Competition benefits all? The Proton's saga

This is not really about personal finance. Well, remotely may be, as it does affect the car prices.

Many think that competition is good for the economy. It weeds out inefficiency, delivers products utilising lesser resources and ultimately benefits both consumers and producers. This is true.

Competition weeds out less efficient manufacturers like Proton and many other Malaysia manufacturers. Ford, Toyota, Nissan, Honda and many other more efficient manufacturers will sweep the market with lower cost products giving the world consumers, including Malaysian better deals. The world economy will benefit from such competition. It leads to better utilization of world resources.

Being a Malaysian, living and working in Malaysia, I will not want my inefficiency to be wiped out by competition even though it benefits the world's economy. Competition benefits the economy as a whole (the world's economy). It gives world's consumers (including Malaysian, myself) cheaper cars. BUT simultaneously it wipes us, the less efficient manufacturers, out. It wipes out the inefficient part (the Malaysia economy) of the whole economy (the world economy). It wipes out our capability to earn!

Due to our relatively small population, Malaysia economy is packed with (relatively) inefficient producers. It is difficult for our producers to reach critical mass by merely selling to Malaysian! This is unlike U.S., Japan and China, where critical mass can be easily reach before going abroad. With free competition, our “less efficient economy” wrecked; the entire world economy benefited.

In text book, money and human capital flow within this borderless ENTIRE economy. In real life, human capital like us trapped in Malaysia. The moment our inefficient manufacturing industry go, go with our job, our capability to spend and to buy. Not all of us could find a job overseas. (Economics text book assume mobility of human capital within a discussed economy. The discussed economy is the world economy. In real life, the world economy is not borderless.)

Economics theory on competition is correct, but the truth is only to be found if it is applied in the right context. Many misunderstand the theory and think that such free competition benefits Malaysia. But NO. It benefits the world economy as a whole, but wrecks the Malaysia economy, a less efficient economy due to our relatively small population. The truth is, applying it correctly, the economics theory on competition actually tells us that we will be the one that lose out if we allow free competition.

With this, I take the stand that we must practice subtle and clever protectionism. Yes, protect Proton quietly. Stop importing Korean cars unless 40% local content requirements are met. For the prosperity of Malaysian economy and my job (well, sort of indirectly. My occupation is not related to manufacturing). And yes, I rather pay for a higher car price if this ensures my country's balance of payment and my job intact. More importantly, off course, Proton must improve.

The impact of change: from fixed rate to managed float (2)

The banking system in Malaysia is flooded with cash. The short term interest rate dipped!

The changes in the first few days under the new managed float regime was voletile. Overnight repo interest rates drop to approximately 2.00% - 2.10% from approximately 2.20% - 2.65%. Too much cash in the system, that will at least last for a short while I guess. Many have repatriated back their overseas money back to Ringgit Malaysia.

Interesting financial forum

You may find that a forum is useful for discussion of financial topics.

This is one of the interesting financial forum and portal around, Money Talk: with guides, directory and discussion forum.

For quick search on international financial services and products your may find these directories useful, Financial Step - Comprehensive Financial Services Web Directory, Financial5.com - the #1 financial directory, Shopping5.com for online shopping, LookDirectory.com and International Business Directory.

We have link exchange arrangement with the above web sites.

The impact of change: from fixed rate to managed float

How will the change from fixed to managed float exchange rate affect us?

Yes, we can anticipate a more vibrant stock market as it was back in pre 1997 asia financial crisis.

Theoretically,

1. It is almost certain that Malaysia economy will perform much better in the second half of this year and next. Hopefully we will all enjoy a good employment market. :-)
   
2. Stock market landscape changed with one single decision from BNM. It may be too early to predict, but I am now rather optimistic on the next one and a half year.
   
3. The most important things of all in an upswinging economy is that interest rate will, inevitably, rise. If you have a home loan with floating rate it MAY BE wise to get a loan with fixed rate.
   
4. Those with good memory may still remember that our interest rate was once above 11%, pre-1998. Insurance companies offer extremely good rates though with inflexible repayment period. (Most of the time, you cannot make an early repayment without suffering penalties. Depending on one financial position, inflexibility can create big opportunity loss.) An Islamic home loan with a good fixed rate may be a good solution.

Overall, it was a good move though unnecessary. (Why change if fixed rate works well? Just to please foriegn fund managers?) It caught everyone by surprise.

Most foreign fund managers and a number of local fund managers, who reacted fast on the liberalization of capital control to invest overseas, were caught at the wrong side of the fence. It saves our central bank's money, good for the country. But can you sense the bitterness of foreign media that there were so little news coverage as compared to their earlier loud noise on our fixed exchange rate regime?

More news on exchange rate

Looking back: Closing the last chapter of the financial crisis
Original text of the announcement from Bank Negara Malaysia
What is managed float?
Interview with Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz

From RM peg to managed float

It happened when it was least anticipated. Within hours China and Malaysia announced their moves to abandon their currencies peg to US dollar.

Theoretically it is arguable whether a small country like Malaysia will be better off with fixed or floating exchange rate, but what it will bring for sure is the vitality of our stock market. A bull run is long over due.

Insurance

We must understand what exactly insurance is for - it covers our financial losses arising from certain events. Nothing more.

And there are ONLY two kinds of financial losses
a. extra expenses, i.e. medical expenses, repairing expenses, etc.
b. loss of income, i.e. job loss, loss of income generating assets, etc.

No matter what names are given to an insurance product, it essentially covers our
a. extra expenses and/or
b. loss of income,
arising from certain unfavourable events.

So, the coverage of your child education fund of an Education Insurance covers loss of income, just like any other simple life insurance. A life insurance for SARS , covers your medical expenses and loss of income just like any other life insurance plus medical insurance.

With this in mind, it is easy to cut through the craps of insurance speeches.

Investment links? That is investment, don't mix it up with insurance needs.
Cash value? That is for savings, we can handle it ourself, don't mix it up with insurance needs.

A simple and basic life insurance will do the job of insuring our possible expenses and possible loss of income perfectly well.

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