1995Vol15no.8

???• • • Although initial salaries for some jobs may not have in creased as fast as prices, the escalation in salaries with a few years of experience could well more than compensate. The typical household, where the breadwinner(s) have been working for about five years would probably have enjoyed sufficient wage increases to be able to afford the higher prices of goods. On average, living standards have improved in Malaysia. That must indicate that salaries have, on average, increased faster than the higher cost of goods. SUPPLY AND DEMAND What is true on average is, of course, not necessarily true throughout. Some people may well find that their salaries are not increasing in line with in flation. Those with fixed wages and are not in a good position ver the last 20 years, inflation in Malaysia has aver to increase their salaries may aged 4.5 per cent annually, which on a compounded well find that their take-home basis means that on average, prices have increased packets buy them less because almost two and a half times during this period. On the sur of higher prices. Whether sala- face, this seems startling. But wages have also increased. Sala CONTINUED ries of people employed in various areas have in general also ON PAGE •.. doubled over the last 20 years. A/iran Monthly 1995: 15(8) Page 2 Is Zero Inflation Possible ? 2 Malaysia's Economic Progress 10 Acts Of God 19 A Friend Of The Batek 30 Bagan Backlash 40 Thinking Allowed 21 Published by Aliran Kesedaran Negara (ALI RAN) 12, Jalan Pantai Aziz Ibrahim, Letters 26 11900 Pulau Pi nang, .Malaysia. (Postal Address ; P 0 Box 1049, Current Concerns 34 10830 Pulau Pinang, Malaysia.) Tel/ Fax: 604 • 6415785 Subscription Form 18 Printed hy RP Printers Snd. Bhd. Appeal 25 66, 68 & 70 Jalan Air ltam 10460 Pulau Pinang, Malaysia. Tel : 604 . 365546 Aliran is a Malaysian non-governmental organisation listed on the roster of the Economic and Social Council of the United Nations. Guided by universal spiritual values, Aliran strives for genuine unity by promoting Layout and Graphic by Letter Styler Impression social justice and human dignity. Membership is open to 62, 1st Floor, Wisma Sa" Khaw Lean, Pengkalan Weld all Malaysians above 21. If you are interested in joining 10300 Pulau Pinang, Malaysia. Aliran, please contact the Hon Secretary at the address Tel : 604·2622377 FAX ; 60-1-2622376 shown in this page. A/iran Monthly /995: 15(8) Page 3 ries for a particular line of government, political leaders achieve. work keep up with inflation are naturally inclined to keep depends ultimately on supply overall inflation down to zero STRONG ECONOMY LEADS and demand. If the demand or thereabouts. TO INFLATION for the relevant skill is greater When the economy is doing than the supply, then salaries DEFLATION well, unemployment will be for that line of work rise. Even low. Difficulties in getting if the work is not particularly When rising prices have been workers will naturally result in skilful-e.g. putting together part of the economic experi firms raising the salaries or components on a factory line ence for so long, it might seem benefits they offer. Malaysians - forces of supply and de quite impossible to eradicate who get paid more will natu mand dictate wages. inflation. However, a priori, there is no reason why infla rally seek to increase their tion has to be above zero. One spending. Even those who be In some areas, however, the of the major economic pow lieve in saving will usually forces of supply and demand ers, Japan, is in fact facing spend some of their higher are prevented from working. deflation, a term economists salaries. If your salary has gone Most of those in the govern use to denote negative infla up RM500 a month, it is only ment service may not see their tion, i.e. declining prices. Be natural to think of spending salaries rise in line with sup cause the yen has risen by maybe RM200 to RM400 of ply and demand. Salaries are about 20 per cent in the last that, maybe for a better televi only increased at rare intervals one year, prices of imported sion, car, furniture or a house. at the discretion of the gov goods in Japan have fallen. ernment. Although supply and And with an economic slow Because of full employment demand could have some im down affecting general de and rising wages, spending pact on wages, it may well be mand, even domestic produc goes up. The increasing de minimal in such jobs. If teach ers are being forced to cut mand encourages companies to ers in government schools are their costs and thus their expand their operations. This not paid as much as those in prices in order to sustain de exacerbates the problem of a private schools, then some mand. shortage of workers and pushes may leave to join private in up salaries even more. Because stitutions. But not that many Japan's present economic con of higher wages and other ris teachers can get jobs in the ditions are certainly quite dif ing costs, manufacturers push private sector and so their ferent from Malaysia's today. up their own prices to protect salaries are not very much Our economic growth is ro their margins. The cycle rein determined by the laws of bust- at nine per cent, prob forces itself leading to an in economics. ably one of the strongest in the flationary spiral. world. And although the For those whose salaries do Ringgit has appreciated SAVINGS REDUCES not keep up with inflation, ris against some currencies, the INFLATION ing prices is a serious concern. scale of appreciation has been Because many of them are nowhere near that of the Yen. This simple explanation of how government servants and also In such circumstances, zero the inflationary cycle turns grassroots supporters of the inflation is quite difficult to need not always hold for rap- A/iran Monthly 1995: 15(8) Page 4 idly expanding economies. Ja keep their prices down will provements in quality are dif pan in the seventies and eight seek ways to cut costs to main ficult to quantify, many econo ies has been an example of a tain their profit margins. One mists will allow that price in country with fast economic way of cutting costs is provid creases of about one or two per growth but very low inflation. ing goods of lower quality. cent a year are in line with what The key factor is the compul The more the shops that are is necessary to compensate for sory savings required to pay cutting costs and reducing the improvements in the quality of for expensive housing. An quality of goods, the greater goods over time. This would other country that is similar is the incentive for a few shops mean that zero inflation is in Singapore, where the savings to emphasise that their goods effect paying less over time for rate is also very high as the are of superior quality thus goods on a quality-adjusted people have to put money justifying higher prices. Offi basis. The question then is aside for exorbitantly priced cial inflation figures may then whether a policy of zero infla apartments and cars. be kept low through the stat tion is necessary and worth the isticians compiling figures us effort. It is quite simply a psychologi ing the prices of "the average cal law that unless humans shop" without taking into ac INFLATION NOT have compelling reasons to count the quality of the goods ALWAYS BAD save, they will spend their measured and the prices in higher income. When wages other "premier" outlets. Zero inflation is not necessary if all wage earners get an an are generally rising because of nual increment in their salaries a shortage of labour, this leads ADJUSTING FOR of at least the inflation rate. If to inflation. One way of forc QUALITY IMPROVEMENT inflation is three per cent and ing savings is constraining the everyone's income rises three supply of housing and letting A major problem in keeping per cent a year, then no one is these prices skyrocket. One track of inflation is, indeed, worse off. Inflation may then would then have low inflation determining the price of be endemic, but it would not in terms of the prices of goods equivalent goods over time. A matter. It is, of course, impor but this is offset by higher ''as Proton today is a much im tant that those whose incomes set-inflation" viz escalating proved car compared to the are normally fixed, e.g. pen property prices. first Proton ten years ago. It would be a distortion to look sioners, should be getting in PRICE CHECKS just at the cost of the unit with creases in their income in line out taking into account the with inflation-and this is not Can the efforts of the govern improvement in quality. But impossible to arrange. ment to control inflation - quite often the quality im through spot checks on shops provement is difficult to quan Many people would think it and campaigns to encourage tify. How would one adjust for must surely be better if infla careful spending- work? To better air-conditioning sys tion is lower, no matter how some extent, they might. tems, a more silent engine or low it already is. This view, Some shops may feel duty enhanced road-holding? however, is mistaken because bound to keep prices down. it ignores the cost of bringing But shops which are forced to Even though many of the im- inflation down.

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