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Creating a level playing field


(Silhouettes by mzacha / sxc.hu)

PRIME Minister Datuk Seri Najib Razak is all set to role out a new economic model for growth in Malaysia. The indications are that the subsidy regime and price controls will be abolished once the new economic model is in place. This would be in line with Najib’s other efforts to promote competition and achieve “high-income” status. In April 2009, for example, the government abolished bumiputera quotas for 27 service sub-sectors. Two months later, it scrapped the 30% bumiputera equity ownership requirement in public listed companies.

These economic reforms, however, have rung alarm bells in certain quarters, who believe the reforms signal an end to preferential treatment for bumiputera established under the New Economic Policy. Member of Parliament Datuk Ibrahim Ali, for example, told Malaysiakini that Malay Malaysians were still “amateurs” compared to the premier-league Chinese Malaysian community. Therefore, according to Ibrahim, subsidies and government assistance for Malay Malaysians should continue until they have caught up.

But are Ibrahim’s assumptions correct? Are all Malay Malaysians still lagging behind their fellow citizens economically? And is the continuing of subsidies the best way to help those who have less opportunities to improve their economic status?

With a limping worldwide economy, widening budget deficit, and increasing competition from our Asian neighbours, can Malaysia even afford to continue distorting the market economy through ethnicity-determined government handouts?

Learning to compete

Universiti Kebangsaan Malaysia economist Professor Dr Ragayah Mat Zin, who is with the Institute of Malaysian and International Studies (Ikmas), disagrees with the assertion that Malay Malaysians are not ready to compete. “Not all Malay [Malaysians] are poor,” she says. “That’s the problem. Whenever we talk about subsidies for Malay [Malaysians], whether it’s scholarships or affirmative action, it’s not the poor Malay [Malaysians] who benefit, it’s more often the rich ones.

“We should ‘give fish’ only to those who cannot fish. For those who can, they must be made to fish. They cannot sit back and wait for government handouts. If we don’t work for it, we’ll not be able to improve and become a high-income nation,” she says in a phone interview.


Denison Jayasooria
“We have to learn to compete,” says Datuk Dr Jenison Jayasooria, principal research fellow at UKM’s Institute of Ethnic Studies. He says that opposing liberalisation would only disadvantage Malay Malaysians. “If people really want Malay [Malaysians] to benefit, they need to help them build capacity and empower them to face competition in the open market. Don’t assist them by isolating them.”

Competing worldwide

Denison points out that the “enemy” is not within the country. “It is outside,” he says, noting that Malaysia is already finding it difficult to compete with countries like Indonesia and Thailand, more so with bigger economies like China and India.

He argues that while the government can control the distribution of resources within the country, foreign investments are not beholden in any way, and will move on if our economy is no longer competitive. “Then what do we do?” he asks. “We have to enable positive competition. If not, we’re going to see negative growth.”

Ratings Agency Malaysia chief economist Dr Yeah Kim Leng agrees, saying we should no longer be fixated on distributing economic wealth within the country. “Instead, we should concentrate on attracting businesses through good government policies and regulations. This would help create jobs, enhance employees’ skills, and result in positive spillover effects to suppliers and service providers. Only through growth and empowerment can we have sustainable distribution.


(Pic by juliaf / sxc.hu)
“By focusing on [internal] distribution, we may actually be missing the point and killing the goose that laid the golden egg,” argues Yeah. “If the government sets the wrong rules, businesses and capital will migrate. The government must ensure we have an economy that is dynamic and continues to sustain growth and create jobs.”

Benefiting the poor

Yeah adds that promoting market forces helps to bring out the best in people, so that every person’s potential can be maximised. However, he says, enhancing greater market efficiency is not incompatible with assisting the poor and disadvantaged.

“Economics is not heartless. While we promote market forces and efficiency, we note that there are different inherent abilities and endowments.

“So there is a place for affirmative policies for the needy and disadvantaged. This is widely practised [worldwide], mainly to assist minorities and disadvantaged groups who do not have equal access to opportunities.”


Yeah
Ragayah, whose research interests include development economics and income distribution, says international statistics show that liberalisation is actually good for the poor. “When demand is stimulated, there is a multiplier effect which will benefit everyone. This will actually lift the income of the absolute poor,” she says, adding that the poor would also benefit from cheaper imported goods.

Liberalisation would also lead to increased production in areas where Malaysia has a comparative advantage, she notes. This would lead to a more efficient use of resources, hence making us more attractive as an investments destination.

She says helping the poor doesn’t necessarily mean implementing subsidies that distort the market, which is ultimately expensive and unsustainable. “In Malaysia, we subsidise everybody, the rich and the poor. Subsidies [for items such as toll and petrol] in fact tend to benefit the rich more than the poor, because they consume more.”

Ragayah says that as the population increases, paying out huge subsidies is not sustainable and would be counter-productive. She says the government needs to target assistance at the poor, otherwise government expenditure would balloon. “We should just target the poor, regardless of ethnicity. If there is marginalisation, then affirmative action is needed.”

She adds that the government should assist groups, such as poor farmers, to compete by helping them be more efficient in production and take advantage of the increased opportunities provided by liberalisation.

Indeed, liberalisation will not result in opportunities lessening, says Denison, who adds that the only people who should fear liberalisation are those who are unable to run businesses competently.

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8 Responses to “Creating a level playing field”

  1. Sean says:

    Have you ever moved anything that was far too massive to lift, and cut something cylindrical into little sections to put under the object as rollers? That’s “roll out”.

    Isn’t ‘liberalisation’ what Malaysia had before the NEP? I thought it was introduced specifically because the players on the previous ‘level playing field’ had stolen the wickets, burned the grass and locked the stadium so no-one else could play. I simply don’t understand the older voices promoting the idea that doing away with legislated racist bias in the economy will transform Malaysia into an honest labourer’s paradise. I would expect the pre-NEP state of affairs to return with rapidity under what many Malaysian pundits are touting as ‘liberalisation’.

    Since the generations-old problem in Malaysia is market manipulation, I think Malaysia should (instead of liberalisation) go for some fairly draconian laws aimed at stamping out manipulative practices in business. Sole distributors, price fixing, preferential pricing, fraudulent advertising, government monopolies, closed tenders, all seem to be practised here as ‘just good business’ when they’re recognised as economically toxic in many other countries.

    We desperately need excellent economic activity, but I have to disagree with the view expressed in your article about “economics not heartless”. If John Maynard Keynes really said something like “capitalism is the astonishing belief that the nastiest motives of the nastiest men somehow or other work for the best results in the best of all possible worlds”, then I think he was absolutely right. Let’s have that level playing field — but to reassure those who remember what happened to the last one, let’s make sure the umpire is a tyrant.

  2. M.K. says:

    Before we look at Ibrahim Ali’s comments, we must first of all find out his academic background. Is he an economist? Is he an analyst? Is he a scholar? Where is getting his “facts” from? As the saying goes, “It is better to keep your mouth shut and let people think you are stupid, rather than open and confirm it!”

  3. Tan says:

    We can keep on talking all night long, day in day out, but the economy will still be stagnant if the federal government does not implement a meritocracy system. Our country cannot retain the brightest, and always plays bridesmaid to Singapore. It does not make economic sense to train our future leaders for 16 years from primary school, only to be lost to our neighbours before they even step out of university. The government knows all these facts but does not have the political will to implement [a new system] due to high political costs.

  4. crony says:

    Ibrahim Ali is a crony of PAS, won GE12 on PAS support, which indirectly link him to PR…another crony of PR.

  5. Terence says:

    Unfortunately the average Malay [Malaysian] has been told time and time again that he/she cannot compete resulting the current siege mentality. Until the government defuses this, we will see the government unable and unwilling to move forward with what is needed. The short-term “pain” the average Malay Malaysian feels may be shorter then they think, because I have faith in us average Malaysians being able to do it. Unfortunately, not so for the Ibrahim Alis of the world that rely on a patronage system.

    It is very sickening to see that those that CAN afford to pay for university education are often the ones who get the various grants all thanks to the “I scratch your back” mentality. So long as a system legtimises an “elite Malay”, I doubt any far -reaching changes are going to take place.

  6. mslam says:

    Ibrahim Ali is a turncoat to be more exact.

    He wants to use PAS because he was rejected by Umno to stand as a candidate. He even bent down to kiss Tok Guru’s hand to beg for the seat.

    Now you see what he did to PAS ? Bite the hand that feeds him. In Islam this is tantamount to betrayal.

  7. Cheah Swee Kuan says:

    It is amazing what politicians can say and it is even more amazing when the politician is in a so-called NGO like pPrkasa and endorsed by that “apanama”. It says a lot about that guy. I think there is a large group of Malay [Malaysians] who won’t be happy until there are entitled to an ATM machined installed in their own house. That is the only way they would be happy. Wealth should be distributed according to their skin colour and not what is inside their head, so speaks that guy. If you have such leaders and such leaders have been running and ruining this nation for the past 30 years it is no wonder we are lagging behind our neighbours. The tragic thing is that they won’t care. They are too timid to care and worry about how to develop and improve themselves and move forward, but brave enough to wave the kris again and again. That is what they know best and you know what? They want to be a high income earner. How? You got to check what is inside your head, not your skin colour.

  8. Paul fo Democracy says:

    I think that the rakyat of Malaysia should be awakened to the INCREASE in salaries and allowances to the police and most probably the Armed Forces in the forseeable future. The move is being made mainly by a “strong body” that intends to be even stronger with 100% support for the “strong body” (right or wrong) with the intention of denying “people of differing opinion(s)” any chance of opposing the wishes of the “strong body”.

    Wake up! We are all going to be affected!


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