Understanding Institutionals Economics : Malaysian Perspective

Institutions reduce the amount of certainty in decision making. It is because the decision can be refer back to the historical data on how certain decision or policy effect another. Institutions determined by the  experienced of the county.In other words, based on the past,”what happen to this, if we took this action?”. For example, during the 1998 crisis ,Malaysia make the decision not to seek help from IMF and strengthen domestic economy.  During that time Malaysia forms three agencies to cater the issue on Bank capital system and corporate. Malaysia made it by imposing currency control, and save few gigantic companies that are too big to fail. Some of the company is Malaysia Airlines System (MAS) and Light Rail Transit (LRT).  While at the same time South Korea took the IMF helps advices and survive the economic crisis too.Their economic performance now is much higher than Malaysia. What has been experienced by Malaysia , effects on economic policy we made today.

                Therefore, we can see that , each country have different “Nature of Instituitions”  that influence which step we can take. In simple word, eating Nasi Lemak in Malaysia would be much different to compare having it in the United States. Institutions are the one that defines limits and the set of choice of Individual.

Institutions have two types of constraint which is formal and informal. Formal constraint such as Federal Constitution or certain statue. Informal constraint will be in the form of convention, or codes of behaviour. This constraint is the one that prohibits or permit individual action. It is the basis on how the interaction between human takes place. To make Its easy, think of a football game. Some rules were written and others not.However if the player makes something that is generally accepted as wrong, the player will be punished.  The Player must respect the rules of game.

Malaysia policy will always respect “ the rule of game” for example protecting the right of Malay and Bumiputera. If the government doesnt not follow the rule,they also will be punished. Try to imagine, If The Malaysia affirmative policy implemented in Thailand for example, the government will also be punished.What fits in Malaysia does not fit to Thailand and same goes to the other way around.

Before we moved further , we must know that institutions are different with organizations. Organizations is for example political party , Dewan Rakyat and NGOs. Some organization has economic nature such as trade union, Majlis Tindakan Ekonomi Bumiputera and other.They also also education body such as universities, school and politechnic. Organizations are not institutions however what organizations do will have an influence over institutions. How the organization will change will also coexistance with instituional change.

For example Malasyia case, UMNO is a political party in Malaysia but not the Government Institutions. However, whatever people in UMNO decide, or other party debate in the Parliament, will effect on the change of the Instituitions.This will make institution evolve over time. Organization is mean to achive Instituion objective.

Humans are the centre of the Institutions.  Some economic theory actually is a study on the behaviour of human. It become a set of useful theory because its logical consistence, testable within  set of hipothesis  This is the foundation of Microeconomy which is the predict human choice or behaviour based on the construct and constant historical data.