Malaysia world's No.1 highest civil servants-to-population ratio! Its tenure of service legally vulnerable but notoriously difficult to dismiss!

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Safeguards for public servants

REFLECTING ON THE LAW By SHAD SALEEM FARUQI

The legal position of public servants regarding security of tenure of service is quite vulnerable, but in reality, action against delinquent public servants is notoriously difficult to sustain.

MODERN society is held together by services provided by officials of the state. The public service is the pivot around which the administration of the contemporary state revolves. Every country’s economic, social and educational policies are ultimately dependent on the quality and commitment of its public officials.

Article 132(1) of the Federal Constitution defines “public services” to include the armed forces, the judicial and legal service, the general public service of the Federation, the police force, the joint federal-state public service, the public service of each state and the education service.

Employees of statutory bodies, public companies, universities, or any other body or authority established under federal or state law, are not public servants for the purpose of the Constitution.

In relation to public services, a number of basic rules apply.

No security of tenure: All public servants hold office “during the pleasure” of the Yang di-Pertuan Agong or Ruler or Governor. Posts may be abolished. A ministry or service may be closed down or privatised. Parliament may refuse to allocate funds for a service.

Terms of service: The terms of service of a public servant may be altered without his consent despite a written contract of employment. Post-entry requirements like language proficiency, in-house training courses or the need to pass an examination may be imposed.

Pensions: Article 147 protects pensions, gratuities and other allowances for members of the public service, their widows, children, dependants or personal representatives.

However, these are not absolute rights. The Yang di-Pertuan Agong may reduce or withhold pension if he is satisfied that the public servant is guilty of negligence, irregularity or misconduct.

Right to equality: Under Article 8(1) of the Federal Constitution there is a constitutional right to equality before the law and equal protection of the law. Thus, no gender, religious or unreasonable discrimination can be practised at the time of the application or during the period of service.

Regrettably, Article 8’s equality requirement does not apply in the private sector or to Government-linked companies.

Racial quotas: In Malaysia, the issue of race discrimination is complicated. A little known constitutional article – Article 136 – states that all persons of whatever race in the same grade in the service of the Federation shall be treated impartially.

Difficult issues arise because Article 136 has to be read along with Article 153 which permits reservations and quotas in favour of Malays and the natives of Sabah and Sarawak.

Tun Suffian has suggested that the two articles must be read harmoniously. At entry point, Article 153 permits reservations. Once in service the equality rule in Article 136 should apply to matters of promotion, rewards etc.

Arrears: A civil servant can sue the Government for recovery of arrears or for any other breach of the law of contract.

Tortious claims: In Malaysia, the Government is not above the law. Subject to some exceptions, a civil servant can sue the Government for damages in torts if the Government or a public authority has caused him loss.

Safeguard of Article 135(1): Though civil servants have no security of tenure, they can be removed only after prescribed procedures. Article 135(1) states that no member of the public services (except a member of the armed force) may be dismissed or reduced in rank by an authority subordinate to that which had the power to appoint him.

Natural justice: Under Article 135(2) no public servant may be dismissed or reduced in rank without being given a “reasonable opportunity of being heard”.

The terms “reasonable opportunity of being heard” have generated a wealth of case law. “Hearing” means that the officer concerned should be given a proper and prior notice of the allegations against him. The notice must be adequate in terms and in time.

Subject to some exceptions, the accused should have a full and fair opportunity of stating his case in reply.

He should be supplied with all evidence, information and documents made known to the adjudicator. He should have a right to present witnesses and exculpatory evidence and to cross-examine witnesses on the other side.

Exceptions: The safeguards of Article 135(2) do not apply in some situations such as:

> The laudatory and constitutionalised rule of natural justice does not apply to forms of removal that do not amount to “dismissal” or “reduction in rank”.

For example, “dismissal” is distinguishable from “contractual termination”, “termination in public interest” or “compulsory retirement”.

A reversion to the former post does not amount to reduction in rank provided the public servant was not already confirmed in his new post.

> “The right to be heard” does not imply the right to be heard orally. Hearing can be oral or by way of written representation.

> Members of the armed forces are not entitled to a hearing.

> There is no need to give a hearinIn reality there are many other ways of dealing with errant civil servants. Some of these ways do not attract the pristine safeguards of Article 135. For example:

> Even prior to a finding of guilt, an officer can be interdicted (ordered not to report for work) on full pay or half pay.

> In several circumstances, an officer can be suspended on no pay.

> Termination under the contract of employment need not be preceded by prior hearing.

> In some circumstances public servants can be prematurely and compulsorily retired. They recieve pension but lose their job.

The overall picture is that the legal position of public servants is quite vulnerable. In reality, however, action against delinquent public servants is notoriously difficult to sustain.

Many wrongdoers rely on technical or procedural flaws to obtain judicial review and escape accountability.
Enforcing quality and commitment in public services is not easy and require leadership of the highest order.

> Shad Saleem Faruqi is Emeritus Professor of Law at UiTM and Visiting Professor at USM

Every 3 taxpayers supports 2 civil servants in Malaysia
 

“The highest ratio of civil servants in the world”!
Most bloated civil service 

* With 1.3 million civil servants to a population of 26 million, Malaysia has one of the highest civil servants-to-population ratio in the world by the Organisation for Economic Cooperation and Development standards.

* In 2009, Malaysia’s civil servants-to-population ratio was the highest in Asia Pacific. The ratio was 4.68 per cent, compared to Singapore’s 1.5 per cent, Indonesia’s 1.79 per cent, Korea’s 1.85 per cent and Thailand’s 2.06 per cent all of which have less than half our ratio.

Subject: Civil Servants in Malaysia...Alarming Figures 1. Number of civil servants in Malaysia   2000   -  894,788   2008  -  1.2M   2011  -  1.3M+  During 2000 to 2008, increase of 300,000 or each year 38,151 or each day 104. 2 . Money spent on salary / remuneration   2005  -  RM25.6Billion   2008  -  RM41.0Billion (or from each tax payer RM22,800)   An increase of a whopping 60% during 3 years only. If it is private company, sure "bungkus"!   3. Population that pays tax  1.8M     Number of civil servants   1.2M Meaning every 1.5 tax payer support 1 civil servant.   4.  Population Vs number of civil servant.  (I believe should be one of the highest in the world)

COUNTRY	%
Malaysia	4.68
Thailand	2.06
Korea	1.86
Philippine	1.81
Indonesia	1.79
Laos	1.24
Cambodia	1.18

The best civil servants in the world-MALAYSIA BOLEH

Best bloated civil service

    * With 1.3 million civil servants to a population of 26 million, Malaysia has one of the highest civil servants-to-population ratio in the world by the Organisation for Economic Cooperation and Development standards.

    * In 2009, Malaysia’s civil servants-to-population ratio was the highest in Asia Pacific. The ratio was 4.68 per cent, compared to Singapore’s 1.5 per cent, Indonesia’s 1.79 per cent, Korea’s 1.85 per cent and Thailand’s 2.06 per cent all of which have less than half our ratio.

Best way to bleed a budget dry

    * Much of the budget (2011) continues to go into operating a bloated civil service. As much as three quarters of the national budget is spent on paying salaries and other benefits to over 1.3 million civil servants.

    * A post-2011 Budget dialogue highlighted the massive amount (35 per cent of the total RM162.8 billion operating expenditure) to be spent on emoluments, pensions and gratuities of civil servants. A panelist, Ministry of Finance budget division director Datuk Dr Rahmat Bivi Yusuff admitted that there is a need to trim the civil service to reduce the budget deficit.

Best way to bankrupt this nation

    * Whilst it is the growing trend of many countries to reduce their civil service, the PM’s Department in particular, has done the opposite. It more than doubled its number of civil servants from 21,000 to 43,554 this year. In stark contrast, the White House employs only 1,888 staff.

    * The White House budget is US$394 million for 2011. The PM’s Department has been allocated a whopping RM18.14 billion for the year 2011, almost double the RM10.2 billion 2010.

    * Pemandu, which stands for Performance, Management and Delivery Unit, was set up last year under the Najib administration as one of the pillars in his Government Transformation Plan… is a massive drain on resources. In a span of two months the government spent RM20 million just to pay 50 consultants,.

Best contradiction of 1Malaysia

    * As at 31 December 2009, the racial breakdown of the Malaysian civil service comprising 1,247,894 employees was as follows: Malay (78.2 per cent); Other Bumiputras (7.7 per cent); Chinese (5.8 per cent), Indian (4.0 per cent); and Others (4.2 per cent).

    * “This is the worst multi-racial composition of the government service, with the lowest Chinese and Indian representation in the public service in Malaysia’s 53-year history. This is clearly seen from the three sets of comparative figures of the racial breakdown of the civil service before the NEP (1971) and as compared to Dec. 2009 – Malays (60.80 per cent and 78.2 per cent); Chinese (20.2% and 5.8 per cent); Indians (17.4 per cent and 4.0 per cent); and Others (1.6 per cent and 4.2 per cent).

Best in corruption

    * Last year two out of five civil servants were deemed corrupt by Cuepacs. It was described as a worrying trend that needed to be tackled urgently.

    * Cuepacs President Omar Osman revealed that a total of 418,200 or 41 per cent of the 1.2 million civil servants in the country were suspected to be involved in corruption last year (Bernama, 2 June 2010).

Best “dumping ground”

Mohd Ariff Sabri Abdul Aziz, a former state assembly member of Pahang who is a member of Umno and who uses the pen-name Sakmongkol AK47, in his blog entry wrote: “Government service shouldn’t be treated as a dumping ground for academic rejects and mediocre material. Let’s demand a certain high standard and ensure we bring in talent that supports the demand for high standards.

“What has the government done to improve the efficiency and competence of government servants? There isn’t really competition there if the service is dominated by one race. There isn’t sufficient quality if the entry-level qualifications are so-so.

“Yet each year, to placate civil servants, the PM will appear on TV to say, we honour our civil servants because they have done a good job, blah blah. Which is not entirely true. The service is slow, the quality of officers is questionable.”

But Umno likes Muhyiddin’s make-believe. The next General Elections must be close at hand. Civil servants are made to believe that Umno is their (political) paymaster and they owe it to Umno. The party’s leaders would do or say anything to convince the government servant of this, even praising them as “the best civil servants in the world”!

 Related post: 

Bloated civil sevice in Malaysia must cut down the size and salaries

The Malaysian government can make further spending cuts if it reduces the size of its “bloated” civil service, an economist said. File pictu... 

 

 
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Occupy Wall Street booming, now Occupy London Stock Exchange!

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Occupy Wall Street booming after one month
 AFP 
 
The month-old Occupy Wall Street movement is enjoying new momentum, with nearly $US300,000 ($A296,369) in the bank and the satisfaction of drawing global attention to what it sees as major economic inequalities.

UN Secretary-General Ban Ki-moon expressed sympathy with the protesters, and even protest-averse China said some issues raised are worth considering.
 
From a few dozen people camping out in a small Manhattan park near the rising World Trade Centre complex, the movement swelled to hundreds of thousands of people rallying around the world this weekend and numerous encampments springing up in cities large and small.



Hundreds of protesters on Monday mingled with bemused bank workers in a new tent camp outside London's St Paul's Cathedral. But in Seattle, police arrested people who wouldn't move their tents from a park.

The UN leader said the finance chiefs from the Group of 20 rich and developing nations, now meeting in Paris, should listen to the demonstrators. "Business as usual, or just looking at their own internal economic issues, will not give any answers to a very serious international economic crisis," Ban said.

"That is what you are seeing all around the world, starting from Wall Street, people are showing their frustrations, are trying to send a very clear and unambiguous message around the world."

The Wall Street protesters still haven't settled on a specific demand but are intent on building on momentum gained from Saturday's worldwide demonstrations, which drew hundreds of thousands of people, mostly in the US and Europe.

President Barack Obama referred to the protests during Sunday's dedication of a monument for Martin Luther King Jr, saying the civil rights leader "would want us to challenge the excesses of Wall Street without demonising those who work there".

The largest of Saturday's protests were in Europe, linking up with long-running demonstrations against government austerity measures. In Rome, hundreds of rioters infiltrated a march by tens of thousands of demonstrators, causing what the mayor estimated was at least 1 million euros ($A1.36 million) in damage. Hundreds of thousands turned out in peaceful protests across the continent, including in Spain, Germany, Switzerland, Britain, Austria and France.

Around the US, more than 350 people were arrested in a half-dozen cities during protests. On Monday, prosecutors dropped charges against civil rights activist Cornel West and 18 others who were arrested while protesting on the steps of the US Supreme Court in Washington.

Interest in the demonstrations over economic inequality even reached China, where online calls for similar protests did not appear to elicit any responses.

"We feel that there are issues here that are worth pondering," said Liu Weimin, a foreign ministry spokesman during a regular briefing in Beijing on Monday.

In New York, $US300,000 in cash has been donated through the movement's website and by visitors to the park, said Bill Dobbs, a press liaison for Occupy Wall Street.

Donated goods range from blankets and sleeping bags to cans of food and medical and hygienic supplies. Among the items are 20 pairs of swimming goggles, to shield protesters from pepper-spray attacks.

Supporters are shipping about 300 boxes a day, many with notes and letters, said Justin Strekal, a college student and political organiser who travelled from Cleveland to New York to help.

"Some are heartwrenching, beautiful," and come from people who have lost jobs and houses, he said. "So they send what they can, even if it's small."
© 2011 AFP

Occupy London Stock Exchange continues

Updated: 2011-10-17 16:17.By Liu Wei (chinadaily.com.cn)

Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn]

Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn] Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn] Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn] Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn] Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn] Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn] Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn] Occupy London Stock Exchange, a demonstration inspired by the Occupy Wall Street movement to protest against the wealth inequality and financial crisis, continues as more people join in and set up their tents within the vicinity of the St Paul's Cathedral. Picture taken on Oct 16, 2011 [Liu Wei/chinadaily.com.cn] Newscribe : get free news in real time Related post: The Law of Disruption Occupies Wall Street

The Law of Disruption Occupies Wall Street

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Larry Downes Forbes Contributor
I cover the Internet industry

From Tea Party activists to Wall Street occupiers; from the Middle East to Europe and back.  We’re seeing passionate and sometimes violent reactions to the slow pace of institutional change.

Citizens are calling foul on political and social institutions that no longer reflect their values, using technologies, tools, and devices invented in the last decade to organize, coordinate, and speak.

Video: Occupy Wall Street: Voice of the Protesters
 
Around the world, protesters are writing their manifestos on WordPress, arranging marches using Facebook, and chanting on Twitter.  Their weapons of choice are smartphone apps, mobile broadband, and social networks.  (In most cases, it’s well worth noting, these technologies were designed for entirely different purposes, or perhaps with no particular purpose in mind.)

Technology is not only the agent of change; it is also the catalyst.  Indeed, I see all of these movements as fallout from what I coined The Law of Disruption, a principle of modern life that becomes more determinative as new technologies enter the social bloodstream ever faster.  Even though I’ve been writing this column for several months, I’ve never explained what the Law of Disruption is.  Now seems like a good time to correct that failure.

The Law of Disruption can be stated simply:  Social, political, and economic systems change incrementally, but technology changes exponentially. In the widening gap between the potential change technology makes possible and the actual change existing institutions achieve, the likelihood of surprising, radical, and unintended shifts is fast increasing.



Borrowing a term from venture investing, in 1998 I called these surprises “killer apps,” a phrase I intended to be provocative.  If existing institutions didn’t learn to move faster, to adapt more quickly, to make more creative use of new technology, they stood to be victims.  Not so much of start-up businesses but of the technology itself, operating through entrepreneurs.

It was like the old joke about the two campers who hear a bear rummaging around outside their tent at night.  “Why are you putting your shoes on?” the one camper asks the other.  “You can’t outrun a bear.”  “I don’t have to outrun the bear,” the other camper replies.  “I just have to outrun you.”

After a decade of operating principally on business and economic system, the Law is now shifting its focus to law and government.  To see what’s coming in the next decade, it’s useful to begin with a review of what’s already happened in the last one.

The Persistence of “Normal Science”

The Law of Disruption (c. 1998)

Video: Occupy Wall Street: Voice of the Protesters

I first described the Law of Disruption in my 1998 book “Unleashing the Killer App.”  Reviewing dozens of early Internet start-ups who were wreaking havoc on the business models and supply chains of established “brick-and-mortar” industries, I realized that what drove the innovators most was not so much their big ideas or even their youth.  It was the accelerating pace of technological change.

The acceleration was in turn a function of Moore’s Law—Intel founder Gordon Moore’s 1965 prediction that computer power would double every 12-18 months even as price held constant.  Later work suggests Moore’s Law applies equally to other key drivers of the Internet revolution, including communications speeds and data storage.  Together, the relentless push toward the faster, cheaper, and smaller computing made change possible at an exponential pace.

So why, I wondered, did actual change occur so much more slowly?  And why, in particular, were the most entrenched institutions—including government and business—the least able to take advantage of the revolutionary potential of new technologies?

The answer, oddly enough, came from MIT historian Thomas Kuhn.  Just a few years before Gordon Moore’s first articulation of Moore’s Law, Kuhn published the first edition of his seminal work, “The Structure of Scientific Revolutions.”

Looking over the history of major changes in scientific thinking—what Kuhn coined “paradigm shifts”—it became clear that there was a pattern of resistance, counter-revolution, and finally, acceptance.

Kuhn uses the example of Copernican astronomy, which Galileo proved with his new telescope.  Astronomers (and others, including the Vatican) had a vested interest in a view of the solar system in which all solar bodies including the Sun revolved around the Earth.   Galileo’s evidence to the contrary needed to be explained away, even when doing so required revisions to the old model that eventually made it look absurd.

Scientists who had been trained as students in a particular dogma for their field—the paradigm—could not be expected to embrace a radically different paradigm even as evidence mounted of a model that better approximated reality.

That’s because what scientists are trained to do is not to think big thoughts so much as to refine the dominant paradigm—what Kuhn called “normal science.”  Look at professional journals for physicists, economists, biologists and other sciences, and you’ll quickly realize that most academic research reflects normal science—small experiments, gaps in the literature, tiny adjustments to an existing model of how some aspect of the world works.

In fact, Kuhn goes on, a true paradigm shift tends to take at least twenty years to become the new normal, even after the evidence has become overwhelming.  Why twenty years?  That’s the amount of time, Kuhn concluded, for the existing generation of practicing scientists to retire or die off.

The current generation, in other words, never make the shift to the new paradigm; it’s only when the next generation takes over the field that the old paradigm—encoded in textbooks, maps, experiments and training materials–can be discarded.

Looking at business and government reaction to technological revolutions, particularly in information technology, I came to the conclusion that Kuhn’s work had broader application than just the sciences.  CEOs, legislators, judges—all are likewise trained in the dominant paradigm of their age (increasingly at graduate business and law schools).

Like scientists, they spend their careers in the “normal science” of working within the paradigm to achieve modest improvements and relative efficiencies.  A few more percentages of market share, more focused incentives and penalties, clearer statements of rules—these are the normal science of social institutions.

The Computing Revolution’s True Nature

When revolutionary change occurs, social institutions likewise resist, struggling mightily to explain away a new reality in the language of the old way of doing things.  Take information technology.  Business computing began in 1955 with the sale of the first Univac for commercial use—a payroll system for General Electric.

Following that model, computers were long seen as tools for automating existing business practices, offering improved efficiency but not competitive advantage.  (See the wonderful commercial for Univac below.)

Video: Occupy Wall Street: Voice of the Protesters

In the 1970’s, mainframe computers running back office accounting and manufacturing applications became a cost of doing business, a source of productivity improvement but one that was largely competed away to cost improvements enjoyed by customers.  No one saw computers as revolutionary tools for redefining customer interactions—at least, no one inside large corporations.

But something unexpected happened.  Personal computers moved from the bottom of the food chain to the front line of experimentation, pulling the information it wanted rather than pushing it back up for consolidation and summarization.  Spreadsheets and other “what if” tools became the transitional killer apps, putting computing power in the hands of users to do with what they wanted, not what they were told.

Then followed the explosive growth of the Internet, a non-proprietary data communications protocol that took full advantage of Moore’s Law.  Initially, it was ignored by business and policy leaders alike.

IT departments, well-drilled in “normal science” of incremental improvements and low-risk investing, dismissed it through the early 1990’s as an academic or at best scientific computing tool, not fit for high-volume, high-reliability transaction processing. Technically, they were right.  TCP/IP offered an inferior networking standard compared to proprietary architectures including IBM’s SNA and Digital’s DECnet.

That, of course, assumed that the purpose of computing was to codify and automate existing hierarchies and one-way communications.  As with all revolutions, the true potential of Moore’s Law wasn’t realized until a new generation of entrepreneurs, venture investors, engineers and–perhaps the first time—users began to experiment with the Internet, not as a tool for automation but as a technology first and foremost of collaboration.

The Internet, and the devices and applications that sprang up to take advantage of it, allowed for a remarkable range of new kinds of interactions in every conceivable supply chain—whether that meant product design and customer service, government transparency and accountability, or new forms of family and personal relationships embodied in social networks.

Once those new interactions were discovered, they moved quickly from the frontier back to mainstream life.  Customers now demanded access to business information.  And more, they demanded the right to express their views on how products and services performed—and how they ought to be improved.
Values of social, ecological, and open access were articulated.  Markets emerged to supply these and other aspirations; markets that might never have taken shape without disruptive technologies to help define new demands.

Shift Happened

Since the publication of “Unleashing the Killer App,” the revolutionary nature of Moore’s Law has only become more pronounced.  In good economies and bad, booming and busting stock markets, through political upheaval and social change, computing continues to drive deeper into human experience, enabling change even as it redefines the nature of interactivity.

Along the way, many paradigms have been challenged, with predictable responses from those most closely tied to their propagation.  In business, I observed CEOs frustrated both by the ability of start-ups to capture the imagination and loyalty of new customers and their own paralysis to respond, let alone initiate.  Not surprising, that frustration was particularly acute in industries that had long been stabilized by regulation (airlines, communications, utilities, financial services) or cartel (lawyers, doctors, and other professional service providers).

Video: Occupy Wall Street: Voice of the Protesters

Even when industries were granted dramatic deregulatory freedom, the old paradigm persisted.  Ironically, one of the toughest obstacles to change were existing computer systems, which had embodied obsolete business practices and information flows in inflexible software code that no one was brave enough to hack.

In my role as shaman of the killer app religion, senior executives regularly confessed to me that they simply couldn’t change their way of looking at the business.  In the end, faced with the inevitability of disruptive change, they wanted simply to last long enough to retire and let the next generation figure out what to do.   (My advice to those executives was to retire as soon as possible, which some of them, to their credit, actually did, although never soon enough.)

Traditional businesses had many valuable assets that could be leveraged in competition with the start-ups.  That was the good news.  The bad news was that the valuable assets weren’t the physical ones that determined success in the industrial age.  Few business leaders were willing to accept that the trucks, printing presses, retail locations and other physical plant that dominated the balance sheet had become liabilities overnight.

But online commerce turned the value proposition upside down.  Shopping at home was more convenient than any retail experience, especially in an era where low unemployment translated to incompetent customer service at the point of sale.  Information goods—including news, entertainment, and money, for starters—could begin and end life as bits, traveling cheaply and instantly over phone lines.

The real value for the incumbents was trapped in what I called the “hidden balance sheet”–the transaction data, expertise, and relationships carelessly filed away in the aptly-named data warehouse.  Intelligence about customers and suppliers, deep industry expertise, and brands to which only lip service was paid were the truly valuable assets of the brick-and-mortars.

Few businesses found them in time.  Biting at the heels of every slow-moving Blockbuster was a reckless Netflix, able to cancel out the advantage (if any) of an existing customer base with the decreasing cost of new user acquisition made possible by viral marketing and cheap broadband.  And customer loyalty proved chimerical, especially when businesses tried to secure that loyalty through closed systems and product lock-in.

Either way, in some industries more than others, the paradigm shift occurred, leaving the existing participants at best reconfigured and at worst out of business.

Often, the process took a long time, but the result was never in much doubt.  When Amazon first launched in 1994, it referred to itself audaciously as the “World’s Largest Bookstore.”  Barnes & Noble sued on the ground that calling itself a “store” was false advertising, because it had no retail outlets.

That, of course, was the point of e-commerce.  But Barnes & Noble and other book retailers (like retailers in other categories) were more comfortable suing to protect the old paradigm than to find ways of leveraging their existing assets to compete in a new reality.

Here the law proved a valuable ally, to slow if not to stop the disruption.  Copyright, patent, antitrust, and other bodies of industrial law were called to duty, applied not to their traditional problems but to stop technological progress itself, by any means necessary.  Napster, MP3.com, and even Microsoft were stalled or destroyed.  But YouTube, iTunes, and Google were waiting in the wings.  Technology, as always, adapted faster than law.

Now, less than twenty years later (take that, Kuhn!), the book business has changed utterly, leaving many casualties.  Traditional publishers are still struggling to find their place in the new order, and continue to resist the move from physical to electronic—first of the distribution of books, and now the books themselves.

How do online sales fit in the making of a bestseller list?  How should e-books be priced so as not to cannibalize hardcovers?  You can hear the old heliocentric astronomers at work, tugging at their beards as they fretfully erase and redraw the orbits of the planets to avoid the reality.  There’s a new center of the universe, and it ain’t the Earth.

But, at the same time, what has emerged is a far more convenient and cost-effective experience for customers.  Both my oldest and youngest friend have each adapted quickly to the Kindle’s winning combination of low cost, light weight, readable text, and virtual library available through the Internet.  Sentiment and status attached to the physical book—an artifact of history where books were scarce and literacy a sign of wealth—are fading fast.

Amazon, meanwhile, hacked its own systems, and allowed itself to be taken by the tidal wave of change to wherever Moore’s Law led it.  The company morphed quickly from selling books in a new way to selling everything in a new way, and from there to recognizing itself as a platform—as software—that could be leveraged not just to other merchandise but to other merchants.

The company now offers cloud computing services, extending the platform beyond merchandising to any complex set of interactions.  With the breathtaking success of the Kindle and its successor products, the company has taken the next step in its accelerating evolution, becoming a platform not just for other product categories and other businesses but also for its customers.

The Policy of Disruption

Since 2007, I have been increasingly focused on applying the Law of Disruption to regulation and policy.  Business, for better or worse, is well along on the path to change.  Law is not.  Last year, I published “The Laws of Disruption,” looking at the ten most intense legal battles at the border of traditional existence and digital life.  These included privacy, copyright, antitrust, crime, patents, infrastructure and human rights.

Video: Occupy Wall Street: Voice of the Protesters

Fights over how to rewrite these sinking bodies of industrial law for our increasingly virtual lives have only intensified in the last two years, and in many ways are converging to a general revolution.

Grumblings over one-sided terms of service, limits on remixing content, government surveillance and excessive patent protections have sharpened into movements and advocacy, including Creative Commons, the Electronic Frontier Foundation, and TechFreedom, a new policy think tank aimed at limiting all forms of regulatory interference with innovation.  (I work with TechFreedom as an adjunct fellow.)

Despite what existing governments may think, anarchy is not the only alternative to their continued monopoly.  Rather, the revolutionaries–sometimes groping, sometimes articulately—are striving for a new social contract, one based on the unique social and economic properties of information.

The problem with existing law is baked right into the founding of the modern state.  Democratic systems of government, after all, are designed to change slowly and deliberately, through separation of powers and checks and balances that ensure the passions of the day are tempered with wisdom before significant change occurs.

The business of government is truly normal science—a good day in Washington is a day in which absolutely nothing happens.  And for the most part, when it comes to the regulation of innovation, doing nothing is the best way to help.

Governments do best when they establish a healthy environment for entrepreneurs—avoiding taxation of emerging industries, establishing markets that function with minimal transaction costs, incentivizing long-term research and investment and encouraging self-regulation of dynamic industries.

Safe harbors, including a provision of U.S. law that protects online publishers from lawsuits over third party content, establish clear (or clearer) boundaries for acceptable behavior, reducing the risk of failure for new ventures.  A provision of California law that refuses to enforce most non-compete clauses allows talent to flow where it needs to go without undue friction, perhaps a key (but largely unsung) factor in the success of Silicon Valley over other high-tech geographies.

Governments do their worst when they try to intervene and micromanage fast-changing realities, especially when those realities are being shaped by technologies over which they have no experience or expertise.  For then they are fighting the Law of Disruption, asking technology to change at the pace of the modern bureaucratic state.  It’s a doomed combination, like keeping one foot on the dock and the other in a speedboat.

In the last few years, I’ve participated in dozens of hearings and meetings on Capitol Hill to talk about regulating “the Internet.”  There’s a bizarre and worrisome ritual at these meetings.  Elected officials begin the conversation by confessing they’ve never used the products and services they proceed to praise or condemn.  They feel obliged to act, they say, because they know their children are using them all the time.  Why do they take such pride in their ignorance?  And what are they really worried about?

The result isn’t surprising.  The last decade in particular is littered with failed efforts to “solve” problems of on-line life that regulators didn’t define or even understand in the first place.  At the federal, state, and international level, we have a body of worthless law aimed poorly at a range of early artifacts, including spam, spyware, identity theft, privacy, pornography, gambling, intellectual property, bullying, net neutrality.

Many of these issues turned quickly into other issues; some were solved by new technology, or by joint actions of users and providers.  Some got worse.

In every case, new laws and new regulations did nothing to help.  But they are hardly inert.  Laws and rules are fixed in time in ways that technology is not.  So even the best-intended laws can and increasingly do have unintended consequences later on, often exacerbating the very problem they intended to solve.

ECPA, a 1986 law on electronic surveillance, has never been updated, leaving most data stored in the cloud seizable without a warrant by law enforcement agents.  A statute aimed at protecting government computers from hackers has been warped to impose criminal sanctions for violating the terms of service of social networking sites.  Expect more, not fewer, of these perversions.

The Revolution Will be Tweeted

As growing resistance to today’s political institutions suggests, governments have yet to embrace the reality of technology-driven paradigm shifts.  Citizens and consumers alike are making their own rules, writing their own laws, and drafting their own constitutions for digital life.  Some are working constructively on the new; others are more focused on dismantling what they don’t like.
Elected officials would be wise to heed the lessons of history:  Don’t obsess over the speck of dust in your neighbor’s eye, when you have a log in your own.  Give evolving forms of governance the benefit of the doubt.  Embrace the change and the technology that’s causing it.  Or retire, quickly.

Video: Occupy Wall Street: Voice of the Protesters

As economic, social, and political life migrates to the Internet, governments increasingly feel the gravitational pull to follow.  And there is a role for government in the information economy.

As our digital paradigm evolves, we’ll need wise leaders and sound law to preserve the order of digital society.  The sooner policymakers learn to stop fighting Moore’s Law and leverage their true assets, the more likely existing institutions of governance will find a meaningful place in the new reality.

That, in any case, is the common theme of the revolts and protests happening around the world this year.  Though they have different origins and different grievances, each manifests the Law of Disruption in its frustration with incremental change and unintended consequences.

The stakes are higher now than they were when I first coined the Law of Disruption.  In politics, unlike business, violent revolution is always a last resort for the wielders of killer apps.  That’s a feature we need to avoid as much as possible.

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"Occupy Wall Street": Lessons From and For the Class Struggle, Tahrir Square to Times Square in Over 1,500 Cities Worldwide!

"Occupy Wall Street": Lessons From and For the Class Struggle, Tahrir Square to Times Square in Over 1,500 Cities Worldwide!

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by Art Carden Forbes

A consensus has emerged that there really isn’t a consensus view among the Occupy Wall Street crowd and its assorted offshoots. Occupy Wall Street represents a motley collection of the disaffected and disenchanted from across the political spectrum that is more than just a left-wing version of the Tea Party. From the coverage I’ve seen, the Occupiers make some important points about the apparently never-ending wars and distributive politics favoring the few at the expense of the many. They would do well to take a handful of lessons to heart so that they can channel their frustrations in a productive direction.

16 images Gallery: Occupy Wall Street Marches On Billionaire Homes

15 images Gallery: Occupy Wall Street

First, wealth is not prima facie evidence that wrong has been done. When it is allowed to work free from interference, commerce is a positive-sum game.  Look at some of the names on the Forbes 400. The Gateses and Waltons of the world didn’t get rich by stealing. They got rich by finding newer and better ways to make other people’s lives better—in short, by creating wealth. This isn’t to lionize the wealthy: no doubt, you will find skeletons in every closet and dirt under every rug if you look hard enough. By and large, though, it has been access to the institutions of commercial society rather than access to the institutions of political society that explains some of the vast fortunes about which so many of the Occupiers are so upset.

This raises a second important point originally made by Nobel Laureate Robert Lucas: economic growth, not redistribution, is what raises people out of poverty. If we’re serious about alleviating suffering, eating the rich is a spectacularly unwise course of action. As Lucas writes:

Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution. In this very minute, a child is being born to an American family and another child, equally valued by God, is being born to a family in India. The resources of all kinds that will be at the disposal of this new American will be on the order of 15 times the resources available to his Indian brother. This seems to us a terrible wrong, justifying direct corrective action, and perhaps some actions of this kind can and should be taken. But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.

Third, a little consistency is in order if we’re going to talk about bailouts. So, for that matter, is a little frankness. Steven Horwitz points out the inconsistency in decrying bank bailouts for agitating for relief from the burden of student loans: “To complain about bank bailouts while also arguing, as some have, for student-loan debt forgiveness would suggest the problem is not that government shouldn’t bail out failed investments, only that it shouldn’t bail out failed investments by corporations.”



A lot of people are learning that describing their spending on higher education as “failed investments” is probably to err on the side of charitable interpretation. It might be more reasonable to say that attending an expensive school to earn a boutique degree with limited employment possibilities is consumption, not investment.

As Horwitz also notes, this should also make us reflect a bit on what it means to give “power to the people.” Suppose you have spent several years picking up a degree in a field where there are no jobs, and you find that the concatenation of the people’s voluntary choices in the marketplace means that your most attractive opportunities involve waiting tables or making lattes.

Why should you be upset? I modify here something that I first read on Duke University economist and political scientist Michael Munger’s blog. “Power to the people” is apparently all good and well until “the people” start making the wrong decisions. In that case, power will accrue to those who know what is really best for “the people.” There might be dissenters, sure, but you can’t make an omelet without breaking a few eggs.

Fourth, as Sheldon Richman explains, “Wall Street Couldn’t Have Done It Alone.” Malfeasance was enabled or encouraged by government. In his book The Housing Boom and Bust (which I review here) Thomas Sowell explains how today’s cause for protest and outrage–banks making loans people didn’t understand to help them buy houses they couldn’t afford–was yesterday’s policy objective.

While a lot of people envision a model of politics as a form of noble savagery that is corrupted by evil people who stubbornly refuse to play the game the “right” way, the kinds of intrigue that have the Occupiers (and the Tea Partiers) so exercised are (to borrow from Steven Horwitz again) features of political society, not bugs. As the economist Gordon Tullock has argued, what should puzzle us is not that politicians are for sale. What should puzzle us is that the supply side of the market for political favors is so competitive that favors can be had for such low prices.

In light of economic conditions, it isn’t surprising that people are angry. It’s important, though, that they be angry about the right things. Blaming “greed” is unhelpful; as economist Lawrence H. White has written, blaming “greed” for economic malaise is like blaming gravity for plane crashes. Reality is much more complex, and simple rage, no matter how well organized, isn’t likely to do us much good.

OccupyWallStreet

The resistance continues at Liberty Square

From Tahrir Square to Times Square: Protests Erupt in Over 1,500 Cities Worldwide

Posted Oct. 16, 2011, 1:08 a.m. EST by OccupyWallSt
Tens of Thousands in Streets of Times Square, NY

Tens of Thousands Flood the Streets of Global Financial Centers, Capitol Cities and Small Towns to "Occupy Together" Against Wall Street Mid-Town Manhattan Jammed as Marches Converge in Times Square

New York, NY -- After triumphing in a standoff with the city over the continued protest of Wall Street at Liberty Square in Manhattan's financial district, the Occupy Wall Street movement has spread world wide today with demonstrations in over 1,500 cities globally and over 100 US cities from coast to coast. In New York, thousands marched in various protests by trade unions, students, environmentalists, and community groups. As occupiers flocked to Washington Square Park, two dozen participants were arrested at a nearby Citibank while attempting to withdraw their accounts from the global banking giant.

"I am occupying Wall Street because it is my future, my generations' future, that is at stake," said Linnea Palmer Paton, 23, a student at New York University. "Inspired by the peaceful occupation of Tahrir Square in Cairo, tonight we are are coming together in Times Square to show the world that the power of the people is an unstoppable force of global change. Today, we are fighting back against the dictators of our country - the Wall Street banks - and we are winning."

New Yorkers congregated in assemblies organized by borough, and then flooded the subway system en mass to join the movement in Manhattan. A group calling itself Todo Boricua Para Wall Street marched as a Puerto Rican contingent of several hundred playing traditional music and waving the Lares flag, a symbol of resistance to colonial Spain. "Puerto Ricans are the 99% and we will continue to join our brothers and sisters in occupying Wall Street," said David Galarza Santa, a trade unionist from Sunset Park, Brooklyn. "We are here to stand with all Latinos, who are being scapegoated by the 1%, while it is the bankers who have caused this crisis and the banks who are breaking the law."

While the spotlight is on New York, "occupy" actions are also happening all across the Midwestern and the Southern United States, from Ashland, Kentucky to Dallas, Texas to Ketchum, Idaho. Four hundred Iowans marched in Des Moines, Iowa Saturday as part of the day of action:

"People are suffering here in Iowa. Family farmers are struggling, students face mounting debt and fewer good jobs, and household incomes are plummeting," said Judy Lonning a 69-year-old retired public school teacher. "We're not willing to keep suffering for Wall Street's sins. People here are waking up and realizing that we can't just go to the ballot box. We're building a movement to make our leaders listen."

Protests filled streets of financial districts from Berlin, to Athens, Auckland to Mumbai, Tokyo to Seoul. In the UK over 3,000 people attempted to occupy the London Stock Exchange. "The financial system benefits a handful of banks at the expense of everyday people," said Spyro Van Leemnen, a 27-year old public relations agent in London and a core member of the demonstrators. "The same people who are responsible for the recession are getting away with massive bonuses. This is fundamentally unfair and undemocratic."

In South Africa, about 80 people gathered at the Johannesburg Securities Exchange, Talk Radio 702 reported. Protests continued despite police efforts to declare the gathering illegal. In Taiwan, organizers drew several hundred demonstrators, who mostly sat quietly outside the Taipei World Financial Center, known as Taipei 101.

600 people have begun an occupation of Confederation Park in Ottawa, Canada today to join the global day of action. "I am here today to stand with Indigenous Peoples around the world who are resisting this corrupt global banking system that puts profits before human rights," said Ben Powless, Mohawk citizen and indigenous youth leader. "Native Peoples are the 99%, and we've been resisting the 1% since 1492. We're marching today for self- determination and dignity against a system that has robbed our lands, poisoned our waters, and oppressed our people for generations. Today we join with those in New York and around the world to say, No More!"

In Australia, about 800 people gathered in Sydney's central business district, carrying cardboard banners and chanting "Human need, not corporate greed." Protesters will camp indefinitely "to organize, discuss and build a movement for a different world, not run by the super-rich 1%," according to a statement on the Occupy Sydney website.

The movement's success is due in part to the use of online technologies and international social networking. The rapid spread of the protests is a grassroots response to the overwhelming inequalities perpetuated by the global financial system and transnational banks. More actions are expected in the coming weeks, and the Occupation of Liberty Square in Manhattan will continue indefinitely.

Occupy Wall Street is a people powered movement that began on September 17, 2011 in Liberty Square in Manhattan’s Financial District, and has spread to over 100 cities in the United States and actions in over 1,500 cities globally. #OWS is fighting back against the corrosive power of major banks and multinational corporations over the democratic process, and the role of Wall Street in creating an economic collapse that has caused the greatest recession in generations.The movement is inspired by popular uprisings in Egypt, Tunisia, Spain, Greece, Italy and the UK, and aims to expose how the richest 1% of people who are writing the rules of the global economy are imposing an agenda of neoliberalism and economic inequality that is foreclosing our future.

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• Wall Street protest grows to "occupy" Washington against corporate greed

Changing the international monetary system

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THINK ASIAN By ANDREW SHENG

ON Oct 5, 2011, the Triffin International Conference celebrated the 100th year of birth of Robert Triffin, a Belgian economist who was trained in Harvard, worked in the US Fed, taught in Yale and then returned to Europe to help work on European monetary integration.

He was of course famous for the Triffin Dilemma, defined as the inconsistency between the domestic needs of the reserve currency country and the external needs of the world that uses the reserve currency. Put in another way, Triffin identified that the reserve currency country would have to run a current account deficit in order to provide the world with greater liquidity.

Over the long term, running cumulative current account deficits becomes a large debt overhang that is called the Global Imbalance.

Triffin wrote about the Dilemma in the late 1960s, when the United States was struggling whether to maintain its peg to gold, which it abandoned in 1971. This removed the anchor of the Bretton Woods system of fixed exchange rates, which had been in existence since 1947.

The succeeding Bretton Woods II, or non-system as some critics call it, has become a system of flexible exchange rates, plagued by financial crises every decade in the 1980s (Latin America), 1990s (Mexico and East Asia), 2007-9 (US subprime) and today, the European debt crisis.

Today, there is sufficient awareness that the shift from a unipolar world to a multipolar global financial system carries with it great risks and unknowns. The unipolar world of dominance by the US dollar had a lot of advantages, as long as the US remained the unchallenged hegemonic power. The US dollar became not only the standard unit of account for global trade, but also the deepest and most liquid market and an important store of value.

The price of oil, gold and other important commodities are all measured in US dollars. The US Treasuries market is the most liquid and efficient clearing system, which is one fundamental reason why the dollar remains superior to the euro, which does not have a single eurobond market, being divided into different national (German, French, etc) bond markets.



According to the BIS (Bank for International Settlements) April 2010 survey data, the US dollar today still accounts for 85% of global foreign exchange trading, compared with 39% for the euro, 19% for yen and 13% for sterling (because FX transactions are paired, total turnover sums up to 200%). By contrast, the Hong Kong dollar accounts for only 2.4% and the yuan 0.9% of turnover.

Because of its dominance in international trade and payments, the US dollar still accounts for nearly two thirds of total foreign exchange reserves. China alone reputedly holds roughly US$2 trillion in US dollar assets in the foreign exchange reserves and holdings by Chinese banks and state-owned enterprises.

In 2009, People's Bank of China Governor Zhou Xiaochuan called for the use of the SDRs (International Monetary Fund's Special Drawing Rights) as a possible global reserve currency. The logic for a globally issued reserve currency as opposed to a nationally issued reserve currency is impeccable. Nationally issued reserve currencies are subject to the Triffin Dilemma, because countries, however strong, will sooner or later go into deficit.

In other words, the whole global financial system is stable when the national reserve currency country is strong, but it will go into crisis, when the national reserve currency country goes into crisis. This is the current state of affairs.

The four reserve currency countries (US, euro area, Britain and Japan) accounting for just under 60% of world GDP are all in deep trouble. The US is running a current account deficit in excess of 3% of GDP and a fiscal deficit over 9% of GDP in 2011. At the end of 2010, the US had a gross foreign liability of US$22.8 trillion or 157% of GDP. Thank goodness that most of the debt is in US dollars, so that it can devalue its way out of debt.

The euro area as a whole has a smaller current account deficit of 0.5% of GDP, but if you look deeper, there are deep imbalances within the eurozone. Germany, the Netherlands and a few are in surplus, whereas the smaller countries like Greece, Portugal, Ireland and Spain all have net foreign liabilities exceeding 50% of GDP, an indicator of crisis using the Asian crisis experience as rule of thumb.

Britain has a fiscal deficit of 8.8% of GDP and gross debt of 81% of GDP. Its one advantage relative to the Euro is that it can devalue its way out of debt.

Japan, on the other hand, has a net foreign surplus of 50% of GDP, being a major net lender to the rest of world, since it runs a current account surplus of 2.3% of GDP. Its vulnerability is, however, its large domestic gross debt of 220% of GDP, growing larger every year with fiscal current account deficit of 8.3% of GDP in 2011. This means that the domestic debt is vulnerable to bubble implosion, because if interest rate rises, the debt becomes unsustainable.

In sum, the reserve currency countries are in a double trap. They have to run loose monetary policy to keep interest rates low, so that their fiscal debt will not run out of control. But their central banks also know that exceptionally low interest rates are distorting not only global financial markets, they also have very distortive impact on their domestic resource allocation.

This is the liquidity debt trap that Japan got into in 1990 when its asset market bubble burst following the sharp rise in the yen exchange rate. Japanese GDP growth never fully recovered after that. Reserve country status has not been a privilege, but a curse.

The emerging markets are struggling because the present international monetary system has become unstable and unsustainable. How should this essentially unipolar system be reformed to a multi-polar system where yuan plays a role will be the subject of the next column.

l Tan Sri Andrew Sheng is president of the Fung Global Institute.