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Getting Malaysia out of the rut

hitting the mother lode?
What would the fisherfolk think of the government’s plan for a high income nation?

IT’S a grand announcement, but what would a fisherfolk or a padi farmer think about the government’s plan to make Malaysia a high income nation by 2020? What would a single mother doing odd-jobs think of the goal to raise per capita income from the current US$7,000 to US$13,000 in the next 11 years? Probably that it would not be in her wildest dreams.

There’s the rub about announcements like these. Focusing solely on high-income figures provides an incomplete picture of a country’s well-being, and glosses over disparities. Even the World Bank, which classifies nations according to per capita income, acknowledges this.

There are also foundational questions about whether the 2020 goal, which hinges on an annual 6% gross domestic product (GDP) growth rate, is achievable. And if it is, at what cost to other aspects of life?

Sharing the wealth

Per capita income is the easiest indicator to quantify and communicate when gauging a country’s standing. At a glance, Malaysia does appear healthy enough with a sizeable middle-class.

“A large middle-income group is the hallmark of stable and sustainable societies. This group should be the one that provides the per capita income figure. If the average income is raised because of a small group of very rich, that is not desirable,” RAM Holdings group chief economist Dr Yeah Kim Leng tells The Nut Graph.

Therefore, closing the social gap through equitable income distribution is just as important as raising per capita income.


“Per capita income is just personal income figures and not a measurement of the standard of living. You may have per capita income increase, but the income of the majority of Malaysians may have gone down or increased only very marginally,” says Centre for Policy Initiatives director Dr Lim Teck Ghee in a phone interview.

A common feature, Lim adds, is stunted social development if higher income growth is not accompanied by equitable distribution. Additionally, a widening class and income gap also contributes to an increase in crime and other social problems.

Thus, there are other, more subjective indicators that need to be assessed, like the environment, public health, education, gender equality, media freedom, crime rates, and more. There is also the Human Development Index, used by the United Nations Development Programme to assess human development according to health, knowledge and decent living standards. Malaysia ranks at number 66 out of 182 countries in the 2009 Human Development Report and is considered a “high human development country”.

Stuck in the middle

Certainly, Malaysia has made strides in poverty eradication and in raising living standards and incomes, especially for the rural poor through various agricultural programmes and subsidies.

But foundational building blocks, like education and the public delivery system, remain problematic due to politically-influenced decision-making. And so Malaysia, having come so far and with so many resources, seems unable to push beyond mediocrity. It is the phenomenon of being stuck in the middle, of having achieved upper-middle income country status as per World Bank standards, but of not progressing further.

The New Economic Policy has often been blamed for this mediocrity. The DAP says the affirmative action policy for bumiputras is the trap that has kept Malaysia stuck in middle-income position.

But in less harsh and less political tones, this view is actually echoed in varying descriptions by academics and economists. Meritocracy is the way out of mediocrity.

Play fair

In the different prognoses offered, market deregulation and the need for competition feature strongly. “Just employ market forces, be competitive and the rest will take care of itself,” RAM’s Yeah notes. “High efficiency is normally present in competitive markets.”

He points to monopolies over certain industries by government-linked companies (GLCs), such as utilities, car manufacturing and agriculture, and suggests that these sectors be made more “contestable”. The same should go for the mobile and broadband services, he adds.

Fair competition should also exist in more basic areas like education. Universiti Kebangsaan Malaysia economist Prof Dr Ragayah Mat Zin, who is with the Institute of Malaysian and International Studies (Ikmas), disagrees with the political motives behind the awarding of scholarships to all top performing students.

“A means test to check the income levels of a student’s family should be conducted. Full scholarships should only be awarded to students from poor families, and maybe partial scholarships for the wealthy,” she tells The Nut Graph.

Opening up sectors and letting the market forces in will help solve another problem — the brain drain. Competition will force merit-based recruitment, improve workforce skills, create the environment local talent overseas desire, and raise salaries accordingly.

“All these are basics when wanting to achieve higher per capita income,” CPI’s Lim says.

Graduating from the middle class

Ragayah (courtesy of Ragayah
Mat Zin)
Ragayah, who is working on a research project for Ikmas on the ways Malaysia can “graduate to developed status”, feels that the challenges are mounting. “We just dropped lower in the Corruption Perception Index. That’s not going to encourage people to invest here,” she notes.

Other problems she identifies: over-dependence on foreign workers in the labour market, and manufacturers’ reluctance to spend capital on high-technology methods of production. At the same time, Malaysia has lost its competitive edge as a cheap-labour destination to neighbouring countries which are also providing better investment incentives.

The World Bank has also identified that Malaysians are not investing locally but preferring to go abroad. The brain drain has not been resolved. Subsidies are not targeting the poor and leaking out of the system.

For DAP economic adviser and parliamentarian Tony Pua, graduating from the middle in many ways means going back to school.

“The overall quality of education in the country has dropped with the proliferation of universities and university colleges without the corresponding increase in quality of students gaining entry for degree studies,” he tells The Nut Graph.

tony pua

In other words, Malaysia needs an education system that can be reformed to produce a mass of graduates who can think critically. If not, the government’s talk of using innovation in information communication technology and building human capital using the Multimedia Super Corridor (MSC), will remain a vague ideal.

Most of all, if selective treatment of human capital, whether students, entrepreneurs or industries, continues, the best of Malaysia’s money and brains will continue to go overseas.

“Innovation and creativity will naturally be stunted if the mediocre are protected and favoured in Malaysia. This will naturally result in those who are able, to seek greener pastures overseas where their talents are given full room to grow,” says Pua.

Bleak outlook

Too often, views in support of meritocracy have been countered with unending cries that the playing field among the ethnic groups is not yet level. But will there ever be a time when the ground is level or when bumiputras feel they are ready?

What Malaysia clearly needs to push itself out of a rut by 2020 is to have a combination of needs-based subsidies and affirmative action, merit-based competition and foundational reforms.

The task ahead is daunting if the government’s objectives are to be met by 2020. For certain, making grand, headline-grabbing announcements alone is the easy part. Favicon

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One Response to “Getting Malaysia out of the rut”

  1. Tan says:

    We can’t blame the local investors for not increasing their investments locally when the cost of operation in Malaysia is escalating disproportionately due to corruption, red tape, flip-flop policies, small consumer market, mismatch labour force, etc.. It is even harder to grow big when the private sector has to compete with GLCs that monopolise many essential services.

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