Should Greece have voted out of the Euro?

By voting to stay with the euro and complying with austerity measure, Greece will face widespread unemployment and other hardship due to budget cuts. More crucially, however, what is really saved are the lending banks, not the future of the Greeks. The way I see it, the bailout of Greece is actually a bailout of the banks in Germany and France. The banks (mostly privately held, I presume) will stand to lose a lot if the euro collapses. So the clever governments of Germany and France choose to use its taxpayers' money to save Greece, in order to stabilize the financial system based on the euro, so as to benefit those in high places (which most likely includes themselves).

Of course, this is no bailout for Greece. Think of it this way. If a man owes the bank a lot of money and is insolvent, the bank stands to gain nothing if the man declares himself a bankrupt. Assuming the man is still capable of earning an income, the bank would want to keep him alive so as to recover as much money as it can. Yes, give him just enough to stay alive and make him pay back 90% of his income each month. He will be denied any luxury - austerity measure. Isn't this exactly what is going to happen to Greece?

In the business world, when a company is insolvent, the logical thing to do is to declare bankruptcy and then start business again as a new entity. But if the bank is allowed to take over as administrator, the bank's sole intention is to recover as much money as it can, even at the expense of running down the company. Isn't this the same fate facing Greece now that it has voted to stay with the euro?

In summary, the winners are the fat cats in Germacy, France, and Greece. The losers are the taxpayers in Germany and France and the hoi polloi in Greece.

What I think of Wayne Swan's budget proposal

I think it is a farce. Everyone is so hung up about the budget; perhaps it is because we all want to see what the proposal has in store for us. But then THAT is the problem isn't it? When we are so carried away by "what's in it for me," we forget that the government has gotten away with enormous deficit for the last four years of Labor government (that is not to say John Howard did a fantastic job; he sold government assets to keep the budget balanced).

Last year alone the fiscal deficit was $44bil. Now Wayne Swan is trying to convinced everyone he is a good financial manager, based on his budget proposal to create a surplus of a puny $1.5bil. Mind you, that is just a proposal and nothing more. Come next year, people will forget what he promises now and they will be looking at another new budget proposal. Who will be paying for all the deficits?

Back to Wayne Swan and Julia Gillard's management of the economy. Last year alone, they managed to spend $44bil more than the amount they collected. Nobody, except the opposition party made any noise; for vested interest, of course. If Wayne Swan and Julia Gillard were to manage a public listed company, the company would have faced a riot from the shareholders. The shareholders would not be so keen to see what they propose to do next year. No, they would be asking how the duo have managed last year's profit and loss account. Gillard and Swan would have been given the sack rightaway.

The effect of an understated CPI

Consumer Price Index is not a reliable cost of living indicator anymore. These days it is more of a political tool to be used to temper inflation rather than indicate the level of inflation. Simple stated, the CPI has a major impact on the Reserve Bank interest rate policy, which in turn sets the pace for the economy to slow down or rev up. However, the CPI is anything but fixed and reliable. The basket of goods and services that make up the CPI is constantly revised, often to make it lower than it actually is. Usually the items that cause it to go up are quietly excluded.

The effect of understating the CPI is twofold. One, it allows businesses and large corporations to restrain wage increases. Two, low CPI justifies the Reserve Bank setting low interest rate. This causes the economy to keep firing on all cylinders. Everybody is supposed to be happy. It is a magic bullet. The government gets re-elected, election after election, for doing a good job. Big corporations get low interest rate and a wage-subdued labour force. Migrants are happy to come, and everybody has a job. Of course, something has to give, doesn't it? Sure it does; the inflation genie is looming large behind the smokescreen. So if you are wondering why a 3.3% CPI increase feels more like 30%, you are probably right.

See this interesting article recently published in The Australian: http://www.theaustralian.com.au/national-affairs/commentary/inflation-continues-to-squeeze-homeowners/story-e6frgd0x-1226047181222

Globalization Part 4: Reining in globalization

Globalization is capitalism fully unleashed. A fully globalized company recognizes no national boundaries and does not owe any allegiance to any country but to the board of directors. Even shareholders are excluded; they have no real say in the running of the company. If capitalism is the nationality of the company, then the board of directors is the parliament, and the shareholders are the citizens. The currency is pure greed.

Many Western countries have been usurped by capitalism. Decisions are made not to protect the social welfare of the populace, but to keep the mega corporations happy and profitable. A company that is loyal to its own country should want to keep the jobs for its own people, so that the money will circulate within their own economy. But this is not what is happening. In the name of globalization the people in the Western countries have been sold out such that they no longer enjoy the same job and income security as their parents and grandparents did.

It is time to rein in globalized capitalism while the government still has the means to do so. It has to undo some of the damages committed by the globalization madness. It is time to protect local industries and local jobs, rather than indulging in cheap imports while shedding local jobs. The government cannot sit idle while year after year the industrial output shrinks. Service industry is not the answer to lost factory jobs; eventually the service industry will also shrink when the factory job market shrinks. Left unchecked, Australia's economy (and also those of other Western countries) will become completely dependent on mining and agriculture. The economy and the quality of life will go south... or East, to be precise.

Globalization Part 3: How I was a part of it

When I was in high school in Malaysia all I knew about factories was that they carried local names. I had never heard about "multinational" companies or "offshore manufacturing plants". A few foreign owned industries were operating in Malysia then (such as Lever Brothers) but they were there to supply to the local market. Manufacturing plants like Intel, Motorola, and Fairchild were quite different entities altogether. Unlike Lever Brothers, all the goods produced by these "offshore" plants were re-exported. Offshore manufacturing plants had not taken off in a big way yet when I was in high school.

Finishing high school, I went on to study in America. I had expected to work in a local engineering firm in Malaysia when I graduated in 1982. That was not to be. The Malaysian papers were full of job advertisements for semiconductor companies. I got a job with Harris Semiconductor although I had never planned for a career in this field. That was how I became a part of the globalization trend.

I enjoyed working for the multinational companies (I later worked for Motorola, and briefly for Intel). It was like I was working in the parent company in the U.S. itself. Working condition was great and I got to visit the parent company about once or twice a year, flying business class, and staying at 5-star hotels. Never mind that I was paid a fraction of what my counterparts were paid in the U.S.

As the years passed, I saw my U.S. counterparts getting retrenched while their jobs were transferred to the Malaysian factories. We kept our jobs because the company gradually axed theirs. They were directed to train us and to share all their expertise with us. They must have really felt horrible but they never showed any ill feelings.

That is what globalization does. Capitalists get to move their capital to wherever they can maximize their profits, disregarding what happens to the workers in their home countries. Due to greater job opportunities my livelihood improved. So did many others' in Malaysia. My American counterparts' livelihood took a plunge.

Globalization Part 2: The road to prosperity (for some)

I took a walk in the park with my family yesterday. There is a nice paved bicycle trail that runs by a farm land. The paving is so nice and smooth that you could rollerblade on it. Here is my story...

In Australia we have the luxury of such a lovely paved road just for bicycling as a hobby, while many in the poorer countries would be happy to have just a simple cement rendered road for their everyday use. Yes, I recall that my hometown in Malaysia had to wait for years and submit countless appeals just to get that realized. The difference is that Australia places a lot of emphasis on social welfare and has the means to do so. Like all the countries in the West, industrialization brought about a big jump in prosperity to these countries. Along with it came social improvement programs, which we now continue to see and enjoy.

Fast forward to the 1970's. Globalization started to roll. Factories and jobs moved over to the countries that could offer low cost labour. These countries, however, do not share the same social welfare aspiration of the West. Therefore their labour costs will always be lower than in the West. They are not going to see money splurged on beautiful parks (they destroy the parks to build factories), or lovely paved bicycle roads (are you mad?!), or aged care for the old (let the weak take care of the weak).

Globalization has indeed created the road to prosperity for some. It comes at a social cost and an environmental cost. The winners: jobs for the jobless in the newly industrialized countries. The losers: working life is never the same for many in the West.

Globalization Part 1: A new world order

It is reported that the US is dependent on consumer spending to keep its economy going, while it continues to battle high unemployment rate and a flagging economy...

It is frequently reported that Australia is running on a "two-speed" economy. While mining-related industries do well, others lag behind...

Welcome to globalization, where economics is not what it used to be anymore. We should stop being surprised by the seeming contradictions and start to understand the impact of globalization on the economy. Western countries would like to believe they can have the cake and eat it too. That is, they can enjoy cheap made-in-China goods while still holding on to a high paying job. The simple truth is that when industries and jobs are moved offshore to a low-cost country, jobs are lost. Along with jobs, in time to come, goes the purchasing power.

In the globalized world, capitalism finally reveals its true self. It does not discriminate between countries, culture, or ideology. Capital investment goes where the company stands to make the most profit. Hence, America will have to snap out of the consumer-driven economy and try to regain the industry-driven economy (now lost to China) which once made it great. Meanwhile, resource rich countries like Australia will continue to chug along on a two-speed economy unless the government realizes that the non-mining industries are not slow-pedaling but are succumbing to the effects of globalization. Unless something is done about it, Australia will eventually become just a producer of raw materials, reversing the role with NIC's (newly industrialized countries) before they caught the globalization bug.

Have we grown wiser from the GFC?

I think the short answer is "no." We have not grown wiser from the global financial crisis of 2008. Australia is going back to status quo, while the other first world countries that are still in recession are slowing trying to recover status quo from the looks of it. Chief executives of public listed companies are back to the game of rewarding themselves with multimillion dollar pay rises (e.g. Myer CEO Brookes' pay jumped from $2.9 million to $5.45 million last year), while retrenching staff to "increase productivity" (e.g. Westpac Bank in today's Herald Sun news). In the first case, CEO's are unjustifiably rewarded; in the second case, staffs are retrenched at a time when the banks are raking in record profits.

We all now that the GFC is caused by greed on the part of corporate leaders, especially those high fliers in the financial world of hedge funds and investment banking. Slowly but surely, the talk of financial reforms has been just that - talk.

No, I think we have grown too used to the comfortable existence of pre-GFC days to want to give it up so easily. The people who will pay the price of this lassitude are our children and the generations to come. Even the people who think they are doing alright today, they won't be doing their children a favour. Greed has reached a new level, where people are even willing to sacrifice their children's future wellbeing. Why else would local councils keep raising council rates? Why else would government leaders privatize the public amenities and allow the private companies to raise prices at liberty? Why else would companies retrench staff when they are making huge profits (and rewarding their CEO's with big bonuses)? Why else would companies re-locate offshore and starve their own people of jobs?

Cheap glasses - can you see the difference?

There's an article in today's paper talking about the emergence of a number of big companies offering cheap eye glasses. The price difference is a lot; you can get 2 pairs of "cheap" prescription glasses for $179, or pay $500 for one pair of the regularly priced glasses at an independent optometry store. Of course, the cheaper ones do not come with anti-glare coating or correction for astigmatism.

I think it is not right for the higher-priced independent optometrists to run down the cheaper alternatives by claiming the cheaper ones are appalling and are potentially damaging to the health. I am not promoting the cheaper ones either. I think it is good for consumers to have a choice. People who otherwise cannot afford the best would do well to to go for the second best. That's why the market always caters to different levels of affordability. Unfortunately there are policy makers who do not understand economics very well. They make policies requiring everyone to only use what is the very best. For example, childcare centers are very expensive because they have to meet the quality standards (e.g. carer to children ratio), thereby making it unaffordable to those who need this service the most. School textbooks are revised every so often just for the smallest changes. This is perhaps to make sure the previous years' books are not re-used. Councilors raise council rates every year to improve services which may be good for a well-heeled district, but may be an unaffordable luxury for a poorer constituent. Policymakers should understand the needs of the people instead of always promoting the very best.

The art of price gouging; the Optus way

A friend of mine responded to an advertisement for a $39 plane ticket between Adelaide and Melbourne. Booking two return tickets, she was surprised to find that the total amount came up to $200, instead of the expected $160 or so. Welcome to Australia, where price gouging is a common practice.

In July last year, Telstra implemented a $2.20 charge on customers who pay the phone bill over the counter. After much public hue and cry, Telstra unilaterally withdrew this charge in November. Telstra's competitor Optus is more surreptitious; recently it quietly imposed a $0.55 fee for the same reason but through the "back door" way. If you pay an Optus bill over the counter, a $0.55 charge will appear somewhere in your next bill. Since most people do not scrutinize the details in their bill, they will just pay the next bill again without realizing they have been price-gouged. Not a single mention of this has been made in the papers. The public has either been completely fooled or completely made a fool of. Now that this is working fine, Optus has already announced that it is increasing this charge to $1.30. Before long, you will find many other companies using the Optus way to gouge you.

(A gouge is a chisel-like tool used to shave small amounts of wood, such as when used to make a shallow depression. Price gouging probably derives its meaning from this word. Currently a class action suit is brought against the 4 major banks in Australia for unlawfully charging bank customers for all kinds of reasons. Price gouging will continue to pop up now and then unless legislations are effective enough to stop it.)

Do foreign workers increase a country's wealth?

In the last few years the number of foreign workers in Malaysia has grown exponentially. These are mainly low income domestic helpers, restaurant workers, and field labourers. I wonder if the intake of foreign workers add or diminish wealth to a country. In theory, the use of lowly paid foreign workers is supposed to help free up the local population to do higher paid and more value added work. On the other hand, foreign workers are busy transferring their pay out of the country. Surely it would be better for money to re-circulate in the local economy by not having any foreign workers at all. Would Malaysia be better off having no foreign workers? I don't have an answer; I am still thinking through this.