Thursday, April 24, 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 final of a four-part series explores this public/private dichotomy and argues against imposing a high wage policy on the private sector to entice the voluntarily unemployed.
THUS, it is not impossible that those OL0 who were originally very ready, very willing to work at W0 would suffer retrenchments due to the pressing need to rationalise labour cost and efficiency.
If the economy is not growing and the market purchasing power is still sluggish, instead of just L0L1 the pool of involuntarily unemployed (willing to work at W0 but no jobs available) it would unhealthily increase the involuntarily unemployed to DDLL1. That is L0DDL (a portion of OL0 has been the victim of the Substitution Effect having been "forced" out of work due to the employment of L1L2 by giving "financial goodies" at W1, or W2 or W3.
It is essential to remember that at W0 offered the firm or firms are not exploiting the employees OL0. The firm or firms actually require that level of relatively lower qualification, rather than the need to employ highly qualified L1L0.
On the other hand it is also vital to remember that it is economically and religiously incongruent and inequitable to pamper, to entice L1L2 ("unemployment by personal preference") to work by increasing the costs of labour to a firm/or firms, which could easily recruit OL0 and L0L1 at W0.
For Brunei Darussalam, an artificial, an imposition of a "High Wage Policy" would be counterproductive. Brunei Darussalam would not be an attractive country to invest in. The core of those enterprising, dare to fail, business risk takers is still small, and the nature of economic activities of the population is still rudimentary, apart from oil and gas and banking.
(RBA and Military repair and maintenance could have/would be a high wage segment of the industry of the country. This was a hot commercial idea before. So was the Financial Centre. Now Labuan took the advantage of our bureaucratic inertia, hesitation, the fear to make mistake, not get promoted.)
It is essential to bear in mind that those long established employees OL0 at wage W0 of the firm are already having an efficient optimal mix of Experience and Expertise (even though they may have low academic qualifications) with the other factors of production of the firm. Hence, the firm is having two production advantages:
low cost of production (due to strong preference of OL0 workforce to voluntarily work at wage W0 combined with the other costs of the established factors of production), and
low cost per unit of production due to the total efficiency of the production process.
The extrapolated portion D0DD0 of D0LO curve is merely to show graphically how the forced imposition of high wage policy W1=D11=, W2=D12, or W3=D13 has created that Economic Rent=Cash Sedekah (alms) D0D2, or D0D3 for those Involuntarily unemployed to work by artificially enticing them with cash, rather than by proving first one's worth through exertion, diligently working.
The recent Economist magazine's survey (March 1st, 2008), titled "The Tigers that lost their roar" highlights the increasingly serious competitive problems now afflicting the Southeast-Asian economic tigers, or power houses. Foreign direct investments are now increasingly attracted to lower costs and bigger home markets, such as China, India, Brazil, Mexico, even Vietnam. Their labour productivity, hence efficiency is now growing much faster than that of Southeast Asian tigers. Their equivalent L1L2 are willing to grab any job being offered at the offered market rate, which may be lower than W0. Acute rat race eliminates choice, no need to be enticed.
With these increasingly threatening competitive developments, Brunei Darussalam would certainly price itself out due to any imposition of high wage policy, merely to "employ" the "willingly unemployed" pool of able-bodied and educated young men and women. It is also vital to remember that the strong, sturdy binding constraint of the bureaucratic red tape as ceaselessly mentioned by the public has been responsible for increasing the business risk profile.
Thus, just imagine the poisonous effect of the mixture of imposed, artificial high wage policy and the strong, sturdy binding constraint of the bureaucratic red tape on the health of economic growth.
In the words of the Editorial of the Economist (March 8th , 2008) on bureaucrats: "Failure to reform civil service is putting a country's huge economic achievements at risk."
Moreover, important aspect of socio-economic-financial psychology of any artificially imposed high wage policy is a psychology phenomenon called "Income expectation effect". This effect is all the more made potent by the absence of personal income tax, and in fact by "negative personal tax" in the form of subsidised education, medical services, basic food staff and of course the ubiquitous subsidy on petrol.
And then what about the populist, counterproductive suggestion to simply hike the bonus of civil servants? (The Brunei Times: March 7, 2008). (But please refer its rejoinder: "Link civil servants bonus to performance" (The Brunei Times: March 8, 2008).
On the other hand, the government has been struggling to encourage, to cajole those unemployed to seek job in the private sector. Now comes this populist sugar floss bonus for civil servants!
Any populist financial gifts are gladly swallowed hook, line, and sinker.
It is so easy to be a Father Christmas handing out goodies using government funds and resources without considering how, from where to get those resources and how much yearly.
Is bonus to be related to higher efficiency, greater work load and increased weight of responsibility and accountability of those bureaucrats?
A vital yardstick of bureaucratic efficiency is how effectively the bureaucrats facilitate and stimulate the national economic growth, the lifeblood of the nation everywhere in the world.
In the private sector, bonus is the function of efficiency and profitability. It cannot come from Zero income.
The total macroeconomic costs created by these populist ideas of "imposed high wage policy with a special Fund for the enticement, and a "bonus hike" would not only be against the intended desired of the approved tax rebate from 30% to 27.5%. (The Brunei Times: March 7, 2008) but could also make the notorious spoonfed, crutch mentality of our society worse.
The increased Income Expectation could weaken the desire to exert ourself and sap the spirit of entrepreneurship.
The negative effect of Increased Income Expectation may be clearly visualised in
Graph D:
When the rate of pay was $14 per work effort (plus other financial benefits), the total effort worked was E1.
When the rate was $3, the total effort worked was E3.
When the rate was $4, the total work effort worked increased only marginally to E4.
But when the rate was $5, the total work effort worked began to fall from E4 to E6.
Total effort worked fell drastically to E7, when the rate pay increased to $6 per work effort.
This "backward-bending work effort" graph indicates that we become contented to work less as our total income (plus perks) has increased substantially.
This phenomenon was clearly observed in the 1950s during the Korean war. Before the Korean war the price of rubber per kati was only $0.80. A rubber tapper during the dry season may get 15 katis per day, hence if he was paid $0.50 per kati, his daily income was $13.50, for 30 days = $405 average.
But when the price of raw rubber shot up to $4.80 per kati during the peak of the Korean war, the rubber tapper became "relaxed, over contented" and missed many days of work. Some just idling at home, some gambled and others indulged in cockfights. After all why exert oneself when one could have easily gotten an average $60 a day. If one could just work for 10 or 15 days, one could "easily" earn between $600 to $900. Obviously, man, this was much better, easy, than having to exert oneself for 30 days, waking up very early in the mornings, when the price per kaki was just $0.80!
Tak mahu segantang, secupak cukup, besok ada lagi! Anjai bah!
("Anjai bah! is the jolly infectious expression of a very amusing eccentric, Awang Mat Jais. He frequented the Brunei Town (then) in late 1960s and early 1970s. He would walk with a stamping gait, merrily trailed by kids. When he was short of cash, he would invariably turn his pockets inside out, muttering an expression "Anjai bah! as he stamped on. That is he was fantasising that he was "rich"! When people teased him "Anjai , Mat Jais"?! He would euphemistically reply "Anjai bah!" Some adults would give him some cash. This would cause his stamping gait bouncing higher and faster, his smile wider. Very "entertaining" to be with him. Sadly he suddenly "disappeared" from the scene.)
But the monsoon rains came for days. Rubber trees could not be tapped, money from wages gradually used up. Eventually they were forced to borrow from the owners of the rubber plantations. This true, simple story should be an excellent reminder to those able-bodied, healthy people.
Hadith: "Work for the world as if you will live forever and work for the eternal life as if you will die tomorrow.
Don't have the tendency to always simply blame those who are prepared to grab work at wage rate W0.
Don't blame the entrepreneurs when only foreigners are willing to grab wage W0 for that particular category of work. In business, time and tide waits for no man.
As has been asserted before, it is much much better in many respects to employ our own people. But in most cases, we just hear them, we don't see them!
With regard to those experts' recommendation on government-owned businesses this has been done by the Brunei Investment Agency since 1984. Its officers and staff have been working overseas where the investments are located.
Government-owned businesses must not compete with or crowd out local SMEs. This would be counter-productive: seperti seladang merebahkan padi.
To close, here is a story: A pious man sat everyday in a mosque. He was thinking that he was being Blessed by Allah (SWT). Prophet Muhammad (PBUH) one day asked him how he earned his income and fed his family and himself. The pious man confidently replied that his brother supported them. On hearing this, the Prophet (PBUH) reminded him that his brother would be the one who would be accepted in Heaven.
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.
THUS, it is not impossible that those OL0 who were originally very ready, very willing to work at W0 would suffer retrenchments due to the pressing need to rationalise labour cost and efficiency.
If the economy is not growing and the market purchasing power is still sluggish, instead of just L0L1 the pool of involuntarily unemployed (willing to work at W0 but no jobs available) it would unhealthily increase the involuntarily unemployed to DDLL1. That is L0DDL (a portion of OL0 has been the victim of the Substitution Effect having been "forced" out of work due to the employment of L1L2 by giving "financial goodies" at W1, or W2 or W3.
It is essential to remember that at W0 offered the firm or firms are not exploiting the employees OL0. The firm or firms actually require that level of relatively lower qualification, rather than the need to employ highly qualified L1L0.
On the other hand it is also vital to remember that it is economically and religiously incongruent and inequitable to pamper, to entice L1L2 ("unemployment by personal preference") to work by increasing the costs of labour to a firm/or firms, which could easily recruit OL0 and L0L1 at W0.
For Brunei Darussalam, an artificial, an imposition of a "High Wage Policy" would be counterproductive. Brunei Darussalam would not be an attractive country to invest in. The core of those enterprising, dare to fail, business risk takers is still small, and the nature of economic activities of the population is still rudimentary, apart from oil and gas and banking.
(RBA and Military repair and maintenance could have/would be a high wage segment of the industry of the country. This was a hot commercial idea before. So was the Financial Centre. Now Labuan took the advantage of our bureaucratic inertia, hesitation, the fear to make mistake, not get promoted.)
It is essential to bear in mind that those long established employees OL0 at wage W0 of the firm are already having an efficient optimal mix of Experience and Expertise (even though they may have low academic qualifications) with the other factors of production of the firm. Hence, the firm is having two production advantages:
low cost of production (due to strong preference of OL0 workforce to voluntarily work at wage W0 combined with the other costs of the established factors of production), and
low cost per unit of production due to the total efficiency of the production process.
The extrapolated portion D0DD0 of D0LO curve is merely to show graphically how the forced imposition of high wage policy W1=D11=, W2=D12, or W3=D13 has created that Economic Rent=Cash Sedekah (alms) D0D2, or D0D3 for those Involuntarily unemployed to work by artificially enticing them with cash, rather than by proving first one's worth through exertion, diligently working.
The recent Economist magazine's survey (March 1st, 2008), titled "The Tigers that lost their roar" highlights the increasingly serious competitive problems now afflicting the Southeast-Asian economic tigers, or power houses. Foreign direct investments are now increasingly attracted to lower costs and bigger home markets, such as China, India, Brazil, Mexico, even Vietnam. Their labour productivity, hence efficiency is now growing much faster than that of Southeast Asian tigers. Their equivalent L1L2 are willing to grab any job being offered at the offered market rate, which may be lower than W0. Acute rat race eliminates choice, no need to be enticed.
With these increasingly threatening competitive developments, Brunei Darussalam would certainly price itself out due to any imposition of high wage policy, merely to "employ" the "willingly unemployed" pool of able-bodied and educated young men and women. It is also vital to remember that the strong, sturdy binding constraint of the bureaucratic red tape as ceaselessly mentioned by the public has been responsible for increasing the business risk profile.
Thus, just imagine the poisonous effect of the mixture of imposed, artificial high wage policy and the strong, sturdy binding constraint of the bureaucratic red tape on the health of economic growth.
In the words of the Editorial of the Economist (March 8th , 2008) on bureaucrats: "Failure to reform civil service is putting a country's huge economic achievements at risk."
Moreover, important aspect of socio-economic-financial psychology of any artificially imposed high wage policy is a psychology phenomenon called "Income expectation effect". This effect is all the more made potent by the absence of personal income tax, and in fact by "negative personal tax" in the form of subsidised education, medical services, basic food staff and of course the ubiquitous subsidy on petrol.
And then what about the populist, counterproductive suggestion to simply hike the bonus of civil servants? (The Brunei Times: March 7, 2008). (But please refer its rejoinder: "Link civil servants bonus to performance" (The Brunei Times: March 8, 2008).
On the other hand, the government has been struggling to encourage, to cajole those unemployed to seek job in the private sector. Now comes this populist sugar floss bonus for civil servants!
Any populist financial gifts are gladly swallowed hook, line, and sinker.
It is so easy to be a Father Christmas handing out goodies using government funds and resources without considering how, from where to get those resources and how much yearly.
Is bonus to be related to higher efficiency, greater work load and increased weight of responsibility and accountability of those bureaucrats?
A vital yardstick of bureaucratic efficiency is how effectively the bureaucrats facilitate and stimulate the national economic growth, the lifeblood of the nation everywhere in the world.
In the private sector, bonus is the function of efficiency and profitability. It cannot come from Zero income.
The total macroeconomic costs created by these populist ideas of "imposed high wage policy with a special Fund for the enticement, and a "bonus hike" would not only be against the intended desired of the approved tax rebate from 30% to 27.5%. (The Brunei Times: March 7, 2008) but could also make the notorious spoonfed, crutch mentality of our society worse.
The increased Income Expectation could weaken the desire to exert ourself and sap the spirit of entrepreneurship.
The negative effect of Increased Income Expectation may be clearly visualised in
Graph D:
When the rate of pay was $14 per work effort (plus other financial benefits), the total effort worked was E1.
When the rate was $3, the total effort worked was E3.
When the rate was $4, the total work effort worked increased only marginally to E4.
But when the rate was $5, the total work effort worked began to fall from E4 to E6.
Total effort worked fell drastically to E7, when the rate pay increased to $6 per work effort.
This "backward-bending work effort" graph indicates that we become contented to work less as our total income (plus perks) has increased substantially.
This phenomenon was clearly observed in the 1950s during the Korean war. Before the Korean war the price of rubber per kati was only $0.80. A rubber tapper during the dry season may get 15 katis per day, hence if he was paid $0.50 per kati, his daily income was $13.50, for 30 days = $405 average.
But when the price of raw rubber shot up to $4.80 per kati during the peak of the Korean war, the rubber tapper became "relaxed, over contented" and missed many days of work. Some just idling at home, some gambled and others indulged in cockfights. After all why exert oneself when one could have easily gotten an average $60 a day. If one could just work for 10 or 15 days, one could "easily" earn between $600 to $900. Obviously, man, this was much better, easy, than having to exert oneself for 30 days, waking up very early in the mornings, when the price per kaki was just $0.80!
Tak mahu segantang, secupak cukup, besok ada lagi! Anjai bah!
("Anjai bah! is the jolly infectious expression of a very amusing eccentric, Awang Mat Jais. He frequented the Brunei Town (then) in late 1960s and early 1970s. He would walk with a stamping gait, merrily trailed by kids. When he was short of cash, he would invariably turn his pockets inside out, muttering an expression "Anjai bah! as he stamped on. That is he was fantasising that he was "rich"! When people teased him "Anjai , Mat Jais"?! He would euphemistically reply "Anjai bah!" Some adults would give him some cash. This would cause his stamping gait bouncing higher and faster, his smile wider. Very "entertaining" to be with him. Sadly he suddenly "disappeared" from the scene.)
But the monsoon rains came for days. Rubber trees could not be tapped, money from wages gradually used up. Eventually they were forced to borrow from the owners of the rubber plantations. This true, simple story should be an excellent reminder to those able-bodied, healthy people.
Hadith: "Work for the world as if you will live forever and work for the eternal life as if you will die tomorrow.
Don't have the tendency to always simply blame those who are prepared to grab work at wage rate W0.
Don't blame the entrepreneurs when only foreigners are willing to grab wage W0 for that particular category of work. In business, time and tide waits for no man.
As has been asserted before, it is much much better in many respects to employ our own people. But in most cases, we just hear them, we don't see them!
With regard to those experts' recommendation on government-owned businesses this has been done by the Brunei Investment Agency since 1984. Its officers and staff have been working overseas where the investments are located.
Government-owned businesses must not compete with or crowd out local SMEs. This would be counter-productive: seperti seladang merebahkan padi.
To close, here is a story: A pious man sat everyday in a mosque. He was thinking that he was being Blessed by Allah (SWT). Prophet Muhammad (PBUH) one day asked him how he earned his income and fed his family and himself. The pious man confidently replied that his brother supported them. On hearing this, the Prophet (PBUH) reminded him that his brother would be the one who would be accepted in Heaven.
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.