ignore or delay the global economic changes that are occurring?

J VONG is an economist who wrote a weekly economic review column for more than a decade for a local newspaper. He will update readers with occasional insights into the country's economic health. He now runs a website, [#1]KLSETracker.com[/#].