Allow me to share the following 3 stories.
The first story was related to me by my friend.
About 20 years ago, her family moved back to Ipoh. Her mum took up a job as a secretary/clerk. Her pay back then was RM800. About 5 years ago, I bumped into her again and she shared that her mum had just switched to another company, also as a secretary/clerk. Her pay? RM800.
The next story is about Metroview Condominium, a condominium in Wangsa Maju.
When the property was first launched, it cost about RM240,000. In a short span of about 4 to 5 years, a unit cost RM420,000.
The next story is about the humble Maggi noodle, a favourite for migrant workers and college students.
Back in 1997, a packet of Maggi Chicken or Curry weighing 85g cost RM0.40. By 1998, the price had gone up to RM0.50 per packet of 80g. Today, a packet of Maggi Curry or Chicken, weighing a princely weight of 79g cost RM0.75.
Income Stagnantation
Despite our GDP per capita have increased from USD10,159.20 as in 1990 to USD22,589.37 as in 2013, many Malaysians are still facing economic conundrum. One question one must ask, if the GDP per capita had doubled, where did all the wealth has gone to?
One can only conclude that most of these wealth had flowed into the hands of few rich individuals, rather than having these income being spread around.
Perhaps, the revelation from EPF is a clear indicative concern of what we are facing. In Sept 2014, Employees Provident Fund revelaed that 69% of its members above the age of 54 has less than RM50,000 in the retirement fund. Discounting the possibility that all 69% of these members had withdrawn part of their savings to buy their own houses, or for educational purposes, and assuming the statistics of 69% is applicable for all age groups, this could well point at the fact that large portion of Malaysians are still earning pays that had stagnanted years ago.
Where did we go wrong?
To assume I would be able to provide the exact answer where did we go wrong would be callous on my side. All I could is to provide pointers of what went wrong and where. What more, my worldview would have been distorted by my own political stance, and not to mention, my economic views too.
My economic leaning would be closer to that of Keynesian, as expounded by celebrated British economist, John Maynard Keynes. But at the same time, it is also tempered by socialism (on the microeconomics side).
What I could do, is to dissect what I believe to be the cause(s) to our current economic predicament.
Subsidy - The Poison
Top on my list would be subsidy. Most economists disagree with implementation of subsidies, especially indirect subsidies as this would generally distort the economy. But before I go any further, let us understand first the purpose of subsidies being implemented in Malaysia in the first place.
History of Subsidy Implementation in Malaysia
Subsidies, specifically fuel subsidy was first implemented in Malaysia in the early 70's by our second Prime Minister, Tun Abdul Razak. Malaysian economic backdrop then was bleak.
With nearly 80% of the nation were classified as poor, they could ill afford sudden changes.
Then, the first energy crisis happened. Using the backdrop of Yom Kippur War, whereby the Americans had conducted resupply to the Israelis forces, OPEC (Organization of Petroleum Exporting Countries) had announced a global embargo to America's intervention. The embargo caused global oil price to shoot up.
The effect was disastrous to Malaysia. Cost of living shot up. To amoleriate the situation, a blanket subsidy was imposed, allowing the rakyat to buy the subsidised goods at a cheaper price. Thus, lowering their cost of living.
If the intention of the subsidy is good in the first place and it helps the rakyat to lower their cost of living, why is it bad in the first place?
Like all good things, it must be taken in moderation and it must end one day. What was probably intended as a temporary measure to provide relief to Malaysians, soon became an addiction.
The negative effect from subsidies come in two forms; market distortion and runaway budget. Of these two, let us focus on the first part, on market distortion.
Market Distortion
Market distortion happens when an external force other than supply and demand is exerted onto the supply chain within the economy. In the case of Malaysia, the external force is subsidy.
As the applied subsidy is a blanket subsidy, overall cost of living is lowered, which in turn helps to bring down cost of labour. This allow companies in Malaysia to produce export products using an artificially created competitive advantage.
This demotivates employers from investing in technology which would further improve their productivity as there is an abundant of cheap labour which in turn, put us in a vicious cycle of low income.
Runaway Budget
When a society or rather an economy relies too much on subsidy, you face a situation of runaway budget. Globally, we have seen Venezuela succumbing to this trend. With many consumer items being subsidised at a ridiculously low price, the nation is actually now suffering from hyperinflation.
Two other countries where near runaway budget had occurred are Indonesia and ourselves. Due to populist policy, both nations were reluctant to rationalise the subsidy. In our own Malaysia, our budget in 2013 nearly became a full blown runaway budget when the budget for subsidy alone is nearly equal to our development budget.
Subsidy Rationalisation
Blanket fuel subsidy in Malaysia has officially ended end of last year. However, do bear in mind that the result of subsidy rationalisation would bear fruit. For the subsidy rationalisation to work, there would be two key factors that would allow us to reap the benefit from subsidy rationalisation (other than a more balanced budget).
With our near full employment rate (around 3% of unemployment rate), subsidy rationalisation would push for the workforce, especially those who are to be affected by the increased cost of living to switch jobs. With near full employment, it would not be easy for employers to replace these employees if they are not willing to provide better enumeration.
Second is minimum wage policy. With a minimum wage policy, employers would have to pay employees certain amount of wages.
However, a word of caution. The minimum wage policy must be reviewed every 2 years. And the policy should soon cover foreign workers as to prevent exploitation of foreign workers to circumvent the policy.
(Update: - as was highlighted by Tuan Ahmad Rafdi Endut, government has already mandated the review to be performed every 2 years from the day the policy was in place. Therefore I have updated this from 3 to 2 years.)
Stifled Unions
The next cause that had led to our current conundrum is our economy has basically stifled most of the unions that operates in Malaysia.
It is unfortunate that unions are mostly regarded negatively by Malaysians, especially by employers. This is made worse by the fact that Malaysian government generally distrust unions. Not that it did not come with a logical reason.
Brief History of Unions
The root of Malaysian government distrust in unions can be traced back to the 1930's where unions were very strong and vocal. So vocal they were that Malayan economy frequently suffered from picketing.
This was then worsened when the Malayan chapter of communist party (Malayan Communist Party was then just a chapter to China's Chinese Communist Party) took opportunity to infiltrate into the trade unions and labour unions.
It did not help that when the British Special Branch smuggled an intrepid man named Lai Tek into Malaya from Vietnam, he was introduced as a trade union leader that had to escape from the clutches of French military. He soon took control of MCP, and also seen leading trade unions. (We shall talk more about him another day)
Today's Union
Today, most unions are rather muted. Saved for CUEPACS, NUBE and MTUC, most unions do not make much noise. They are just background statics.
Let's look into NUBE, or National Union of Bank Employees as an example how unions, when it works properly would help to improve the welfare and ultimately income of the workers in the particular industry.
NUBE was formed to protect the rights of bank employees from being mistreated by management of their employers. NUBE's membership is only open to non-executive due to executive being classifed as management.
Other than protecting their rights, the union also serves as a collective body, or a representative body to negotiate their wages and other benefits with their employers. The result of these negotiations are known as collective agreement, or in short CA.
Successful negotiations would allow increased in wages, especially for jobs in the lower rung. With the pay gap between executives and clerical staff (who incidentally are union members) closing, this provides a disincentive for employees to accept promotional offer from clerical to executives. This is due to the relative increase in responsibility in now seen does not commensurate with the smaller increment that they would be getting.
While it can be argued that banks can still look for people from outside to fill up the vacancies, this disincentive would also affect the morale of executives of lower grades, especially those who had just made the cut to move up into executive grade.
To mitigate the drop in morale, management would be compelled to improve the pay package across the board.
Destructive Unions
Like always, I would still need to give a word of caution. In some instances, unions could also be the cause of downfall of a company. We need not to look further. Let's take Malaysian Airline (MAS) as an example.
As Malaysia's national carrier, it is the pride of Malaysia. But the airline has been suffering badly from operational losses. The airline is suffering from lack of operational efficiency, but past management attempts to fix the problem faced heavy resistance from the unions within MAS. Yes, unions.
MAS has a total of 9 unions, each covering different roles within MAS. Baggage handlers have their own unions, stewards and stewardess have their own unions, counter staffs have their own unions. The competing nature of all these unions in protecting their turfs is now forcing the management to spend more time dealing with unions rather than to improve operational efficiency and in marketing.
Mega-Projects
Let's face it. Mega-projects are things of the past, especially if the return from the project is localised. Let me why mega-projects worked in the past, but no longer in the future.
Past Mega-Projects - Why They Work
In the early 80's, Malaysian economy was basically still primarily an agrarian economy. Most of our exports were commodities. Foreign investors did not see us as a potential ground for industrialization as we lacked the physical infrastructure. Our road infrastructure back then were rudimentary, and our deep sea port had fallen behind. Thus, the need for mega-projects focusing specifically in these areas.
When these projects were completed, the world still did not know us. Malaysians abroad have to introduce our country as the country located south of Thailand and north of Singapore.
Thus, the need for KLCC. Once derided for being wasteful, the project had actually help to propel Malaysia's image to the forefront. We now no longer need to promote Singapore and Thailand in the same sentence when telling foreigners where do we come from.
Why Certain Mega-Projects No Longer Works in Some Areas
As more and more infrastructure are being completed, we are now slowly having the problem of infrastructure glut, specifically in the surrounding of Klang Valley. Further infrastructure development in this vicinity would no longer be able to bring the same return in investment as in the past.
Additionally, infrastructure development in the past requires use of hard labour. Most of these were sourced locally then, providing jobs for Malaysians. The wages they earned were then spent in Malaysia, thus energising the local economy.
But today, it is quite hard to find Malaysians willing to work in the construction sector. Instead, these jobs are mostly outsourced to foreign labours, mostly Indonesians and Bangladeshi. These foreign labours do not spend much within our economy, but instead send their hard earned pay back to their countries of origin.
To better illustrate this. A newborn baby needs his mother's milk. Slowly and surely, he would begin to crawl, to walk and to run. By then, he could no longer rely on his mother's milk. He needs to have solid food. Thus, the need to slowly gravitate away from running the economy using mega-projects.
Qualifying Statement
However, I would need to qualify my statement. Certain mega-projects can still bring high return. Klang Valley for example would need more public transport infrastructure development. Such projects, like MRT1, MRT2, and MRT3 are much needed infrastructure projects in the Klang Valley to improve the connectivity between locations.
Similar infrastructure development like those in the late 80's to the 90's can still be invested in nationwide. Some of the mega-project that I wish to see to come true would be the double-tracking project for railway from the north to south and an airport in Kulim. I'll explain why later.
Currently, our rails are running on a single track, which does not bode well for logistics transportation. This has caused further reliance of highways to transport goods within Peninsular Malaysia. With double track, goods can be transported to both directions at the same time instead of one train waiting for the other train to arrive before starting its journey. On this account, Tun Mahathir's anger at Tun Abdullah is very much justified (a double tracking project was signed before Tun Mahathir stepped down, but was cancelled when Tun Abdullah became the PM).
Kedah's request for an airport to be built in the vicinity of Kulim is a good long term project. The project would complement Kulim High Tech Park and would allow more investment flowing into Kedah. While this may result in investment to Penang to be diverted to Kulim, this would help to spread the wealth over to Kedah and concurrently alleviate the housing problem on Penang Island.
Sabah and Sarawak - Land Fertile for Mega-Projects
Another area of focus for mega-projects would be Sabah and Sarawak. Both states are very much left behind during previous administrations. This in turn helps to create an environment that makes both states to be suitable to implement mega-projects.
Lack of job opportunities have seen many youths from both states to migrate to greener pasture, either in Peninsular Malaysia or overseas. Mega-projects on the other hand would help to attract these youths (and myself hopefully) to return to both states. Such projects would serve a double-pronged approach for both states. First, creation of jobs that would help to fuel the local economy. Second, increased population would allow both states to request larger budget allocation from federal government, as budget allocations for states by federal government are dictated by headcount, as enumerated under the Federal Constitution.
Monopoly of Business
Another aspect of Malaysian economy that would need to be looked into would be monopoly of business. Many types of business in Malaysia are still being monopolised by select few individuals.
Businesses that deal with consumer goods are still being monopolised by these select few traders. This creates an unhealthy consumer goods environment as there are no competition that would help to push prices down. Just to illustrate, in Sarawak imports of certain goods can only be made from certain individuals who in turn control the business statewide.
However, not all types of monopolies are bad. Some monopolies had to be accepted as there are no other business willing to enter the industry. Some businesses are of strategic in nature. And some businesses required to be a monopoly due to economic of scales. Thus these require large amount of capitals that may not necessarily translate to return in investment.
Education System - Neither Here Nor There
A lot has been bragged about our education system. But the hard truth is our education system is not here nor there.
Rote learning has rooted itself deep into the system that our education system are producing only regurgitators. It was so bad that when I took my SPM, I recalled some of my batch mates had actually memorized several sets of essays for SPM.
Sometimes, it is not what the system wants us to be, but the implementors of the system that has other ideas. I recalled having my essay marks being deducted as I had given points which were logical, but were not part of the proposed answer scheme.
Why is this bad for us?
In the long run, we are creating a generation of zombies. Zombies that could accept orders and suggestions, but could not think for themselves. This is not healthy as this would bring about a citizenry that can be manipulated by people in interest.
In fact, I would say this is the particular reason why our 13th General Election was a very heated general election. Previously unfulfilled promises by the ruling coalition has resulted at least half of the voters to no longer trust their election manifestos, or even actual good news that comes out of them. As the education system had created a generation of individuals who would take whatever being bandied around as truth, this gave the opposition of the day to spread rumours that had angered a small part of the voters to switch sides during the general election.
The best example would be that of the presence of 40,000 Bangladeshi being imported for the purpose of the election. Many took to the election centres nationwide to catch South-Asian looking individuals as potential phantom voters. In one case in Terengganu, they did netted 3 young men, who were managed to be prevented from voting. These 3 young men were later proven to be Malaysians who happened to study in Universiti Malaysia Terengganu. One of this men much later even swore an oath for King and Country, now serving as a police officer. Yet none of those who had prevented them from performing their rights as citizens apologise to them.
Conclusion
What I have just proferrred, is not the complete list. There may be other causes that had led to our current predicament. Nor should I claim a moral high ground with what I have just shared, especially if there are other circumstances that is unknown to me that had happened and had led to the examples I have shared. But I do feel, the steps been taken by our current government would be able to lead us to a high income nation.
However, I would need to caution the current government on 3 areas.
Perception Management
The current government has failed tremendously when it comes to perception management. Not only they have failed to deliver the required messages to the citizens, but they have managed to jumble up the messages and have the same message being seen as cynical towards themselves.
If the current government wish to win in the next general election, then they need to begin to manage this area.
Sovereignty of Nation
A weak nation is never a sovereign nation. As discussed in my previous writing, I foresee a much weakened Malaysia. With disputed claims over South China Sea (with ASEAN now proposing to name the sea as Southeast Asian Sea) potentially getting even hotter within the next 5 years, I fear we may be too late to procure sufficient surface combatant vessels and sub-surface vessels to protect our sovereignty over our Economic Exclusive Zone. Similarly, any conflict over at South China Sea would also damage the economy of the region as the main Sea Line of Communication (SLOC) does pass our country.
Increasing Cost of Living
As mentioned earlier, the subsidy rationalisation has slowly resulted in increase in the cost of living. However, there seems to be a huge disconnect between the efforts of some agencies when it comes to the increase in cost of living.
Best example would be the Land Transport Commission, or SPAD (Suruhanjaya Pengangkutan Awam Darat) recent announcement to allow the increase of public transportation fee, which happened to be timed together with the implementation of GST.
A better approach by different government agencies are to coordinate the increase on a gradual basis, timed differently to allow adjustments to be made by the citizenry.
As I have addressed some of the economic concerns in my previous writings which I had also shared in this same blog, I would not further elaborate these. These concerns implementation of GST, why GST is needed by Malaysia, and why BR1M is essential and how it generates local economy.
I would however like to touch a bit on the timing of GST implementation. Many have argued that with the worsening global economy, it is not the right time to implement GST. However, I would like to state that implementation of GST is very timely and this is the only right window of opportunity left for us. With the 11th Malaysia Plan to be debated in the Parliament somewhere next month, GST would be the primary driver for source of allocation for Malaysia in the future. With petroleum price being unstable, GST would be able to provide Malaysia a stable income. Plus, petroleum is not a renewable resource. One day it would be depleted.
With that, I end my case.
Note: feel free to point out what I may have gotten wrong. But please do it in a respectful manner.
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