Chancellor George Osborne during his visit to Ultra Electronics in Cheltenham. PRESS ASSOCIATION Photo. Picture date: Friday February 4, 2011. See PA story POLITICS Osborne. Photo credit should read: Ben Birchall/PA Wire hli Photograph: Ben Birchall/PA Chalk up Project Merlin as a comprehensive victory for the banks: call it 3-1 if one is being generous to George Osborne. On lending, tax and pay, the banks will feel no pain. The government's consolation is the extra £1bn of funding to the business growth fund: this would not have happened without a prod. On lending, the document talks not of targets but of "expectations and capacity". There is a "desire" to see net lending balances to UK businesses increase but "the actual outcome will be based on decisions by customers". In other words, the government is hoping the banks will be embarrassed if they fall short. But even Osborne should have realised by now that embarrassment does not come easily to banks.On tax, the banks will comply with "both the spirit and the letter of the law". One should hope so too. On pay, the shackles are off. Stephen Hester at Royal Bank of Scotland and Eric Daniels at Lloyds will have to accept a modest haircut this year (there's always next time, for Hester anyway) but the path is clear for Bob Diamond at Barclays and Stuart Gulliver at HSBC to scoop £9m apiece. The £9m men will be able to say the government approves. Meanwhile, the disclosure requirements will allow the rewards of the top traders – which may total more than £9m – to remain out of view. City investors (generally a supine bunch on pay matters anyway) will have little fresh ammunition to use to ask hard questions of remuneration committees. Yes, as the chancellor says, Britain will have a more transparent regime than other countries – but that's not saying much. The growth fund, which will provide equity capital to small companies, is welcome: there is a gap in the market that the venture capital industry has failed to fill. But even here there is an important rider: the banks' contribution is being increased because the fund's initial firepower was too feeble. Even another £1bn may not be enough. Why is Merlin, in aggregate, such a limp document? One reason is that the government got itself back-to-front. If it is serious about increasing lending to small business, it should have asked the big structural question: is a lack of competition strangling the flow of credit? RBS and Lloyds have 52% of the market for small business loans and Barclays and HSBC account for a further 33%. But the competition question has been farmed out to the independent commission on banking, which will not report until September. Similarly, the bonus issue is wrapped up in questions about the backstop provided by taxpayers to the banks. Getting the banks to stand up for themselves (or provide ways to make it safe for failing banks to fail) is another matter for the commission. Osborne said today that Merlin would not affect the government's response to the commission's recommendations. In other words, the chancellor is holding open the possibility that structural reform of the banking industry could follow. Well, let's see. The banks won the minor skirmish over Merlin hands down and would redouble their lobbying efforts if a break-up is contemplated. On current form, few would back Osborne to win a rematch.
Project Merlin' bank deal unveiled
By Alex Stevenson Bank lending to small- and medium-sized enterprises will increase by 15% this year, chancellor George Osborne has announced. The news comes as the culmination of weeks of behind-the-scenes negotiations between the government and the banks. Shadow chancellor Ed Balls said the talks had come up with "precious little" and called the outcome "pitiful". Under the terms of the deal agreed with HSBC, Lloyds, RBS and Barclays, lending to SMEs will increase from £69 billion to £79 billion. They will provide £1.2 billion of funding for the regional growth fund and an extra £200 million to help finance the Big Society bank. On bonuses, the executives of RBS and Lloyds will be forced to accept payments in shares and will have to wait until 2013 to convert them into cash. Pay details of the board and the top five highest-paid executives not on the board will also be required, creating what Mr Osborne called the "toughest and most transparent pay regime of any major financial centre in the world". He added: "Banks will lend more money, especially to small businesses, pay more taxes, pay less bonuses, be more transparent about the bonuses they do pay and make a greater contribution to our regional economy and society. "In return let us create a banking industry that creates jobs for hundreds of thousands of our citizens. Above all, let us ensure that the economic catastrophe which befell this country will never be repeated." Mr Balls responded by saying Project Merlin, the name for the secret talks, had turned into the "Wizard of Oz". "For the chancellor who talked so tough in opposition and who even yesterday continued to promise much, this is a pitiful outcome and a... climbdown," he added. The announcement comes hot on the heels of yesterday's surprise announcement from No 11 that the Treasury was raiding the City for an extra £800 million. The phasing-in of its bank levy was abandoned after banks showed greater profitability this year, Mr Osborne said yesterday. The Treasury will receive £2.5 billion from the levy in 2011, instead of the expected £1.7 billion, as a result. Total bonuses will be lower than last year. Mr Osborne said the City's pay packages were "completely out of kilter with what the rest of society would regard as either fair or reasonable" but later insisted that "Britain needs to move from retribution to recovery". Full proposals for changing the system of financial services regulation will be published next week, the chancellor told MPs. The Bank of England will be handed powers of prudential regulation, while a new authority will be created "to protect the interests of bank customers".
PETALING JAYA (Feb 9, 2011): Equal opportunities for all Malaysians should be made into law, and not merely reflected through the forming of a commission.
"We should have more than just an Equal Opportunities Commission (EOC). We should have a law to say that we all have equal chances," Malaysian Institute of Corporate Governance president Tan Sri Megat Najmuddin Megat Khas said.
He said that a law should be in place so all economic activities should reflect the racial composition of the nation at all levels.
Megat Najmuddin was commenting on claims by the National Economic Advisory Council (NEAC) member Datuk Dr Zainal Aznam Mohd Yusof on Tuesday that the government caved in to pressure groups and removed the EOC from the New Economic Model (NEM).
Zainal had alleged that Perkasa and other right wing groups were totally against Part One of the NEM, which contained the EOC proposal dropping the 30% bumiputra equity ownership.
He was "unhappy" with the final version of NEM and charged that the government had no political will for change.
However, yesterday in theSun, Perkasa president Datuk Ibrahim Ali denied pressuring the government on the NEM proposals, but said the group merely submitted their own recommendations which focused on retaining the 30% bumiputra equity.
While agreeing with Zainal on the fact that the EOC proposal should not have been dropped, Megat Najmuddin said the government should focus on developing sustainable economic policies.
"If you want 1Malaysia and equal opportunity, it should also be in terms of education such as the vernacular and national schools. It should reflect the racial composition. People should think and act as one, otherwise 1Malaysia will merely be a slogan," he said. He also said politicians should stop politicising everything.
Megat Najmuddin said the government should have a clear agenda before forming commissions and committees and it should not "flip-flop" in its decisions.
"It looks bad (on the government) if you change your mind after facing political pressures," he explained. Malay Chamber of Commerce president Syed Ali Alattas said the chamber strongly supported the NEM but was not very concerned about the 30% equity matter.
"There is nothing to be upset about whether or not the 30% bumiputra equity is retained because we have not reached that target anyway.
"If we have reached the 30% target and it was removed, then we have something to be very upset about. "Don’t blame anybody else. We should ask ourselves why we haven’t reached that target," he said after a press conference today.
Syed Ali said the NEM has one main agenda, namely, to improve the livelihood of the bottom 40% of the population.
"What I am angry about is not the talk about removing bumiputra equity but the fact that we have not done enough to improve the bumiputra stake in the country’s economic pie," he said, adding that all parties should work together with the government to achieve the target of a high-income nation.
The protests in Egypt and elsewhere in the Arab world are a wake-up call for governments to look at themselves, identify weaknesses and check excesses.
MALAYSIA may have seen its share of street protests since independence, but it’s safe to say that this is still a country where a people’s power-style power grab is highly unlikely to happen.
As such, Prime Minister Datuk Seri Najib Tun Razak’s warning last week that the Government would not allow attempts using mass protests to usurp power in Malaysia was a tad surprising.
Among other things he mentioned at the national-level Chinese New Year open house at Miri City Fan Square was that the people had the freedom to choose the government, and that peace, equality, and unity must be paramount.
But as expected, his remarks, probably in response to unfair comparisons being made between Egypt and Malaysia, were quickly interpreted as a threat by the Government to use the Internal Security Act and other draconian laws.
Yes, there are indeed lessons to be learned from the new age of dissent and unrest taking place in Egypt and other parts of the Arab world where people are finally demanding political rights and genuine democracy.
It should rightly be seen a wake-up call for governments everywhere to take another look at themselves, identify their weaknesses and check their excesses.
Are they going forward by providing better governance, greater transparency and accountability or still indulging in political shenanigans and condoning corruption or abuses of power?
Are their policies tuned to garner political support or geared to meet the needs of the country in an ever-changing, highly competitive world?
Can their young people get decent jobs when they leave school or university with the kind of education they have had?
In Egypt, where the population grew 2.5 times over the last two decades to reach 80 million currently, about 40% live around the internationally-accepted poverty line of US$2 (RM6) a day.
Under President Hosni Mubarak’s 30-year autocratic rule, Egypt moved from being a state-controlled economy to one that attracted foreign investment.
But corruption remained rampant, making the well-connected extremely rich.
All through this time, Mubarak kept the country a virtual police state under emergency laws, giving the government sweeping powers of arrest and detention.
Arbitrary arrests, abuses by police, and even torture of political dissidents were common.
The US turned a blind eye to Mubarak’s human rights violations because he was its key ally and safeguard against known and perceived Islamist enemies in the region.
Still, the country’s economy grew by an annual average of 7% for three years until the global financial meltdown in 2008 saw it going down to 5%.
The majority of Egyptians bore the brunt of higher food and fuel prices. The poor got poorer and hungrier. As the anger and resentment grew, Mubarak’s government failed to either connect with the rapidly growing socially-networked urban working class or provide jobs to the large numbers of university graduates being churned out.
But if inequality and the gap between the have and have-nots are the main reasons for the protests in Egypt and the other Arab countries, these are not problems that are exclusive to the region.
The Gini Coefficient (or Gini index) is the core means by which economists measure income inequality, using the comparative ratio between the share of income levels and the cumulative share of income earned by a percentage of the population.
Under the index, invented by Italian statistician Corrado Gini, lower scores denote better equality. So the higher a country scores on the Gini index, the more unequal its society’s distribution of income.
The latest figures show Sweden has the lowest Gini coefficient at 23, Namibia the highest at 70.7, while Egypt’s is 34.4, which is comparatively better than that of many Asean countries, including Malaysia and Singapore.
Our index is at 46.1, Thailand’s at 43, the Philippines’ at 45.8, Laos’ at 34, Vietnam’s at 34.6, Cambodia’s at 43, Indonesia’s at 39.4 and Singapore’s at 48.1. There is no figure for Myanmar.
For the record, the US’ index is at 45, and it is ranked 42nd in the 134-country list while Malaysia is ranked 36th and Egypt 90th.
Would we have fared better without illicit financial outflows from the country over recent years?
The Washington-based financial watchdog Global Financial Integrity found that Malaysia’s outflows tripled from US$22.2bil (RM67.5bil) in 2002 to an astounding US$68.2bil (RM207.3bil) in 2008.
It was fifth in a list of 10 Asian countries, registering the highest illicit financial outflows in the last decade. China topped the list with an illicit outflow of US$2.18 trillion (RM6.6 trillion) followed by Russia with US$427bil (RM1.3 trillion), the Philippines with US$109.3bil (RM332.2bil), and Indonesia and India, both with US$104bil (RM315.8bil).
Going back to the protests in Egypt, perhaps there is one immediate thing that Malaysians can surely learn from Tahrir or Liberation Square: religious unity.
The country’s majority Muslims and minority Coptic Christians came together as Egyptians first, just as they did during the protests against British colonial rule in 1919.
Christians may only comprise about eight million or 10% of the population but they were united with their Muslim brothers, protecting each other during both protests and prayers.
According to an AP report, one priest gave a sermon on Sunday during which he said, “In the name of Jesus and Muhammad we unify our ranks… We will keep protesting until the fall of the tyranny.”
Christian and Muslim leaders issued a joint statement affirming that the revolution of Egyptian youth had instilled a new spirit of national unity, especially in the wake of tensions and fears of sectarian war following the bombing of churches during the New Year.
There were also placards reading “Muslims + Christians = Egypt”, complete with the crescent moon and cross symbols.
Will there be a time when we see such signs or speeches of religious tolerance and unity here?
Associate Editor M. Veera Pandiyan likes this quote from Nobel Peace Prize winner Elie Wiesel: There may be times when we are powerless to prevent injustice, but there must never be a time when we fail to protest
Suppression taking its toll
Brave New World By Azmi Sharom
Tweet Ruling with an iron fist may work as long as a country is relatively prosperous, but if good governance, accountability and fairness are gone it will only be too easy for poor decision-making and corruption to come in.
I WAS, to use that wonderfully Malaysian term, outstation, last week. The hotel I stayed in did not have any Malaysian channels on its telly, so all I had to watch was CNN, BBC and Al Jazeera.
For the entire week I was there, it seemed that the only news in the world were the protests in Egypt. Oh, and Fernando Torres joining Chelsea.
Watching the Tunisian-inspired protests on Tahrir square convinced me even more about the importance of democracy.
Egypt has been ruled by Hosni Mubarak for 30-odd years. In that time, political dissent had been quashed, elections rigged and democracy sidelined in favour of so-called stability.
This may work as long as a country is relatively prosperous.However, in general, a lack of democratic principles will only lead to poor governance.
With the elements of good governance; transparency, accountability and fairness gone, it is only too easy for poor decision-making and corruption to take root. Not exactly the right ingredients for prosperity.
Egypt has been mismanaged to the extent that 40% of its people live below the World Bank poverty line. Food is expensive; Egypt has to import a large amount of its grains from abroad and is far from self-sufficient. Amid this suffering, the people see a group of politicians entrenched as leaders and who are tremendously wealthy to boot.
Without the usual organs of a democratic state there is little chance for the citizenry to ensure changes of government and to see justice being done when there is corruption or incompetence or both. This lack of empowerment will lead to frustration.
Such frustration can of course be suppressed by an iron fist; in the case of Egypt, the Mukhabarat or secret police. However, such suppression can only last so long.
We have seen it before in Indonesia, in the Philippines, and currently in Egypt and all over the Middle East. When the pressure gets too much, people will revolt. In this part of the world democracy is often portrayed as the opposite of order.
If people are free to speak their minds, if governments are tied to laws that limit their power, we are told that this would lead to chaos and a government too weak to take actions that it thinks are necessary for the good of the nation.
The term that used to describe this philosophy was “Asian Values”. It is as though we Asians do not “value” our human rights and our civil liberties and the inherent dignity that comes with the power to freely choose who leads us.
It is all of course a great fallacy to think that we simple Asians want to be led by the nose by our glorious leaders.
Just as it is a fallacy to believe that without a true democratic system; a system that will keep government in check, dispense justice fairly and transparently, and empowering the people to have a voice in their own destiny; somehow peace and stability will be ensured.
Egypt, along with numerous other nations, has proven this to be not true.
Dr Azmi Sharom is a law teacher. The views expressed here are entirely his own.
Much has been written in business management textbooks and self-help guides about the role that personal charisma plays in leadership. But according to a newly published study co-authored by Levine, a University of Tennessee, Knoxville, communications studies professor, until recently no one was able to describe and measure charisma in a systematic way.
Levine said the large amount of academic literature on charismatic leadership never defined what it means to actually communicate charismatically.
"There's this illusion that we know what charismatic communication means, but in the research I reviewed, no one had ever really looked at that," he said.
Levine and his co-authors, Robert Muenchen of the UT Statistical Consulting Center and Abby Brooks of Georgia Southern University, surveyed university students and asked them to define charisma and pinpoint the behaviors of people they thought were charismatic.
"Everyone has a leadership capacity in something," Levine said. "But we found that if you want people to perceive you as charismatic, you need to display attributes such as empathy, good listening skills, eye contact, enthusiasm, self-confidence and skillful speaking," he said. Those are the attributes social scientists can measure to more fully understand charismatic communication.
Levine says the most surprising result was that the students felt that charisma was not just something you are born with, but something you can learn. "We asked the question 'What is charisma?' and their answers tended to start with 'the ability to…' Well, abilities are believed to be acquired attributes rather than inbred traits, so a lot of people believe that charisma can be learned."
Levine says the research makes the case for incorporating these concepts to better measure the level of charisma of individual leaders.
CHICAGO – At the height of the financial crisis, the Queen of England asked my friends at the London School of Economics a simple question, but one for which there is no easy answer: Why did academic economists fail to foresee the crisis?
Several responses to that query exist. One is that economists lacked models that could account for the behavior that led to the crisis. Another is that economists were blinkered by an ideology according to which a free and unfettered market could do no wrong. Finally, an answer that is gaining ground is that the system bribed economists to stay silent.
In my view, the truth lies elsewhere.
It is not true that we academics did not have useful models to explain what happened. If you believe that the crisis was caused by a shortage of liquidity, we had plenty of models analyzing liquidity shortages and their effects on financial institutions. If you believe that the blame lies with greedy bankers and unthinking investors, lulled by the promise of a government bailout, or with a market driven crazy by irrational exuberance, we had studied all this too, in great detail.
Economists even analyzed the political economy of regulation and deregulation, so we could have understood why some US politicians pushed the private sector into financing affordable housing, while others deregulated private finance. Yet, somehow, we did not bring all this understanding to bear and collectively shout our warnings.
Perhaps the reason was ideology: we were too wedded to the idea that markets are efficient, market participants are rational, and high prices are justified by economic fundamentals. But some of this criticism of “market fundamentalism” reflects a misunderstanding. The dominant “efficient markets theory” says only that markets reflect what is publicly known, and that it is hard to make money off markets consistently – something verified by the hit that most investor portfolios took in the crisis. The theory does not say that markets cannot plummet if the news is bad, or if investors become risk-averse.
Critics argue that the fundamentals were deteriorating in plain sight, and that the market (and economists) ignored it. But hindsight distorts analysis. We cannot point to a lonely Cassandra like Robert Shiller of Yale University, who regularly argued that house prices were unsustainable, as proof that the truth was ignored. There are always naysayers, and they are often wrong. There were many more economists who believed that house prices, though high, were unlikely to fall across the board.
Of course, these expectations could have been distorted by ideology – it is hard to get into the past minds of economists. But there is a better reason to be skeptical of explanations relying on ideology. As a group, neither behavioral economists, who think that market efficiency is a joke, nor progressive economists, who distrust free markets, predicted the crisis.
Could it be corruption? Some academic economists consult for banks or rating agencies, give speeches to investor conferences, serve as expert witnesses, and carry out sponsored research. It would be natural to suspect us of bias. The bias could be implicit: our worldview is shaped by what our friends in industry believe. Or it may be an explicit bias: an economist might write a report that is influenced by what a sponsor wants to hear, or give testimony that is purely mercenary.
There are enough instances of possible bias that the issue cannot be ignored. One remedy would be to ban all interaction between economists and the corporate world. But if economists were confined to the ivory tower, we might be unbiased, but we would also be ignorant of practicalities – and thus even less capable of predicting problems. One way to restore trust may be disclosure – for economists to declare a monetary interest in a particular analysis and, more generally, to explain who pays us. A number of universities are moving in this direction.
But I believe that corruption is not the main reason that the profession missed the crisis. Most economists have very little interaction with the corporate world, and these “unbiased” economists were no better at forecasting the crisis.
I would argue that three factors largely explain our collective failure: specialization, the difficulty of forecasting, and the disengagement of much of the profession from the real world.
Like medicine, economics has become highly compartmentalized – macroeconomists typically do not pay attention to what financial economists or real-estate economists study, and vice versa. Yet, to see the crisis coming would have required someone who knew about each of these areas – just as it takes a good general practitioner to recognize an exotic disease. Because the profession rewards only careful, well-supported, but necessarily narrow analysis, few economists try to span sub-fields.
Even if they did, they would shy away from forecasting. The main advantage that academic economists have over professional forecasters may be their greater awareness of established relationships between factors. What is hardest to forecast, though, are turning points – when the old relationships break down. While there may be some factors that signal turning points – a run-up in short-term leverage and asset prices, for example, often presages a bust – they are not infallible predictors of trouble to come.
The meager professional rewards for breadth, coupled with the inaccuracy and reputational risk associated with forecasting, leads to disengagement for most academics. And it may well be that academic economists have little to say about short-term economic movements, so that forecasting, with all its errors, is best left to professional forecasters.
The danger is that disengagement from short-term developments leads academic economists to ignore medium-term trends that they can address. If so, the true reason why academics missed the crisis could be far more mundane than inadequate models, ideological blindness, or corruption, and thus far more worrisome; many simply were not paying attention!
Raghuram Rajan is Professor of Finance at the Booth School of Business, University of Chicago, and author of Fault Lines: How Hidden Fractures Still Threaten the World Economy.
Chancellor George Osborne during his visit to Ultra Electronics in Cheltenham. PRESS ASSOCIATION Photo. Picture date: Friday February 4, 2011. See PA story POLITICS Osborne. Photo credit should read: Ben Birchall/PA Wire hli Photograph: Ben Birchall/PA Chalk up Project Merlin as a comprehensive victory for the banks: call it 3-1 if one is being generous to George Osborne. On lending, tax and pay, the banks will feel no pain. The government's consolation is the extra £1bn of funding to the business growth fund: this would not have happened without a prod. On lending, the document talks not of targets but of "expectations and capacity". There is a "desire" to see net lending balances to UK businesses increase but "the actual outcome will be based on decisions by customers". In other words, the government is hoping the banks will be embarrassed if they fall short. But even Osborne should have realised by now that embarrassment does not come easily to banks.On tax, the banks will comply with "both the spirit and the letter of the law". One should hope so too. On pay, the shackles are off. Stephen Hester at Royal Bank of Scotland and Eric Daniels at Lloyds will have to accept a modest haircut this year (there's always next time, for Hester anyway) but the path is clear for Bob Diamond at Barclays and Stuart Gulliver at HSBC to scoop £9m apiece. The £9m men will be able to say the government approves. Meanwhile, the disclosure requirements will allow the rewards of the top traders – which may total more than £9m – to remain out of view. City investors (generally a supine bunch on pay matters anyway) will have little fresh ammunition to use to ask hard questions of remuneration committees. Yes, as the chancellor says, Britain will have a more transparent regime than other countries – but that's not saying much. The growth fund, which will provide equity capital to small companies, is welcome: there is a gap in the market that the venture capital industry has failed to fill. But even here there is an important rider: the banks' contribution is being increased because the fund's initial firepower was too feeble. Even another £1bn may not be enough. Why is Merlin, in aggregate, such a limp document? One reason is that the government got itself back-to-front. If it is serious about increasing lending to small business, it should have asked the big structural question: is a lack of competition strangling the flow of credit? RBS and Lloyds have 52% of the market for small business loans and Barclays and HSBC account for a further 33%. But the competition question has been farmed out to the independent commission on banking, which will not report until September. Similarly, the bonus issue is wrapped up in questions about the backstop provided by taxpayers to the banks. Getting the banks to stand up for themselves (or provide ways to make it safe for failing banks to fail) is another matter for the commission. Osborne said today that Merlin would not affect the government's response to the commission's recommendations. In other words, the chancellor is holding open the possibility that structural reform of the banking industry could follow. Well, let's see. The banks won the minor skirmish over Merlin hands down and would redouble their lobbying efforts if a break-up is contemplated. On current form, few would back Osborne to win a rematch. 
