Tuesday, April 22, 2008
The high salaries and security of the public sector has made most
Bruneians turn to the government for jobs and to generally shun the
private sector. However, unlike the public sector, salaries and wages in
the private sector are determined by performance and productivity.
Businesses are underpinned by profitability and financial risk bedevils all of them. However, instead of being business-friendly, it is the
bureaucratic red tape of the civil servants that is responsible for
increasing the business profile risk. PEHIN DATO RAHMAN KARIM in this second of a four-part series explores this public/private sector dichotomy and argues against imposing a high wage policy on the private sector to entice the voluntarily unemployed.
THE following story further reinforces the religious-moral-economic obligation to exert oneself to work. The story is told of a man from among the Muslims of Madinah who came to the Prophet (PBUH) and asked for some nourishment.
The Prophet was not one to refuse any request for help. At the same time he did not like to encourage begging or dependence. He therefore asked the man:
"Don't you have anything in your house?"
"Yes," said the man. "A saddle blanket which we wear sometimes and which we spread on the floor sometimes and a container from which we drink water."
"Bring them to me," said the Prophet who then took the items and asked some of his companions,
"Who will buy these two articles?"
"I will" said one man, "for one dirham."
Another said, "I will take them for two dirhams.
The Prophet sold the articles for the two dirhams which he handed over to the man and said, "With one dirham, buy food for your family and with the other buy an axe and bring it to me."
The man returned with the axe. The Prophet split a log with it and then instructed the man:
"Go and gather firewood and I do not want to see you for 15 days."
This the man did and after two weeks had made a profit of 10 dirhams. With some of the money he bought food and with some he bought clothes. The Prophet was pleased and said to him: "This is better than getting a blot on your face on the day of resurrection."
The story emphasises that as an adult Muslim and in particular when you have a family, you have the obligation to work. You are required to use your initiative and whatever resources you may have to earn a living. If you fail to do so you face the prospect of "getting a blot on your face".
(Source: Islam The Natural Way by Abdul Wahid Hamid, London)
Thus, according to Prophet Muhammad (PBUH): "It is obligatory for a Muslim to strive for lawful (halal) livelihood.
Another story: Allah's Messenger (PBUH) was asked what type of earning was best and he replied: "A man who works with his hands and every business transaction which is approved."
Idleness is discouraged, frowned upon in Islam. The Prophet (PBUH). reported to have said that Allah (SWT) hates persons of sound body and mind who sit idle.
To remain in poverty is undesirable because it weakens religion and destroys one's sense of dignity.
"Poverty is the worst form of violence," Mahatma Gandhi.
To enterprising persons, every road is paved with gold. To us, the only road paved with gold is the road to government jobs.
The road to the private sector is muddy, riddled with potholes and quicksand. But then the Hadith constantly reminds us that out of 10 of (halal) incomes nine are from from business! (The private sector)
Clearly Islam encourages, supports business — be entrepreneurs.
Business is the engine of economic growth and new employment. The pessimist sees difficulty in every opportunity. The optimist, the opportunity in every difficulty.
If plants can grow in very barren, in unexpected places where there is no soil, such as on the walls, on the eaves, why can't man seek livelihood, employment?
Such Divine advice and the Hadiths of the Prophet (PBUH) are a clear guidance to man that he must work first before he is entitled to his wage and be enterprising.
Pray earnestly first before expecting the Blessings of the Divine. Not the other way round: expecting higher wages first and then only one will be enticed to work! This is just a nanny state mentality.
In business: plan first, implement (if approval is given!), produce, do marketing, try to make sales, if you get your customers, and only then you have revenues and hopefully net profits. Not profits first.
By implication and according to the economics of labour, salaries/wages is the function of productivity/performance. To a business, productivity and hopefully profitability is the lifeblood for survival and hopefully growth.
The lifeblood ebbs and flows every second of business; it is common for days the lifeblood is dry. No profits obtained. But against this, the salaries and wages are fixed costs. Any salaries/wages reduction is very sticky and tricky; employees redundancies are very prickly. So the business is added with increasing financial liabilities; particularly so under the environment of a sluggish economy.
Brad Delong, an economist at UC Berkeley says that "the various sectors of economy wax and wane in prominence like movie stars. The success once attains is not what it used to be. Businesses stands on shifting sand".
Remember GM(General Motors)? In the 1950s business reporters were infatuated with GM. It not only made cars, it made America. GM was the richest company on earth. But toady GM now in deep trouble. Since salaries are fixed costs, GM has had to retrench thousands of it workers. (BBC news, March 20,2005, 1:30am: BMW axed 5000 jobs.)
Coincidentally The Brunei Times(Feb 11, 2008) carried the competitive relationship between GM and Toyota cars. Toyota Motor Corporation president, Katusaki Watanabe stated that: "I'm constantly trying to drive home the message that long-lasting success is elusive. Our corporate DNA is about always challenging ourselves to do better. The moment we let down our guard, the fall could come very fast."
In business risk, everyone can see the first bounce of the ball. It is the second bounce that is uncertain, unpredictable.
The Brunei Times (March 9, 2008) carried this title; "Boeing weighs protest vs US tanker deal": Boeing Company would seriously consider challenging a US Air Force snub that gave a US$35 billion aerial-refuelling programme to a team that includes its European archrival Airbus.
In spite of this global competitive success against one of the American powerful giants, the reality of business constantly haunts Airbus . On March 11,2008, AFP reported that Airbus made an operating loss of more than US$1 billion in 2007, despite a record order for its aircraft, forcing the parent EADS into the red.
The reality of business world is aptly summarised by the Economist (Jan 26, 2008) that: "It's rough out there — Panic in the markets is scary. Among policy makers it only makes it worse."
Thus in the private sector, giants, big ones, SMEs, well-established and profitable, the shifting sand is constantly shifting. Costs suddenly heaps upward. Profits suddenly disappears. Fall could come very fast.
Therefore, it is essential to note that if a firm simply increases its labour mix (with other factors of production: machines, technologies, etc) it is bound to encounter a state of diminishing returns to labour; it becomes inefficient, less productive, hence high cost of production, less competitive.
Fall could come very fast if the increase in the labour mix is due to the forced lure of high wages, as recommended by those "experts".
Today production economics is no longer like what it was about 200 years ago. The classic text book economics teaches us thus a shown in graph A below:
Graph A shows:
If the price was $2 per unit only 10, Q1 units were supplied, SS curve. But on the demand curve,DD at $2 per unit customers would like to buy 30 units, Q2. At price $8 per unit the supplier would like to supply 25, Q3 units. But the customers were only prepared to buy 8 units, Q4
In the new economics, the supply increases as the price goes down as shown by the supply curve SS in graph B:
At $8 per unit, quantity supplied was Q1,40 units. This equals to Q2 quantity demanded.
At price $2 per unit, 80 units, Q3 were supplied. A $2 per unit, 80 units, Q4 were demanded .
The essential points being reflected by Graphs A&B are that in the classic textbook economics, graph A, the supply of products would only increase if their price went up. In the new economics, graph B, the supply increases as the price goes down. Examples are Internet, website communications, budget airlines, new technologies, even the price per copy of The Brunei Times; the initial price per copy was $1.00, now $0.80 per copy with free spaces for advertisements for jobs. On top of this The Brunei Times create more value to the readers/prospective readers by offering $0.65 per copy with Free delivery: Package 1 or 2 or Package 3. This is value creation to customers.
Thus graph B is a proof that in general businesses are now so keenly competitive, the profit margins are thin, even elusive. Just imagine what economics, financial havoc, would be like when the private sector's costs of labour was artificially set higher than the free market rates.
Macroeconomically, Brunei Darussalam would be a high wage country not related to efficiency and productivity of those high priced/high waged employees. A typical incompetitive symptom of high waged oil economy. Foreign direct investment would not find Brunei Darussalam an attractive country to invest in.
Yang Dimuliakan Pehin Orang Kaya Lela Raja Dato Seri Laila Jasa Haji Awang Abdul Rahman bin Haji Abdul Karim DSLJ, PJK was formerly Permanent Secretary of the Ministry of Finance and the Ministry of Defence. The views expressed by Pehin Dato Rahman Karim are his own and do not necessarily reflect those of The Brunei Times.
THE following story further reinforces the religious-moral-economic obligation to exert oneself to work. The story is told of a man from among the Muslims of Madinah who came to the Prophet (PBUH) and asked for some nourishment.
The Prophet was not one to refuse any request for help. At the same time he did not like to encourage begging or dependence. He therefore asked the man:
"Don't you have anything in your house?"
"Yes," said the man. "A saddle blanket which we wear sometimes and which we spread on the floor sometimes and a container from which we drink water."
"Bring them to me," said the Prophet who then took the items and asked some of his companions,
"Who will buy these two articles?"
"I will" said one man, "for one dirham."
Another said, "I will take them for two dirhams.
The Prophet sold the articles for the two dirhams which he handed over to the man and said, "With one dirham, buy food for your family and with the other buy an axe and bring it to me."
The man returned with the axe. The Prophet split a log with it and then instructed the man:
"Go and gather firewood and I do not want to see you for 15 days."
This the man did and after two weeks had made a profit of 10 dirhams. With some of the money he bought food and with some he bought clothes. The Prophet was pleased and said to him: "This is better than getting a blot on your face on the day of resurrection."
The story emphasises that as an adult Muslim and in particular when you have a family, you have the obligation to work. You are required to use your initiative and whatever resources you may have to earn a living. If you fail to do so you face the prospect of "getting a blot on your face".
(Source: Islam The Natural Way by Abdul Wahid Hamid, London)
Thus, according to Prophet Muhammad (PBUH): "It is obligatory for a Muslim to strive for lawful (halal) livelihood.
Another story: Allah's Messenger (PBUH) was asked what type of earning was best and he replied: "A man who works with his hands and every business transaction which is approved."
Idleness is discouraged, frowned upon in Islam. The Prophet (PBUH). reported to have said that Allah (SWT) hates persons of sound body and mind who sit idle.
To remain in poverty is undesirable because it weakens religion and destroys one's sense of dignity.
"Poverty is the worst form of violence," Mahatma Gandhi.
To enterprising persons, every road is paved with gold. To us, the only road paved with gold is the road to government jobs.
The road to the private sector is muddy, riddled with potholes and quicksand. But then the Hadith constantly reminds us that out of 10 of (halal) incomes nine are from from business! (The private sector)
Clearly Islam encourages, supports business — be entrepreneurs.
Business is the engine of economic growth and new employment. The pessimist sees difficulty in every opportunity. The optimist, the opportunity in every difficulty.
If plants can grow in very barren, in unexpected places where there is no soil, such as on the walls, on the eaves, why can't man seek livelihood, employment?
Such Divine advice and the Hadiths of the Prophet (PBUH) are a clear guidance to man that he must work first before he is entitled to his wage and be enterprising.
Pray earnestly first before expecting the Blessings of the Divine. Not the other way round: expecting higher wages first and then only one will be enticed to work! This is just a nanny state mentality.
In business: plan first, implement (if approval is given!), produce, do marketing, try to make sales, if you get your customers, and only then you have revenues and hopefully net profits. Not profits first.
By implication and according to the economics of labour, salaries/wages is the function of productivity/performance. To a business, productivity and hopefully profitability is the lifeblood for survival and hopefully growth.
The lifeblood ebbs and flows every second of business; it is common for days the lifeblood is dry. No profits obtained. But against this, the salaries and wages are fixed costs. Any salaries/wages reduction is very sticky and tricky; employees redundancies are very prickly. So the business is added with increasing financial liabilities; particularly so under the environment of a sluggish economy.
Brad Delong, an economist at UC Berkeley says that "the various sectors of economy wax and wane in prominence like movie stars. The success once attains is not what it used to be. Businesses stands on shifting sand".
Remember GM(General Motors)? In the 1950s business reporters were infatuated with GM. It not only made cars, it made America. GM was the richest company on earth. But toady GM now in deep trouble. Since salaries are fixed costs, GM has had to retrench thousands of it workers. (BBC news, March 20,2005, 1:30am: BMW axed 5000 jobs.)
Coincidentally The Brunei Times(Feb 11, 2008) carried the competitive relationship between GM and Toyota cars. Toyota Motor Corporation president, Katusaki Watanabe stated that: "I'm constantly trying to drive home the message that long-lasting success is elusive. Our corporate DNA is about always challenging ourselves to do better. The moment we let down our guard, the fall could come very fast."
In business risk, everyone can see the first bounce of the ball. It is the second bounce that is uncertain, unpredictable.
The Brunei Times (March 9, 2008) carried this title; "Boeing weighs protest vs US tanker deal": Boeing Company would seriously consider challenging a US Air Force snub that gave a US$35 billion aerial-refuelling programme to a team that includes its European archrival Airbus.
In spite of this global competitive success against one of the American powerful giants, the reality of business constantly haunts Airbus . On March 11,2008, AFP reported that Airbus made an operating loss of more than US$1 billion in 2007, despite a record order for its aircraft, forcing the parent EADS into the red.
The reality of business world is aptly summarised by the Economist (Jan 26, 2008) that: "It's rough out there — Panic in the markets is scary. Among policy makers it only makes it worse."
Thus in the private sector, giants, big ones, SMEs, well-established and profitable, the shifting sand is constantly shifting. Costs suddenly heaps upward. Profits suddenly disappears. Fall could come very fast.
Therefore, it is essential to note that if a firm simply increases its labour mix (with other factors of production: machines, technologies, etc) it is bound to encounter a state of diminishing returns to labour; it becomes inefficient, less productive, hence high cost of production, less competitive.
Fall could come very fast if the increase in the labour mix is due to the forced lure of high wages, as recommended by those "experts".
Today production economics is no longer like what it was about 200 years ago. The classic text book economics teaches us thus a shown in graph A below:
Graph A shows:
If the price was $2 per unit only 10, Q1 units were supplied, SS curve. But on the demand curve,DD at $2 per unit customers would like to buy 30 units, Q2. At price $8 per unit the supplier would like to supply 25, Q3 units. But the customers were only prepared to buy 8 units, Q4
In the new economics, the supply increases as the price goes down as shown by the supply curve SS in graph B:
At $8 per unit, quantity supplied was Q1,40 units. This equals to Q2 quantity demanded.
At price $2 per unit, 80 units, Q3 were supplied. A $2 per unit, 80 units, Q4 were demanded .
The essential points being reflected by Graphs A&B are that in the classic textbook economics, graph A, the supply of products would only increase if their price went up. In the new economics, graph B, the supply increases as the price goes down. Examples are Internet, website communications, budget airlines, new technologies, even the price per copy of The Brunei Times; the initial price per copy was $1.00, now $0.80 per copy with free spaces for advertisements for jobs. On top of this The Brunei Times create more value to the readers/prospective readers by offering $0.65 per copy with Free delivery: Package 1 or 2 or Package 3. This is value creation to customers.
Thus graph B is a proof that in general businesses are now so keenly competitive, the profit margins are thin, even elusive. Just imagine what economics, financial havoc, would be like when the private sector's costs of labour was artificially set higher than the free market rates.
Macroeconomically, Brunei Darussalam would be a high wage country not related to efficiency and productivity of those high priced/high waged employees. A typical incompetitive symptom of high waged oil economy. Foreign direct investment would not find Brunei Darussalam an attractive country to invest in.
Yang Dimuliakan Pehin Orang Kaya Lela Raja Dato Seri Laila Jasa Haji Awang Abdul Rahman bin Haji Abdul Karim DSLJ, PJK was formerly Permanent Secretary of the Ministry of Finance and the Ministry of Defence. The views expressed by Pehin Dato Rahman Karim are his own and do not necessarily reflect those of The Brunei Times.