eli james

Malaysia: The Inside View and the Outside View

4:05pm, 14 May 2018

In decision-making and forecasting, there is a useful concept called ‘the Inside View vs the Outside View’.

Imagine that you’re working on a project, and you are asked to predict the amount of time it would take to complete it. The most intuitive approach to this task would be to think about the project from the inside: that is, to think about the various tasks left in the project, to evaluate the relative merits of the team and the budget you have left, and to try and extrapolate from the tasks you have already completed.

This is known as the inside view: you analyse according to your knowledge of the internal details of your situation.

The ‘outside view’ would be to ask yourself: how long do most teams of this size, taking on a project of this scope, working in roughly similar circumstances, take to accomplish a similar project? The important insight here is that by looking at the external environment for similar situations, you’d have better calibration for your estimate. This calibration can differ wildly from your internal forecast.

This method of taking both the ‘Inside View’ and the ‘Outside View’ was first described by behavioural economics pioneer Daniel Kahneman in his seminal book Thinking: Fast and Slow. In the book, he tells the story of working on a textbook project for the Israeli school system. When initially asked for an estimate, his team guessed 2-3 years based on their internal evaluations. But when pressed for an outside view, they quickly realised that most textbook teams took 7 years on average, with a large number of them never finishing the textbook at the end of the 7 years.

Indeed, when Kahneman left Israel, the textbook had taken 8 years and was never used to teach decision-making skills to students. Kahneman called it “one of the most instructive experiences of his professional life”.

The Malaysian Election

Wednesday saw a historic Malaysian election, where the opposition defeated the incumbent government coalition — a coalition built of parties that had founded the nation of Malaysia.

The inside view suggests that this is an unprecedented, historic victory. We think anything can happen, because nothing like this has happened before. I’ve read pieces saying that a “New Malaysia” is born, that the people have spoken, and that Malaysia has set a “World Benchmark in Reclaiming Democracy”.

Most of us are filled with hope. The Malaysian twitterverse is a wonderful, joyful, cacophony.

But the outside view suggests something quite different.

In the first IPS-Nathan Lecture in 2014, Ho Kwon Ping tackled the Outside View on the topic of Singapore’s incumbent party’s continued rule, who — like Malaysia’s Barisan Nasional — had never lost an election since founding the nation-state.

History has not been very encouraging to political parties after three or four generations. Sustained periods of power breeds complacency and hubris, which are always the seeds of self-destruction.

The PAP has been in power for 56 continuous years, starting from its victory in the 1959 Legislative Assembly elections. The longest continuously ruling party in a democratic nation is Mexico, where the PRI or Institutional Revolutionary Party lasted for 71 continuous years before it lost control of government.

What about the experience of other parties which founded nation-states? The Colorado party of Paraguay lasted 61 years before it was ousted. The Israeli Labor party ruled over 26 years of coalition governments before it also lost power. Nearer home in Asia, the record is even shorter. The Kuomintang of Taiwan or the Republic of China, lasted 56 years before it was voted out. The Congress Party of India, which led its independence movement, lasted 49 continuous years. The Liberal Democratic Party of post-war Japan, governed for 38 years before it fell.

He continues, generalising from these examples:

The fact is, democratically elected ruling parties have generally floundered after about half a century to three-quarters of a century. They become corrupt, riven by internal strife, and eventually prompt a previously loyal electorate to vote them out.

Ironically, however, an electoral loss often enables drastic internal reforms to occur and new reformers to gain control of the party. This new leadership, coupled with disillusionment with the opposition turned governing party, brings the founding party back to power, and a dynamic equilibrium comprising a multi-party pendulum becomes the norm. The present ruling parties in Taiwan, Japan, Korea and Mexico, are all versions of this same story.

If we take the Outside View, what has happened in Malaysia isn’t particularly new. We may actually forecast what happens next, calibrated using the experience of other countries, but informed by our inside knowledge of Malaysia’s unique circumstances.

Pakatan Harapan will mess up

This is only to be expected — and it’s perfectly fine given the Outside View! Most new governments will mess things up, perhaps even very badly. The Inside View provides us with several useful details:

  1. Many in Pakatan Harapan have little to no experience with governance, and its component parties have little experience of working together over the long term
  2. The patronage system built by Mahathir and sustained over decades is unlikely to keel over and vanish overnight.
  3. Corruption will continue, as it’s been the way things has been done for years.
  4. Pakatan Harapan’s campaign promises are problematic, because they either involve increased Government expenditure or decreased Government revenue. We’re bound to be disappointed by some of these promises.

While these are negative outcomes, there is real hope that both new government and opposition would be more careful when passing laws that may be used against them. We should, at the very least, see a reformation of the SPR.

The new government won’t be able to solve Malaysia’s economic problems

Mahathir governed during a golden period where one could build a large manufacturing base from scratch. This opportunity is long gone.

Economists often call manufacturing the ‘learning center of the economy’, since manufacturing spreads large multiplier effects to all other sectors of a country’s economy. To put this another way: no country has ever gone from third world to first without manufacturing. And it’s great while it lasts: when a country builds a manufacturing base where none existed before, a rising tide raises all ships, making it easier for people to forgive the excesses of the ruling elite.

Malaysia is unable to replicate this today, and it’s unlikely Prime Minister Mahathir would be around long enough to make a material impact on the economic situation of Malaysia. In this, Malaysia is not alone. China, for instance, is grappling with similar problems, as its manufacturing sector can no longer power the country’s growth at previous rates. There are no easy answers ahead for Malaysia at this stage of its development — but then there are no easy answers for everyone else at a similar stage of development.

UMNO would be reformed

The Outside View suggests that incumbent parties are usually reformed by younger members and newer ideas, after the shock of their first electoral loss. In the Malaysian context, this is primarily about UMNO, as the MCA and MIC power bases are too small to matter.

It’s tempting for us to think that UMNO’s reformation would be progressive, and forward-thinking, moving past the Malay chauvinism that formed the core of its ideology. But it may swing either way.

PAS’s victory in Kelantan and Terengganu, for instance, points to an equally attractive path. PAS won despite standing apart from Pakatan and Barisan Nasional, gaining traction solely on a platform of Islamisation. UMNO may well join forces with PAS, or shift their ideology closer to PAS’s to appeal to its voter base.

We may see religion as a larger touch-point in the next general election; it really depends on what ideas take hold in UMNO’s evolution. If you’re a young member of UMNO, and you’re reading this: consider this loss as a golden opportunity to rise in power. UMNO’s current party leadership should weaken over the next 5 years.

Race politics won’t go away

In the heat and joy of the election results, it’s easy to forget that Prime Minister Mahathir’s new party — Party Pribumi Bersatu Malaysia (or the Malaysian United Indigenous Party) was founded on similar principles as UMNO’s. Only Bumiputeras may join the party as full members, and vote and contest in party elections.

I’ve seen arguments that Malaysia has rejected race-based politics in the wake of GE14. I’m not so certain this is the case: PPBM will continue cultivating its Malay voter base, and the Outside View tells us that it takes a long time to change a political culture. We may be conflating ‘voting against Najib Razak’ with ‘voting against cash-based or race-based politics’.

I expect to see racially-motivated policies from Pakatan Harapan in the near future, as well as patronage to continue, as the new boss is very similar to the old boss.

Calibrate your expectations

I’m not writing this to dampen the hope that has sprung in the wake of this historic election. That hope is beautiful, as refreshing as the wet calm after a long storm. But please: calibrate your expectations. I fear that many Malaysians only consider the Inside View, which tells us anything is now possible because everything is unprecedented.

This hope will soon turn cynical if you don’t calibrate it properly. Malaysia may have started in a new era of two-party politics, but the road ahead is long, and the Outside View suggests that politics is dirty, that race and religion will continue to be issues, and that the journey ahead will be no easier than the journey before, just different.

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