The curse of oil – repost

In light of Ku Li’s speech that Malaysia is an ‘oil cursed” country, I would like to repost an old article of mine published in july 2007, and posted in both Malaysiakini (here) as ‘Beware of the oil curse” and my blog.  I am glad that the prince thinks alone the same line as me, a small fry trying to be heard..:)

This is the article:

The curse of oil

July 16th 2007

There is an old saying by Lao Tzu that “Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for a lifetime”. This is indeed very true in everyday life.

Many of the super rich families find that often their estate cannot survive the third generation.

The first generation often started as poor working people, but through sheer hardwork and thriftiness  became rich. From being rich, many of them became super rich with good entrepreneur skills and good judgement. Many of them remained thrifty even when they became very rich.

The second generation often grew up during the time their parents were struggling to make their fortune, but when they were older,  their parents had already made the cut. They were often better educated, and many were taught by their parents on how to “fish’. So when the fortune passed to their hands , many of them could still maintain the business and some , a minority of them, might even expand the business. They were , of course, less thrifty than their parents, and often married a spouse also from a rich family.

However, the third generations were usually born with the silver spoons in their mouths. They were  brought up in a life of luxury, and were given expensive ‘fish’ to eat every day . Often, they were not taught how to fish. Many of them were educated overseas, but many of them just fooled around and lived a life of luxury. They were given everything, and because of that , they did not really know how to cope with difficult situations, and the intricacy of the business world.

Many of them also became big time gamblers and womanisers.

Adding to that, the family wealth inevitably got diluted among the more numerous siblings in the 2nd and 3rd generations, especially when these generations were unable to do much to expand the family businesses.

The wealth that were passed down just withered away.

This is known as the curse of the third generation.

I am talking about this curse because there is another curse which works in the similar manner but affect a country rather than a family.

Thomas Friedman, in his book “The world is flat”,  talks about the “curse of oil”.

Many of us would have thought that a nation with petroleum resources would be a lucky and blessed nation.

Oil makes the rulers of some of these oil producing countries super-rich.

However, Friedman mentions that in countries like Venezuela, Nigeria, Saudi Arabia and Iran, the presence of oil in fact is the main retarding factor on the emergence of democracy and a diverse economy. He is of the view that the rulers of these countries use oil money to monopolise all the instruments of the state, including the army, the police  and the intelligence.

They don’t need to be transparent because they don’t tax their people, and when they don’t tax their people,  they don’t need to be accountable on how they spend the money. There is often no freedom of the press.

Oil money will eventually run out.  Because of the short term wealth ( oil is short term wealth as in history , a  hundred years is considered a short duration), they are like the third generation rich men mentioned above.

The rulers don’t bother to develop their economy just like the 3rd generation that don’t bother to learn how to fish. They don’t bother to develop their human resources , drills for natural talents instead of oil, train their people instead of importing trained people from other countries to work for them. Eventually, when their oil runs out, they will find that they cannot compete with much of the world that depends on their human resources instead of natural resources.

In other words, they don’t bother to let their people  learn how to fish, and when their supply of fish is exhausted, they will be in trouble.

Bahrain was one of the gulf States to find oil first and also one of the first to finish its oil resources. It is also an exception to the “curse of the oil”‘. It is  the first to have free elections , in which women are allowed to vote. It is also the first to sign an FTA with USA and the first to develop its own labour market.

It is able to do so because it finishes its oil money before other gulf states, and the people there knew that they cannot depend on the oil revenue forever and hence the development of democracy and free trade treaties.

We are also a small oil producer. We are lucky in that we have already been independent and already has all the democratic institution in place before we discovered oil. Our economy is also very much diversified; we have an Independent internet paper ( Malaysiakini ); we are a workble democracy with regular elections ; we have  opposition parties; we have a fairly vocal NGOs.

We have not been afflicted with the curse of oil, so far. ( Editor 2009: In hindsight, I would say, we have already been inflicted with the curse)

However, our oil revenue has become increasingly important as a form of government revenue.. Last month, Petronas, our national oil company, announced a record revenue of RM 184.1 Billiobn and a pretax profit of RM76 billion for the financial year ending March 2007.

Taxes and royalties from oil and gas now amounted to about 35% of our government revenue, up from 10% a decade ago.

This revenue must be utilised with utmost care because oil & gas revenue is a depletable income; it will end one day and that day may be quite soon. It should not be wasted on non productive expenditure such as building offices and other non productive hardware, or in the rescue of failed state or certain private enterprises.

It should be used for developing our human resources, train our people and prepare them for the challenges ahead. It should be utilised for those infrastructure that will spur the expansion of our economy.

Human resources development must be based on  meritocratic principles with assistance to the weaker and poorer sectors , irregardless of colour and religion. Only by doing so, with suitable amount of competition, we can develop fully our human resources.

We should not allow our people to be like the third generation rich mentioned above; we should not pamper our people too much but instead let them take on competition and develop their skills.

Only by letting our people learn how to fish in the best possible way  , can we then avoid the curse of the oil and the curse of the third generation.

Otherwise, if we just sit around and refuse to learn how to fish, if we just pamper our people by giving them everything they need and take care of them from womb to tomb,   the rot will inevitably set in.

We will then regret – and often it is too late – when our oil and gas supply ultimately runs out.


17 Comments (+add yours?)

  1. frank
    Dec 12, 2009 @ 20:07:15

    A very brilliant piece and a discourse ought to be taught in the Varsities for especially those prodigal sons of the corrupted filthy rich politicians, instead of the stupid BTN!


  2. klm
    Dec 13, 2009 @ 13:12:27

    I beg to differ. Communism is not dangerous. That was the view of the United States and its allies. It is just another form of government. How can China rise with communism? The broken society and rampant corruption of China could only be solved with the communism.

    No. communism is not dangerous. Racism is dangerous.


  3. frank
    Dec 13, 2009 @ 13:41:09

    Communism is an ideal protector for communal interests, and the extended society, giving rise to a great Nation – China!

    Fake democracy is venomous icing on the poisonous cake exotic from the west!

    Fake democracy plus racism means havoc and much more dangerous than C4!


  4. chabalang
    Dec 13, 2009 @ 13:54:48

    We all have to pay for it in the future – cut in subsidies, increase in electricity/water tariffs and MORE TAXES (credit card tax, RPGT, and GST after the next GE if BN wins).

    The current BN Govt fiscal deficit position is unsustainable in the medium-term but yet it needs to maintain a BLOATED bureaucracy (to artificially keep unemployment down) and more “inefficiency/wastage” for some people’s benefit/power (these people will go out to prevent implementation of Dr Hsu’s above prescription for their selfish interests)

    Soon, we hear more rhetoric/talks (e.g. recent 2nd Finance Minister’s fine speech) on the right things to do BUT the crux lies in the implementation. It will take a couple of generations to undo the damages done during Dr M’s regime – let’s see what will happen to the EDUCATION system first.


  5. klm
    Dec 13, 2009 @ 14:11:57

    SINGAPORE, Dec 11 — Royal Dutch Shell opened its mono-ethylene glycol plant on Singapore’s Jurong Island today, the latest milestone towards the completion of the firm’s refinery and petrochemicals hub next year.

    Crude oil is just basic raw material. Refined products are value add products and earn more. Why is Shell doing value add in Singapore rather than in Malaysia?

    Is there a message in this.


  6. Simon
    Dec 14, 2009 @ 05:40:41

    It is simple klm.
    Royal Dutch Shell is not stupid to be subject to 30% quota. They know the Malays are xxxxxx(editor: words deleted — no racial profiling– there are black sheep in every race) to work with.
    Take Dr M he thinks he is clever. He is too thick to understand that he destroyed the Melayu with his affirmative action & NEP. The public universities are bloody wasteful providing ‘plonkers’ that are no use to the society; just like Saudi where they need Indian & Pakistani workers just to change the light blubs and car tyres.
    The Melayu will be better if they hand Dr M over to the Israelis; they knowwhat to do with the father of raciialism.


  7. Fireman
    Dec 14, 2009 @ 12:15:27

    Gerakan is very quite on the AhMad Ismail issue.
    EVerything already censored.

    Even Gerakan websie at also close all comments.

    Good job by Koh Tsu Koon.


  8. CYC
    Dec 14, 2009 @ 16:34:02

    The Dutch syndrome is good lesson for all other countries who depend deeply on natural resources.

    It is not enough by merely manage our economy in very prudent manner. We also need to educate and train more talents in the financial and economic fields as the international market gets more and more complicated with the evolving of derivatives and future options that are totally different from the traditional trading tools. Wars is not fought by missile and fire arms but more through the invisible monetary battle. A country can be invaded without he physical appearance of enemy’s army but through legal acquisition of distressed assets of companies. Therefore a country with in adequate financial and economic expertise will be on the losing end. It will be difficult to defend and ensure its economic well being.

    Whats the point of having KPI if it is not established in accordance and in congruence with current international standard. We are just bluffing ourselves if the establishment of KPI is just another tool to pacify the voters and showing the world we are doing the right stuff. When the whole world is talking about 6 sigma quality control, we shouldn’t talk about mere compliance of production quantity target without taking in consideration of its marketability and competitiveness.

    Similarly, Gerakan and MCA can continue to have their KPIs of winning back supporters in next GE by slogan shouting or convene a fresh party elections before March 08 and so on. But are these KPIs relevant and acceptable in the eyes of voters ? The wise knows the answer but the fools will continue to fool themselves.


  9. clearwater
    Dec 14, 2009 @ 16:49:36

    It is not our oil reserves that is our curse. The oil and gas was a small bonanza and recognized then as such if prudently used. It was the greed and folly of politicians, and particularly of one ex Prime Minister, that was our curse. He misused it as he misused so many other of our legacies.


  10. CYC
    Dec 14, 2009 @ 17:48:39

    Najib knew that he inherited a going to bankrupt govt. Hence, he has no choice but liberating many sectors policies aiming to address the anticipated widening deficits. But he will not get cooperation from the old guards who favour continue with the existing policies. The friction of these two factions already surfaced during the last 2 months. Hence, you see Najib is add odd with Muhyiddin on a number of issues ranging from BTN to 10+2 subjects for SPM, and even the mediation of MCA crisis.

    KTK got nothing to do but photostating for Idris Jala, while his juvenile scouts such as Oh Tong Keong busy holding demo against Lim Guan Eng for whatever issue it may be. Their think tank ? are they still exist in the first place. Or are they busy planting vegetables in Facebook? This is the party we assumed made up of intellectuals. Shit !


  11. disgusted
    Dec 14, 2009 @ 17:56:57

    Oil money? Does anybody knows the accounts of Petronas, transparent account? Where and how much came in and where it goes? And how much like crude leaks away somewhere?

    It is a national wealth but 99.999per cent people don’t have a clue of the accounts, I mean the real picture.


  12. cilipadi
    Dec 14, 2009 @ 18:19:44

    If you Malaysian don’t feel “suffocated” with your out-of-shape leaders, I a non-Malaysia do.

    Nowadays, I go scuba diving with my Malay friend, hunting for sotongs ……. yummy

    My Malay friend told me, on the ground in Malaysia got rich soltongs aslo, I don’t know what he means…

    Sea Sotongs makan cili, rich Soltongs rasa pedas


  13. aca
    Dec 14, 2009 @ 23:37:37

    a matter of time before this country will go broke.

    oil drops to US$30.00 per barrel. no, your petrol price wont come down. its going to go up coz the govt needs the tax to plug the meteor-hit gapping hole, courtesy of Mahatirnomics and UMNOputra greed.
    sit tight, you docile Malaysians.


  14. disgusted
    Dec 15, 2009 @ 00:58:00

    Cilipadi, a sambal prawn sotong dish, add curry leaves for stirred fried and finish with some coconut milk, makes a saliva flowing great yum yum.

    On the ground sotong, well, that leaves to your fantasy and imagination……

    Having a great life scuba diving…..find any bags of money….ha ha


  15. mccann105
    Dec 15, 2009 @ 12:16:29

    easy come easy go…or too many holes too few covers that seemed to be the case! the writing was already on the walls. those politicians know it..dig as much as u can or tomorrow never come…i think koh is playing right..whatever people may say curse him..after awhile u get used to it..the unnormal become normal.
    i thinking any more rebukes on koh and gerakan is just an expression of our frustrations, perhaps we set too high a standard.we get dissappointed!
    what is need to do that is more pro active?

    i is how to make the last juice n get those cash park in singapore , buy more yuan…that is realist?
    perhaps all writers are comfortable cash rich time rich nothing more to do . mad dog barking?


  16. klm
    Dec 15, 2009 @ 15:43:08

    Note this:

    June 18 (Bloomberg) — Malaysia, the world’s second-biggest exporter of liquefied natural gas, will import the fuel from Australia to meet rising domestic demand and counter dwindling domestic discoveries.

    The Santos Ltd.-led Gladstone LNG venture (GLNG) signed an accord to sell 2 million metric tons a year of the fuel to its partner Petroliam Nasional Bhd. for 20 years beginning 2014, with an option for an additional million tons, the companies said in separate statements today. The LNG will be used in the Malaysian domestic gas market, they said.

    What does this mean?


  17. SS
    Dec 16, 2009 @ 13:44:04

    Grapevine has it that Mahathir administration had sold forward 10 years crude oil production at usd 30+ to Japan during Asian Financial Crisis to bail out his son and cronies companies.

    Anyone can shed some light on this ?


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