See yan the global economy in turbulent times (2015)

This is truly the work of a master, teacher, and mentor—to be read and enjoyed by students and policy makers alike.” Andrew Sheng, Chief Adviser to the China Banking Regulatory Commissio

Advance Praise

“Every country has its star institutional builders Tan Sri Lin is a truly brilliant tional builder and doer from his days as central banker, architect to the design and strengthening of Malaysia’s fi nancial system and advisor to all prime ministers His masterly analysis of domestic and global events show through in his clear writings

institu-in this book, passionately written with verve, practical to a fault, and wonderfully told—from the biggest picture to the smallest institutional detail Only one who has done it before fi rsthand knows how the system works, what to do, and how to fi x

it No Asian writer has his command and authority on emerging market economic development from the ground up This is truly the work of a master, teacher, and mentor—to be read and enjoyed by students and policy makers alike.”

Andrew Sheng, Chief Adviser to the China Banking Regulatory Commission and former Chairman, Securities & Futures Commission, Hong Kong

“The style of the writing in this book will allow even a person who is not edgeable in fi nance or economics to comprehend the subject and enjoy reading the book The topics covered are related to current issues and are l oaded with lessons and advice This book should be read by anyone wanting to make economic sense

knowl-of the happenings in the fi nancial markets and their effect on our lives.”

Tun Ahmad Sarji, Chairman, PNB (Permodalan Nasional Malaysia) and former Chief Secretary to the Government of Malaysia

“When it comes to economics, I am very much a layman That’s why I have turned

to my learned friend See-Yan’s fortnightly column, and they have enabled me to make sense of what is going on around me Now that they are compiled into a book,

I would recommend it to all laymen like me who want to understand the forces at play that make us go up or down economically.”

Tun Mohammed Hanif Omar, Deputy Chairman, Genting Group and former Inspector-General of Police, Malaysia

“Essays on global economic and fi nancial events are usually full of jargon that would put off most people after reading a few paragraphs See-Yan cleans up the jargon and makes the concepts more comprehensible Whether you are a student, aca- demic, corporate executive, public offi cial, or just a curious global citizen, See-Yan

Sidek Hassan, Chairman, PETRONAS (Petroliam Nasional Malaysia) and former Chief Secretary

to the Government of Malaysia

“Professor Lin’s depth of knowledge and breadth of new strategic ideas are drawn from his extensive research and illustrative insights into management and leader- ship from a deep variety and culture of model practices I would like to recommend

to locals, world readers, and professionals, both in the public and private sectors, especially the banking sector, to read this book for its superior insights and superior execution.”

Thong Yaw Hong, Co-Chairman, Public Bank Malaysia and Chairman, Prime Minister’s Economic Council

Working Group

“Tan Sri Lin’s essay collection covers one of the most epochal periods for both the global economy and Malaysia’s ongoing development journey This backdrop gives See-Yan a rich and dramatic canvas to apply his sharp mind and deep experience.

Dr Lin indeed lived and lit up for us such interesting times with much gusto and

in doing so brought the world to Malaysia and some of Malaysia to the world This book is an indispensable record and compendium of a pivotal period, from one of the granddaddies of economic analysis in our region.”

Azman Mokhtar, Managing Director, Khazanah Nasional (Sovereign Wealth Fund)

“See-Yan is a brilliant economist with a special knack for translating the complex into simple language His objective economic analysis and his insights have helped

us to better assess opportunities and anticipate challenges This compendium of his essays, written for the noneconomist, will prove useful for any business leader or professional who desires to be more aware of the economic forces shaping the world today, especially fast-paced Asia.”

Tan Chin Nam, entrepreneur and property developer, and Honorary Life President, IGB Corporation Malaysia

“Professor Lin’s insightful commentary will appeal to professors and students of nomics This highly readable book will serve as a useful reference for anyone seeking

eco-to understand economics from a global perspective Tan Sri Lin, an accomplished economist, takes a bold stand on the many economic issues that he vividly portrays

in the book His balanced narrative offers ample room for the reader to arrive at his own solution to the ills affl icting the global economy.”

Noor Azlan Ghazali, Vice Chancellor & Professor of Economics,

Universiti Kebangsaan Malaysia

“Having studied at Harvard University, and being part of the much decorated Bank Negara’s top management during a period in which Malaysia had to confront several tumultuous fi nancial turmoils, Lin See-Yan’s knowledge and experience shines in this gem The book is a synthesis of concepts and policies that blend with reality While students and academics of monetary economics will benefi t enormously from the breadth and depth of the analysis, it is a must-read for the nonspecialists as its presentation is simple, clear, and crisp.”

Rajah Rasiah, Rajawali Fellow, Ash Center, Harvard Kennedy School,

Harvard University and Professor of Economics and Technology Management, University of Malaya

“This book by one of Malaysia’s most distinguished economists should be read by all

in the Malaysian Economic Association and all academic staff for its deep analysis of how the country dealt with its macroeconomic policy at the most crucial moments.”

Sheriff Kassim, President, Malaysian Economic Association and former Secretary-General, Ministry of Finance, Malaysia

The Global Economy in

Turbulent Times

LIN SEE-YAN

Copyright © 2015 by John Wiley & Sons Singapore Pte Ltd.

Published by John Wiley & Sons Singapore Pte Ltd.

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All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appropriate photocopy fee to the Copyright Clearance Center Requests for permission should be addressed to the Publisher, John Wiley & Sons Singapore Pte Ltd., 1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628, tel: 65–6643–8000, fax: 65–6643–8008, e-mail: enquiry@wiley.com.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and

specifi cally disclaim any implied warranties of merchantability or fi tness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials The advice and strategies contained herein may not be suitable for your situation You should consult with a professional where appropriate Neither the publisher nor the author shall be liable for any damages arising herefrom.

Other Wiley Editorial Offi ces

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Wiley-VCH, Boschstrasse 12, D-69469 Weinheim, Germany

ISBN 978-1-119-05992-9 (Hardcover)

ISBN 978-1-119-05993-6 (ePDF)

ISBN 978-1-119-05994-3 (ePub)

Typeset in 10/12 pt, ITC Garamond Std Light by Aptara Inc., New Delhi, India

Printed in Singapore by C.O.S Printers Pte Ltd.

10 9 8 7 6 5 4 3 2 1

Hsiu-Yi Foong-Yi Diaan-Yi Jo-Yi

& Kevin & Tom & KY

And Ashley Xuan Zoe Qin

Joshua Di The Loves of My Life

Notes 14

Fragile Global Recovery 17

PME: A Bad Idea 18Not to Worry about Infl ation and High Debt 19

Notes 21

CHAPTER 4 G-20 Summit, Pittsburgh 2009: Has “It Worked”? 23

Notes 27

Notes 39

CHAPTER 7 G-20 Summit, Toronto 2010: Refl ects a Fragile Unity 41

Contents xi

Notes 45

Notes 51

CHAPTER 9 G-20 Summit, Seoul 2010: Much Ado about Nothing 53

The Seoul Development Consensus (SDC) for

MENA Jasmine Revolution 71

Japan’s Earthquake and Tsunami 72

Notes 88

Rich Poor World 92China 93

Notes 94

Contents xiii

CHAPTER 16 G-20 Summit, Los Cabos 2012 GJAP: More of the Same 95

Los Cabos GJAP 96

CHAPTER 19 2013: Breadth of Global Slowdown Disconcerting 113

The Risks 129

Notes 131

Savings 135

Thrift 137

Notes 139

Notes 146

Notes 150

CHAPTER 25 Commodity and Asset Prices Are Up;

Can Infl ation Be Far Behind? 151

Commodities 152Asset Bubbles 153

Contents xv

Infl ation and the Quantity Theory of Money 154

Notes 155

Notes 161

Notes 167

Notes 174

Notes 180

CHAPTER 30 “Risk-Off” Episodes 181

The IMF About-Face 190

Notes 191

CHAPTER 32 The World Economy: Growing Pains

Notes 197

Notes 203

Notes 229

Notes 236

CHAPTER 39 Life after Keynes with the Double-Dip 237

CHAPTER 41 An Inconvenient Truth: QE Withdrawal Syndrome 249

Contents xix

Notes 265

CHAPTER 44 Dark Clouds over Europe and the United States 269

The United States Slides 271

Notes 274

Notes 280

CHAPTER 46 Eurozone Growth Can’t Move beyond First Gear

Notes 284

Debt Jitters Spread 288The Risks 289

What, Then, Are We to Do? 291Notes 292

Political Solution: Slash and Burn Won’t Work 295

Notes 298

CHAPTER 51 Greece: More Aid Needed to Save

the Austerity-Fatigued 311Fleeting Relief 312

Contents xxi

Cyprus Euro Not the Euro 344

Notes 345

Takahashi‐nomics 369

Contents xxiii

Impact 373

CHAPTER 64 In Search of Gold at Bretton Woods:

Back to New England 392Bretton Woods Accord 392Back to Harvard 392Gold 393Goldbuggism 393

FLAWS IN THE INTERNATIONAL MONETARY SYSTEM

CHAPTER 65 What’s Wrong with the International Monetary System? 399

Notes 410

Notes 416

Contents xxv

Notes 440

CURRENCY WARS

CHAPTER 73 Currency Wars at a Time of Defi cient Demand 447

Notes 451

Note 463

Contents xxvii

TILL DEBT DO US PART

Notes 470

Notes 475

BANKING REFORM

Note 481

CHAPTER 80 Whatever Volcker Wants, Volcker Gets? 489

Notes 493

CHAPTER 81 “Too-Big-to-Fail” and the Volcker Rule

Notes 510

CHAPTER 83 Wall Street Stock Market Rigged: HFT “Cheetahs”

Notes 520

Notes 526

Perspective to Copenhagen 534Threats of Denial and Despair 534

“One Agreement, Two Steps” 536

Note 537

Demographic Imbalance 555

Notes 558

Contents xxxi

Note 569

Notes 576

CHAPTER 94 Rising Income Inequality and

the Piketty Blockbuster 577

Inequality versus Growth 578

Notes 580

Notes 586

Contents xxxiii

Notes 606

CHAPTER 99 The Future of University Education:

MALAYSIAN MACROECONOMICS UNRAVELED

Need for Stimuli 627

Notes 630

2SP 638Impact 639

CHAPTER 105 Price Fixing, Market Sharing, and

Education 651

Notes 664

Reform 676

Notes 678

INNOVATION AND PRODUCTIVITY

CHAPTER 113 Finance for Innovative Ventures: Broken Dreams? 691

CHAPTER 114 Venture Capital Initiatives to Boost Entrepreneurship 697

Crowdfunding 700

Contents xxxvii

Asia 705

The Paradox of Thrift 708

Notes 716

Downswing in Sync 717

What, Then, Are We to Do? 727

Contents xxxix

Struggling Again 781Moving Forward 782

Contents xli

Notes 810

Notes 816

Notes 828

CHAPTER 136 China: Much Ado about Nothing 835

Notes 839

Transformation 842Urbanization 843

Notes 852

CHAPTER 139 China: The Third Plenum Reforms Are Well

Note 858

CHAPTER 141 China: Rebalancing Growth with Reform and

Notes 878

CHAPTER 143 “A Passage to India”: The Outlook Remains Dire 879

Notes 884

PART XI CORPORATE GOVERNANCE AND MANAGEMENT 885

CHAPTER 144 On Corporate Governance and Doing It Right 887

Notes 891

CHAPTER 145 The CG Blueprint 2011:

“Let a Hundred Flowers Bloom” 893

Notes 903

Contents xlv

Notes 911

CHAPTER 148 On Global Gaming, Aussie$,

CHAPTER 151 2015: A Dismal World Where Oil and

Royal Prelude y

econo-mists I have long been an admirer of his career achievements and am

numerous readers will be delighted that these essays are now compiled into

a book These essays are characterized by a depth of analysis and breadth

of coverage that can only come from someone with a sound understanding

of the issues involved, and they are written in a style that is easy to read andcan be understood by a nonspecialist

Tan Sri Dr Lin, I am proud to say, is a Perak‐born, Harvard-educated economist He served for many years as a central banker at Malaysia’s BankNegara, where he ended up as deputy governor for 14 years Subsequently,

he became a commercial banker, fi nancier, and venture investor Malaysia isfortunate to have had, and continues to have, his services His perspectives

on macroeconomics, fi nance, and economic matters in general are, fore, no mere armchair cogitations but shaped in the crucible of real‐world experience In this, he differs from many others

there-The chapters in this book address many of the important global issues

of our time Anybody with even the slightest interest in current economicmatters and regional fi nancial affairs should own and read this book Youwill be richly rewarded You will not fi nd another book quite like it

Sultan Nazrin Shah Istana Iskandariah Kuala Kangsar Malaysia January 9, 2015

Foreword

economy—both national and global

We are living in turbulent times—both politically and economically Political turbulence affects the economy and economic turbulence affects politics The two cannot really be separated

I remember Tan Sri Lin’s contribution toward my thinking during the days when I was prime minister His analytical mind managed to see things

in depth and sharply It is an uncommon gift

I often read his essays in newspapers and magazines Now he has put all of these essays in a book for everyone to read and learn

I wish the leaders of Europe and America, as much as the leaders of Malaysia, would read what he has to say about the many wrong things that are happening to the world’s economy

I think many of us are in denial We refuse to see the reality that is clearly evident before us But reading the essays in this book might help us

to acknowledge the truth

I am no great believer of textbooks I read them but I prefer to do my own thinking This process is helped by reading some of the essays of See‐Yan

I recommend that this book be read by people entrusted with guiding and leading their societies and nations

Tun Dr Mahathir MohamadPrime Minister, Malaysia

1981–2003

1, Jalan P8H, Presint 8

62250, PutrajayaOctober 13, 2014

Preface

interconnected What happens in one part of the globe has ripple effects that affect every other part Even well‐informed citizens often still see eco-nomic changes as being largely shaped by the actions of politicians and businesses close to home Those who read through the 151 short chapters

in this book will have their perspective on world economic events and theimpact of those events on their own lives broadened greatly

These chapters were originally written as freestanding short essays in

Asia, but the breadth of coverage makes them relevant to anyone in the world who is interested in global economic affairs Many of the chapters deal explicitly with the global economy and the many high-level meetings, such as the G‐20, that attempt to construct a global response to emerging economic challenges A number of chapters are devoted to unraveling andexplaining the United States’ exposure to the recent Great Recession and the damage done by partisan politics Others go in depth into the problems of Europe, ranging from the Greek bankruptcy to the dangers of defl ation Still other chapters deal with Japan’s struggle through Abenomics to reverse the two decades of economic stagnation that resulted from the bursting Japa-nese stock market and real estate bubbles and the subsequent equivocating response of the Japanese government Many chapters deal with issues such

as the role of gold in the economic system and the effectiveness of the ternational monetary system There is highly informed analysis of the vari-ous fi nancial scandals that have erupted in recent years, such as the LIBOR scandal, and the fear felt by many of the expansion of shadow banking in many parts of the world

Not surprisingly, given that the chapters were originally written for a Southeast Asian audience, there are many chapters that analyze the issuesfacing Malaysia, Indonesia, Thailand, Vietnam, the Philippines, Myanmar, and the ASEAN region as a whole There are chapters on the economicchallenges facing China and India and others on the BRICS (Brazil, Russia,