Malaysia's vision 2020 bankcrupt by 2019?

Idris Jala: M’sia must cut subsidies, debt by 2019 or risk bankruptcy 

By TEH ENG HOCK and SHAUN HO

KUALA LUMPUR: Malaysia will be bankrupt by 2019 if it does not cut subsidies and rein in borrowings, said Minister in the Prime Minister’s Department Datuk Seri Idris Jala on Thursday.

He said that Malaysia's debt would rise to 100 percent of GDP by 2019 from the current 54% if it did not cut subsidies.

“We do not want to be another Greece,” he said when officiating the Subsidy Lab Open Day here to receive feedback from the public on subsidies.

Some of the recommendations of the subsidy rationalisation lab:

- Reduction of gas subsidy, resulting in an increase in electricity tariffs. However, most households will not be affected as the move will only affect those consuming more than 200kWh.

- Toll rates to increase in mid-2010 as per concession agreement except for highways without alternative toll-free routes.

-Outpatient treatment at public hospitals to be increased from RM1 to RM3. In-patient treatment will also increase, depending on the wards (Class One, Two or Three), from between RM3 and RM80, to between RM6 to RM160.

-Text book loan scheme and tuition subsidy aid to be abolished. Students will also have to pay for public examination fees.

-Foreign students will pay full fees at public universities.

-Local undergraduates and postgraduates to pay more in student fees, ranging from RM300 to RM800.

Meanwhile, Bernama reported Idris as saying that Malaysia was likely to become an oil importer as early as next year at the current rate it was consuming petroleum,

Malaysians continue to be among the highest fuel consumers per capita in the world fuel consumption habits pattern which generally has remained relatively unchanged despite increased oil prices in 2008.

He also said that approximately 70% of the government's liquid petroleum gas (LPG) subsidy went to commercial concerns and not the intended households.

About 30% of the cooking oil subsidy was also abused, he said.

He said the government is proposing to phase out the petrol subsidy gradually in line with its move to strategically position Malaysia's economy on a stronger footing to realise the aspirations of Vision 2020, which is to achieve a developed, high-income nation status.

"Subsidies are an inaccurate representation of trade," Idris said when officiating the Subsidy Lab Open Day here to receive feedback from the public on subsidies.

"In addition, they pose a fiscal burden that emerging economies such as Malaysia should move away from. As such, we desperately need an exit strategy for subsidies, as they are unsustainable," he said.

"In order to save the country, we need to increase our GDP, Malaysians need to be aware we are giving the highest subsidies - 4.6 per cent of GDP even higher than Indonesia (2.7 per cent) & Philippines (0.2 per cent)," said Idris, who is also the Chief Executive Officer of the Performance Management and Delivery Unit (PEMANDU).

Malaysia is one of the most subsidised nations in the world. Its total subsidy of RM74 billion in 2009 is equivalent to RM12,900 per household.

This covers the areas of Social (RM42.8bil), Fuel (RM23.5bil), Infrastructure (RM4.6bil) and Food amounting to RM3.1bil.

"All savings to reduce these savings are intended to reduce our deficit and debt of RM103bil in five years," he said.

Meanwhile, studies by Bank Negara have shown that inflation will rise to four per cent (2011-2012) and three per cent post 2013.

Subsidies only result in market distortion and they drain the government of much needed funds that could be better used for more strategic and pressing development projects for the rakyat, Idris said.

"The time for subsidy rationalisation is now," he said.
"We are reviewing the possibility of introducing a floating price mechanism, mitigation measures and assistance needed to put in place."

"We do not want to end up like Greece with a total debt of EUR300 billion. Our deficit rose to record high of RM47 billion last year."

"If the government continues at the rate of 12 per cent per annum, Malaysia could go bankrupt in 2019 with total debts amounting to RM1,158 billion," he cautioned.

Related Stories:
RM103bil savings from subsidy reduction
Subsidy cuts to boost economy

Copyrights Infringement, Landlords to enforcer role?

Landlords ‘no’ to enforcer role

PETALING JAYA: Seven business and real estate associations are opposing the proposed amendments to the Copyright Act 1987 that holds landlords liable when their tenants use their property for intellectual property and copyright infringement activities.

They described the amendments, requiring landlords to police the usage of their premises or properties and to be held responsible for tenants’ wrongdoings, as “unfair, unreasonable, untenable and impractical”.

They also expressed fear that this would dampen the property rental market and discourage foreign and local investors from investing in the property market.

The seven are the Associated Chinese Chambers of Commerce and Industry (ACCCIM), Real Estate and Housing Developers’ Asso­ciation Malaysia (Rehda), Malaysian Asso­ciation for Shopping and Highrise Complex Management, Malaysia Retailers Association, Malaysia Retailer-Chains Associa­tion, Building Management Asso­ciation of Malaysia (BMAM) and International Real Estate Federation Malaysia Chapter.

“It is totally unreasonable from the point of enforcement of public law. The enforcement agencies must do their jobs. If they can’t solve them, they should not pass the buck to landlords. Landlords can’t be the police. They neither have firearms nor laws to protect themselves against danger,” said ACCCIM representative Datuk Teo Chiang Kok at a joint press conference here yesterday.

Former Rehda president Datuk Eddy Chen Lok Loi said the move would increase the cost of doing business as they have to train staff on enforcement and supervision.

BMAM secretary-general S. Venkateswaran said building managers’ responsibility was to ensure properties are in good condition.

“It’s not possible for them to conduct raids as they would require search warrants,” he said, adding that the move would be detrimental to investment initiatives by the government.

Protect the landlords

I REFER to the article on copyright infringement offences committed by tenants. Two weeks ago, there was also a front page article in The Star about problems caused by tenants and the price landlords are paying.
Being an estate agent, an industry player and as the immediate past president of the Malaysian Institute of Estate Agents, I join other associations and individuals who have objected to holding landlords responsible for copyright infringement offences committed by their tenants.

It is not only unfair but an injustice to hold landlords responsible and the fact that certain ministries or departments not heeding our calls or really understanding the issues, sends a cold message that bureaucracy takes precedence over facts and practices.

Estate agents represent a big majority of landlords in this country and today we feel that the landlords have got the wrong end of the rod. In all fairness, landlords spend a great amount of their savings to invest in property and in return help the property sector to grow and indirectly help drive the economy.

It would be real injustice if landlords are taken to task for the misdeeds of tenants.

The big question is are the landlords being protected?

If the tenants don’t pay electricity or water bills, the landlords have to pay, if the tenants don’t pay rental the landlords have to accept the losses, and evicting the tenant can take a long time as the eviction laws protect the tenants more, if the tenants damage the property the landlords have to pay for it, and now if one uses a pirated software or a pirated DVD the landlords will be charged.

While we enact laws, many times we understand the real issues and practices that result in poor enforcement. The authorities have surely overlooked the fact that in Malaysia, the laws to protect landlords and the laws to act against tenants are insufficient and lacking.

How can we hold landlords responsible for an action of a tenant? This goes against the very grain of fundamental rights and justice — and the guilty goes free.

The explanation that landlords must visit the premises regularly violates the agreement that they must allow the tenant “to peaceably enjoy the demised premises”. It is stated in all tenancy agreements that the tenant shall not do anything unlawful while renting the premises.

Now the authorities want landlords to search for pirated items, pirated software etc. It is a misguided fact that landlords should know their tenants.

This must be a case where the authorities have found a shortcut to solve their problems, forgetting that landlords are the very people that need to be protected.

If there is a situation of landlords colluding or collaborating with the tenant, then the landlords can be taken to task but not for merely renting their premises to an individual.

The entire real estate fraternity will bear evidence that landlords are poorly protected and we don’t need new legislation to hold them responsible for something they don’t have control or jurisdiction over. This is the case of turning landlords into enforcement officers.

K. SOMA SUNDRAM,
Kuala Lumpur.

"Don't punish landlords" as scapegoats
Unfair to make landlords liable for offences committed by tenants, say seven associations

by Alyaa Alhadjri

Datuk Teo Chiang Kok

PETALING JAYA (June 29, 2010): Developers, retailers and building owners are against the proposal to amend the Copyright Act to make landlords liable for copyright infringement offences committed by their tenants.

"Landlords should not be held liable, nor should they be forced to play the role of law enforcement officers to police copyright infringement by their tenants," said Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) president Datuk Teo Chiang Kok today.

"The amendments will unfairly include landlords of premises used for infringing activities -- instead of only focusing on the perpetrators," he said at a press conference where seven associations jointly issued a statement to oppose the proposed amendments.

The associations are ACCCIM, Real Estate and Housing Developers Association (Rehda), Malaysian Association for Shopping and Highrise Complex Management, the Malaysia Retailers Association (MRA), Malaysia Retailers-Chain Association, Building Management Association of Malaysia and International Real Estate Federation, Malaysian Chapter.

Domestic Trade, Cooperative and Consumerism Minister Datuk Seri Ismail Sabri Yaacob had last month announced the government's plan to amend Section 36(2b) and Section 41(2) of the act which pertain to ownership, distribution and sale of copyrighted material without licence.

Now, Section 36(2b) makes it is an offence for any person to import or distribute any article without licence or consent from the copyright owner. This includes pirated movies and music CDs, software and imitation branded goods.

Under the proposed amendment, the landlords will be made liable and a person found with just one infringed copy of copyright material whether for private or commercial use can be charged, instead of a minimum of three infringing copies as the law stands now.

Teo said that the relationship between landlord and tenant was governed by the common law principle that a landlord shall grant their tenant "quiet enjoyment of the premise". "With the proposed amendment, the landlord has to police the usage of the premise and effectively interferes with a fundamental aspect of the relationship with their tenants," he said.

He said that the amendments will not only affect landlords who own commercial premises, but also private property owners, who will be implicated if their tenants are caught infringing copyright laws.

He said that landlords were also exposed to financial liabilities when they took up the role of  "enforcement officers", as they might face legal action from their own tenants due to their inadequate knowledge of copyright laws.

"Law enforcement is the responsibility of the respective government agency and to impose on the landlord is an abdication of their role to private individuals," he said.

Datuk Seri Ismail Sabri Yaacob

Rehda past president Datuk Eddy Chen Lok Loi said it was unfair for the government to "pass the buck" to the landlords and find a scapegoat for its lack of enforcement capabilities. He said for the landlords to train or employ "enforcement officers" just to curb copyright infringement in their premises, would increase their cost of doing business and indirectly deter foreign direct investments.

Chen's views were echoed by Malaysian Association for Shopping and Highrise Complex Management president Richard Chan. "It is unrealistic to expect developers or owners of retail outlets to personally visit and monitor every single unit in their building, to ensure that there is no items sold that infringes copyright laws," he said.

The associations said they have had several dialogues with the ministry since the proposal was mooted in 2007, but to date, the government had not heeded their views. "Every time revisions were made to the proposal, the content was still the same, with only the wordings changed," lamented Teo.

He said the government's stand was that "landlords should know their tenants" before entering into any agreement and should, therefore, be held responsible for any illegal activities conducted in their premises. -- theSun

Your Ideas To Change The World

Readers offer their solutions to the globe's problems.

Two weeks ago, we published a special report on 25 Ideas To Change The World. Forbes India asked luminaries like microfinance pioneer Muhammad Yunus, Wikipedia founder Jimmy Wales, philosopher Alain de Botton, designer Milton Glaser and 21 others to pen essays on the topic. You can read all 25 pieces here. But Forbes also asked readers via Facebook (at both the Forbes and Forbes Asia pages) and Twitter to share with us their world-changing ideas. We promised to publish a handful of the suggestions we received.
 
One theme provoked the most responses: musings on global warming, climate change and pollution put forth by biologist George Schaller, activist Bianca Jagger and "skeptical environmentalist" Bjorn Lomborg.

Readers were most passionate--and prolific--about ways we can reduce our impact on the environment, particularly in light of the Gulf Oil spill. Here are a few of the most thoughtful comments.
 
I agree that attempting to arbitrarily raise the price of carbon fuels to discourage consumption hasn't worked. I don't think it's rational or fair to cut the existing lifelines of cheap carbon-based fuels today to developing countries and inhibit them from creating a more prosperous future. As Tom Friedman suggests, we need a "Million Manhattan Projects" or massive R&D push to discover and develop alternative sources including, wind, solar, nuclear, bio and thermal. Government can play a role in such an ambitious project through leadership, vision and incentives but I'd like to see it led by the private sector. On the consumption side of the equation, I'm encouraged to see industry leaders like Cisco ( CSCO - news - people ), IBM ( IBM - news - people ) and HP taking steps towards a 'smarter' and technologically greener planet through enabling technologies. --BobOlwig, who also has a blog.
Lomborg is correct that previous emissions cutting measures have not been successful. I believe this is due in part to the fact that ordinary citizens in most nations are alienated from these measures and have not been inspired (or forced) to take personal responsibility for the emissions they contribute. I believe the solution to combating climate changes lies in part with our ability to motivate individual consumers to reduce their energy consumption. Creating more individual accountability for energy consumption can be done either by forcing (by increasing prices, which Lomberg claims is not effective) or by motivating. I believe we need to develop a solution which creates motivating factors for consumers to conserve. The way I propose to do this is to use the power of IT to create online systems where consumers can track their consumption of oil & energy (already happening slowly with smart meters) but also create transparency enabling consumers to compare their energy usage to others in their area, in other cities and even in other countries. Such a system would also provide recommendations on ways to cut, and provide insight into the monetary savings and emissions reductions resulting from taking these measures. I believe that this increased level of transparency would inspire people to reduce their consumption, helping to curtail steadily rising emissions until we can fully transition to a clean energy economy. --Jjreif

Our lack of responsibility in dealing with the environment upon which we live--our hubris, in other words--seems likely to bring us down, and sooner rather than later. --mhenriday

We need to appoint global council for climate change, which will look into all matters rationally and come up with a solution [that] will be binding for all countries. And Western countries have to pay upfront charges for whatever pollution they have done in the past. They will not be allowed to get away…I am no climate expert, it is my humble idea. --greenworld2012
 
Another hot-button topic came from cognitive scientist David Livingstone Smith's exploration of the psychology of violence and hate. In his article, Livingstone Smith describes his quest to explore human tendencies both to abhor and commit violent acts by studying the inner workings of the mind. He concludes that one of the ways this dichotomy is able to exist is because, as a form of justification, we dehumanize those people--for example, deem them the same as animals or worse--against whom we are violent. It is only once we address the psychological dimension to violence, Livingstone Smith says, that we can hope to stop it.

Many readers agreed. "The stranger has always been the 'other,'" writes Kevin_Walsh. "It is only a small step to a dangerous 'other,' requiring a protective response. Many politicians use fear for control. Fear and mutual protection are the original basis for the formation of community." Other commenters, however, were more fatalistic. Adds mcgator: "Dehumanization, in my opinion, is also a reaction to others dehumanizing us…Once a group of people dehumanize another, then the reaction almost has to be to return the favor. I feel terrible that this is the case but there is also the natural desire of survival."

As the special report was put together by the staff of Forbes licensee Forbes India, many of the visionaries focused their efforts at problems prevalent in that country. For example, Jockin Arputham of the National Slum Dwellers Federation emphasized poverty alleviation can be achieved by not by government degree but by empowering the poorest people to help themselves.

Agreed commenter Juwaeriah: "In order to see a profound improvement, our awareness programs should be a bit more stimulating. Awareness that has an effect in such a way mentally draws people to take responsibility. For a beneficial outcome the people factor within the slums as well as urban dwellers need to collaboratively take action."

Harvard Business School professor Tarun Khanna wrote about how to tap the talent of the lower quadrants of populations in emerging markets. "The Government of India [is] in [its] first national attempt to issue a national registration identity to all Indians above the age of 16; [it] will also open an account in their names in a bank and deposit a certain amount of seed money for them," writes vksharan. "It is necessary to bring the poor and illiterate in the mainstream economy. One has to give the poor something that they will guard with their life and use to it to climb higher and prosper in their lives."

In response to philosopher Alain de Botton's piece about creating a secular religion,

GeorgePJelliss points out that Botton's ideas are just the latest in a long line of other thinkers who posited alternatives to traditional religious practice. "A religion of mankind has been proposed many times," he writes. "After David came Auguste Comte's Positivism, and in England Robert Owen's Rational Religion, and George Holyoake's Secularism."

Meanwhile, creativetechnologist of Fareham in the U.K. writes that he is eyeing a similar project to Botton: "The idea I am working on is to create a group (not a religion) that takes the good parts of community and morality from religion (and there are a lot of bad parts!) along with real world values and promote regular meetings and discussion." Another commenter, loafingisgood, echoed Socrates in reflecting on the very essence of what religion means to society. "The proper question to ask about a religion is not 'Is it true?' but 'is it useful?'" he points out. "The question 'Is it true?' is certain to be answered at the end of life, so why argue? The question 'Is it useful?' is certainly worth addressing.

In response to the creator of India's National Stock Exchange, Ravi Narain, who wrote here about how technology can revolutionize the markets, economies and finance, Lousulliva thought up a tax-based incentive system to encourage wealthy investors to sink money into U.S. startups. First, the person could write off an investment in certain technologies and industries like renewable energy, and second, the person can deduct from his or her taxes a portion of the profits that result from that investment.
 
"The net effect on this will be a larger tax base as employment falls, [and] increased development capital in the private sector which has always performed better than its government counterparts," Louissulliva writes. "Rules could include but [are] not limited to minimum wages firms who see this kind of capital may pay, [or] a custom 'company" tax' or surtax on its products once profitability is returned."

"Reward those who put their wealth to work through investment," TomBeebe concurs, "and penalize consumption above a certain level. Our tax code should be re-written to this end."

Laxman Thapa agrees that the world's richest people should play a role in its progress, writing on Facebook that "all countries should govern the property of [the] richest persons very carefully, with a need to evaluate and control the tariff they are charging for products to commoners."

Finance was on the forefront of commenter tmd1771's mind, who proposed a system to combat part of the real estate crisis in the U.S.: "What are we spending (have we spent already?) as a country on the various attempts to have trial mortgages refinanced, to administer short sales and foreclosures, to maintain bank-owned real estate? Would it not be expedient to create a fund--equally funded by both federal and bank interests from the money saved by not administering--that compensates for, say, a 20% principle reduction for all home mortgages?"

Some readers were more creative. Jessica Lynn, who wrote via Facebook message, was inspired to think of a more down to earth, world-changing idea. "I'd sure love to make some changes starting right in my own community!" she writes. "I dream of starting a girls' youth group, teaching young ladies how to be confident, independent, self-sufficient and that they can do anything they set their minds to."

Melvin Wizamgee wrote on Forbes' Facebook page that meditation would help change the consciousness and awareness of our leaders. Carmelita Omli says the world should eliminate visa requirements, while Carl Wayne Hardeman believes a cheap way to desalinate sea water could help solve water shortage problems. Ajduggal suggests adopting English as a universal language.

Forbes wishes everyone the best of luck in turning all of these ideas into action!

Hana R. Alberts,

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2010 FIFA World Cup Kicks Off Summer Scams

Some call it soccer. Some call it football. No matter what you term the game, the effects of the 2010 FIFA World Cup, the most widely-viewed sporting event across the globe, can be seen all around the world — and around the Web — following the kickoff in June.

A growing trend seen by online security experts is for scammers to take advantage of the latest breaking news and major worldwide events to distribute malware and, unfortunately, the World Cup, which will be in full swing until mid July, is a prime opportunity for cyber criminals to do just that.

Since the games began this summer, the cyber scams have been kicking off in full force, with reports of sophisticated World Cup-related malware scams, increases in spam themed around to games, and other malicious online ploys.

“Cyber criminals know that they can exploit popular international events to lure victims through various types of social engineering tactics. The World Cup is a prime target due to its prestige and the amount of interest it draws from fans around the world,” says Andrew Browne, head of Lavasoft Malware Labs.

How can you avoid becoming a victim of an attack? Lavasoft Malware Labs' analysts have compiled a list of five eminent online security risks surrounding the World Cup — and specific steps you can take to stay safe. Read on to learn more.

1. Spam with malicious attachments. Be wary of unsolicited World Cup-related messages with an attachment, particularly if the attached file is a PDF. One of the latest PDF attacks took advantage of an Adobe Reader vulnerability that was recently patched. “Check that all applications and programs are patched and up-to-date. Turn on Windows automatic updates and make sure to have the latest security patches from Microsoft installed,” Malware Labs says.
2. Targeted phishing ploys. There has been a deluge of the following themes in World Cup-related phishing messages: refunds, tickets sales and lotteries, accommodations, travel, and team merchandise. “If you receive an unsolicited message, delete it without opening,” Malware Labs says.
3.  SEO poisoning. Cyber scammers are poisoning search engine results using World Cup-related headlines and videos to lead to malicious sites in an attempt to push rogue (fake) security software and other types of malware. “Check all URL's carefully before clicking on them, and be especially mindful of only using trusted sites during this time,” Malware Labs says.
4.  Application downloads. With so many viewers planning to watch the games online, malware purveyors can be expected to capitalize on ways to infect users looking to download media players. “Vet any applications that allow you to stream World Cup content,” Malware Labs says.
5.  Legitimate sites serving malware. Malicious code can be hacked into vulnerable, legitimate websites in order to infect users. Legitimate World Cup-related sites are attractive targets for cybercriminals. “Make sure that you have core protection on your PC (anti-virus, anti-spyware, and firewall). Consider using an alternate browser, like Google Chrome or Mozilla Firefox, rather than Internet Explorer. If you use Firefox, install the NoScript plug-in for Firefox to intercept potentially malicious scripts (http://noscript.net),” Malware Labs says.

“The target of these types of social engineering attacks is the computer user, where infection occurs by the person making an interactive choice. We hope that sports fan watching the games online from their home or office — in addition to having anti-malware protection on their PC's — pay close attention to the types of threats that we anticipate will be prevalent so they have a better understanding of what not to click, download, or respond to,” Browne says.

Inflation or Deflation?

Martin Feldstein

 CAMBRIDGE – The investors that I talk to these days are not sure whether to worry more about future inflation in the United States or about future deflation. The good news is that the answer – for at least the next few years – is that investors should worry about “neither.”

America’s high rate of unemployment and the low rates of capacity utilization imply that there is little upward pressure on wages and prices in the US. And the recent rise in the value of the dollar relative to the euro and the British pound helps by reducing import costs.

Those who emphasize the risk of inflation often point to America’s enormous budget deficit. The Congressional Budget Office projects that the country’s fiscal deficit will average 5% of GDP for the rest of the decade, driving government debt to 90% of GDP, from less than 60% of GDP in 2009. While those large fiscal deficits will be a major problem for the US economy if nothing is done to bring them down, they need not be inflationary.

Sustained budget deficits crowd out private investment, push up long-term real interest rates, and increase the burden on future taxpayers. But they do not cause inflation unless they lead to excess demand for goods and labor. The last time the US faced large budget deficits, in the early 1980’s, inflation declined sharply because of a tight monetary policy. Europe and Japan now have both large fiscal deficits and low inflation.

The inflation pessimists worry that the government will actually choose a policy of faster price growth to reduce the real value of the government debt. But such a strategy can work only in countries where the duration of the government’s debt is long and the interest rate on that debt is fixed. That is because an increase in the inflation rate causes interest rates on new debt to rise by an equal amount. The resulting higher interest payments add to the national debt, offsetting the erosion of the real value of the existing debt caused by the higher inflation.

In the current situation, the US cannot reduce the real value of its government debt significantly by indulging in a bout of inflation, because the average maturity on existing debt is very short – only about four years. And the projected fiscal deficits imply that the additional debt that will be issued during the next decade will be as large as the total stock of debt today. So raising inflation is no cure for the government’s current debt or future deficits.

Those who worry about deflation note that the US consumer price index has not increased at all in the past three months. Why won’t that continue and feed on itself – as it has in Japan – as consumers delay spending in anticipation of even lower prices in the future? And doesn’t Japan’s persistent deflation since the early 1990’s also show that, once it begins, deflation cannot be reversed by a policy of easy money or fiscal deficits?

But the recent weakness in US prices is very different from the situation that prevails in Japan. Zero inflation for the past three months has been a one-time event driven by the fall in energy prices. The other broad components of the consumer price index have increased in recent months, and the consumer price index is up about two percentage points over the past 12 months.

Moreover, surveys of consumer expectations show that US households expect prices to rise at more than 2% in both the coming year and the more distant future. That expected inflation rate is consistent with the difference in interest rates between ordinary US government bonds and Treasury Inflation Protected Securities. With such expectations, consumers have no reason to put off purchases.

A second reason for relatively low inflation in recent years has been a temporary fall in the cost of production. As firms shed workers during the economic downturn, output fell more slowly. The resulting rise in output per worker, together with slow wage growth, reduced unit labor costs. That process is now coming to an end as employment rises.

So the good news is that the possibility of significant inflation or deflation during the next few years is low on the list of economic risks faced by the US economy and by financial investors.

But, while inflation is very likely to remain low for the next few years, I am puzzled that bond prices show that investors apparently expect inflation to remain low for ten years and beyond, and that they also do not require higher interest rates as compensation for the risk that the fiscal deficit will cause real interest rates to rise in the future.

Copyright: Project Syndicate, 2010.
www.project-syndicate.org
For a podcast of this commentary in English, please use this link:
http://media.blubrry.com/ps/media.libsyn.com/media/ps/feldstein24.mp3

You might also like to read more from Martin Feldstein or return to our home page.

Resetting economy, society and the world

Review by Abby Wong

 The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity

Author: Richard Florida
Publisher: Harper Collins

AN economic downturn is always unwelcome. But amidst even the worst depression, there is always a silver lining. This hope is firmly held by Richard Florida, a renowned American economist and urban theorist who has authored three international bestsellers on social trends of the 21st century, The Rise of the Creative Class, The Flight of the Creative Class and Who’s Your City?

In his latest book, The Great Reset, Florida sets his foot into economics, calling the current financial woes the necessary adjustments that will eventually give rise to new epochs of inventiveness, ingenuity, economic growth, and prosperity. But Florida is not being imprudent. Lest he upsets millions of people affected by the current downturn, he backs this idea with facts drawn from both history and rigorous research.

With flair of a storyteller, Florida recounts causes of the Long Depression of 1870s and the Great Depression of 1930s, and analyses the ensuing social and economical effects – the rise of innovation, changes in infrastructure, geographical resettlement and alteration of ways of living and working. Florida calls these adjustments resets and thinks the next Great Reset will take place soon or even now, if not already.

But what has worked in the past will not work quite as well in this era. No longer is our economy driven by manufacturing and factories like it was in the 20th century. Connected by a web of countries across the world and confronted by a mélange of problems never before seen as imminent, today’s economy can only be propelled by ideas and creativity.

Furthermore, with the busting of consumerism, restarting economic growth this time requires more than boosting spending but a new socio-economic framework that is in line with frugality, flexibility, conservation and environmentalism.

With his trademark blend of wit, verve and analysis, Florida presents an optimistic future and a society that he envisions as vibrant, mobile, prosperous and creative. To achieve this vision, he calls for abolishment of certain long-held beliefs, realignment of our way of life and redesign of governments’ policies.

So, will the current crash usher in a new age of thrift, caution and frugality? Will car-ditching be the next badge of honour, replacing car-loving? Will troubled, if not deserted, industrialised cities be revitalised? With mortgage lending became overblown and began to undermine the economy, will house ownership be replaced by renting? Finally, will education, infrastructure, employment, and the role of government be improved, adjusted and attuned?

Yes to all that, according to Florida, as he puts forth his reasons and suggestions. For instance, to breathe life back into abandoned industrial cities, he suggests a high-speed rail system that is faster than a speeding bullet, knitting active and dormant cities together to form mega-regions.

On jobs, which are fast disappearing as a result of the crash, Florida advocates creative job creation by knowledge professionals, rather than depending on big conglomerates that hire and fire and then close down when crisis takes place. On housing and cars, bigger is no longer better, while renting will be the new normal, more for mobility reason than for cautious introspection.

Though some changes may have already taken place, the real challenge, according to Florida, lies in the efficient and productive use of capital, which has become dangerously scarce after the financial crisis. Only by making intelligent investments in new infrastructure that goes beyond the current energy and environmental constraints, can we build a new creative economy and society that is vibrant and prosperous.

The Great Reset is a fantastic book that I think should be read especially by all policy makers seeking an inkling as to what will and should happen in the aftermath of this disastrous financial meltdown. Although much of the context is drawn from the United States, it is very much written for the emerging economic and social landscapes of the world.

Indeed, I closed this immensely stimulating book with a sigh and reflected on what seems to be a poverty of natural resources we are facing and wondered for how long the earth can endure human destruction before arriving at the much better world that Florida envisions.

Not too long, I hope.

G20 walks tightrope between growth, deficits

(Agencies)
Updated: 2010-06-28 08:04, China Daily

TORONTO – World leaders agreed on Sunday to take separate paths toward shared goals of lasting growth and safer banks as two years of global crisis give way to a fragile economic recovery.

The leaders of the Group of 20 pose for a family photo at the G20 Summit in Toronto June 27, 2010. [Agencies]

Balance was the buzz word. The Group of 20 pledged to halve budget deficits by 2013 without stunting growth, and clamp down on risky bank behavior without choking off lending.

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But they left room for countries to move at their own pace and adopt "differentiated and tailored" policies that match national economic or political priorities, a sharp reversal from the unity of the previous three crisis-era G20 summits.

"The G20's highest priority is to safeguard and strengthen the recovery and lay the foundation for strong, sustainable and balanced growth, and strengthen our financial systems against risks," the group said in a statement released at the end of meetings here.

The G20 allowed each country space to decide how to proceed with controversial provisions such as taxing banks to recoup bailout costs and implementing tougher bank capital rules.

The G20, which includes emerging economic powers as well as the developed economies, which is where the economic trouble started, united last year to throw trillions of dollars into the battle against recession.

But that unity has begun to fray as countries emerge from crisis at different speeds and with different policy needs. Emerging Asian economies such as China have come roaring back while the US recovery remains tepid and Europe lags behind.

"Now that the worst of the crisis is past, the dewy-eyed vision of G20 countries pulling together to solve global economic problems is steadily giving way to a more pragmatic approach of merging competing perspectives and agendas to fashion imperfect compromises and make incremental progress," said Eswar Prasad, a senior fellow at the Brookings Institution and a former International Monetary Fund official.

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