Three Missed Opportunities in the 11th Malaysia Plan

 

PRESS STATEMENT/ANALYSIS

Three Missed Opportunities in the 11th Malaysia Plan

29, May 2015: As the five-year blueprint that is supposed to lead Malaysia to ‘high income’ ‘developed’ status, the 11th Malaysia Plan (11MP) places some welcome emphasis on addressing income inequality, improving the lot of the bottom 40 percent (B40) of income earners, improving productivity and public transportation, and strengthening existing industries.

There are at least three missed opportunities in the 11MP that are also symptoms of long-standing policy impasses holding Malaysia back from becoming a fairer and more prosperous society.

Let us start with the simplest.

1. A “total affordability” approach to urbanisation for the B40

Affordable housing, public transportation, and raising the incomes of the B40 are major aspects of the 11MP.

Malaysian households of the middle-class and below are presently weighed down by housing loans and vehicle loans, a situation compounded by weak wages that are stagnant in real terms.

Low-income Malaysians are struggling to get housing loans since Bank Negara tightened credit eligibility criteria. Federal government ‘affordable housing’ programmes such as PR1MA are actually overpriced by at least 11 percent, according to Institut Rakyat’s research [1]. Low-cost rental housing ranges from the unaffordable to the dilapidated, with many low-cost flats being poorly governed and maintained.

Public transport has expanded in recent years, but rail networks are having to fit around decades of pro-automobile planning, and inner city bus routes still leave many poor communities isolated.

Buses comprise one of the most affordable modes of public transport, costing a fraction of rail. Unfortunately, bus transit in the 11MP is geared towards intra-city connections rather than improving inner city connectivity. It should prioritise both because by 2020 Malaysia is expected to hit 75 percent urbanisation.

A simple, holistic planning approach to urban development that combines affordable housing/rental and public transportation alongside wage improvements, could generate sharper improvements than the current 11MP, where these initiatives exist separately.

A “total affordability” approach prioritises the financial situation of the bottom 40 percent of income earners by seeking to relieve them of the crushing housing and vehicle debt bequeathed by Malaysia’s existing development plans.

Public transport would connect areas of affordable housing and rental to workplaces where wage policies should be delivering improvements in income. There would be little need to take a vehicle loan, and housing payments should be within the bounds of affordability.

The result would be more disposable income for households, leading to improved domestic demand, which could provide a much needed boost for the local service sector.

If urban planning and zoning is not approached holistically then we risk social fragmentation. Affordable housing may lack public transport connectivity and the wages of the B40 will continue to struggle to make ends meet. This is our present situation and we cannot afford to let it continue.

2. Corporate losers need to be weeded out, not bailed out

The 11MP’s plans for the Malaysian economy continue to avoid measures proven to be successful in the industrialisation of Northeast Asian states such as Japan, South Korea, and Taiwan [2].

The primary differences boil down to: whether corporate losers are weeded out instead of being bailed out; the resultant financial consequences for public coffers; poor export pressure on nationally-sponsored industries; and, the abandonment of manufacturing for the services sector.

Northeast Asian states achieved national prosperity by pushing for manufacturing after agricultural reform. Manufacturing offered a chance to upgrade labour productivity and technology, thus generating more value and better jobs.

The protection extended to domestic industries was insulated from rent-seeking abuses by forcing business to export at competitive global standards.

Export performance determined who was worthy to receive state support and provided clear evidence whether products were ‘world-class’ or not.

Businesses that failed to succeed had national patronage revoked or were forced to merge with more successful rivals. Rather than picking winners, as has been the approach in Malaysia since the Mahathir years, the state weeded out losers. The state also forced business to shift to higher value industries and share financial gains in the form of higher wages for workers.

In Malaysia, ailing corporate entities with poor market prospects, often connected to government or figures within government, have been bailed out at public expense or risk. Witness the use of billions of ringgit from Tabung Haji and the Employees Provident Fund to aid 1MDB, Maju Holdings, Renong, and RHB Bank.

Proton, once the flagship of Malaysia’s heavy industrialisation dreams, never experienced serious pressure for export competitiveness. Policymakers were content to let it settle for a protected domestic market, which led to mediocre results.

With weak policy discipline Malaysia’s push for manufacturing-based industrialisation foundered. In fact, scholars such as Rajah Rasiah have noted a premature de-industrialisation of the Malaysian economy since 2000, part of what he calls a national “Acquired Industrial Deficiency Syndrome” [3].

In his Budget 2015 speech, Prime Minister Najib Razak made an incredible claim that Malaysia had rapidly graduated from manufacturing into services, and that services would be the main source of growth for the Malaysian economy.

Pitching a country’s future economic direction is not the same as selling a used car, defects cannot be so easily painted over.

The 11MP and the recently launched Services Sector Blueprint repeat this emphasis on the service sector, which comprised 55 percent of the Malaysian economy in 2014.

Because services are the largest single sector in the Malaysian economy, it does not necessarily follow they have the best growth potential. Successful economic advancement means developing competencies in higher value-added industries, migrating to more profitable industries when old ones threaten to flatline. It is also easier to achieve with manufactures than with services.

Manufactures can be bundled into a crate and shipped all over the world. Services, embodied in people, experience much more restricted mobility. Labour is nowhere near as free to move as goods and capital are. Manufacturing output can also be multiplied to a greater degree by technology than services can. Services can actually travel along with manufacturing exports. An example would be the after-sales service promoted alongside foreign cars. However, the sale of a solid manufactured product is primary.

The largest segment of the services sector is distributive trade, food & beverage, and accommodation, none of which are readily exportable and also face weak wages. Some legal and financial services may have legs, but their employment and monetary contribution is comparatively small.

If Malaysia can make the service sector a globally-competitive engine of major export growth, this would stand economics on its head. Such an outcome is highly improbable, and one that will not happen by 2020 with the current structural weaknesses in education and soft skills.

Strengthening manufacturing would be tough, and require tough measures, akin to those employed in Northeast Asia that punish failure, but allow genuine domestic champions to rise.

Malaysia’s major exports such as electrical and electronic goods are dominated by foreign-owned firms. The fact that after 52 years of independence, the global market is more familiar with Japanese and Korean brands than it is with Malaysian brands is one simple sign of our industrial policy failure.

3. Improving human rights, including labour rights

Improving urban affordability and quality of life, and injecting dynamism and discipline into the economy will mean little if Malaysians enjoy no freedom to participate in public life, or to even point out our collective problems.

Before the journey to 2020 became a narrow economic target there was a vision that talked of Malaysia being a liberal and democratic country by that time.

This wish has been undermined by the recent return to authoritarian measures, and glaring flaws in the electoral system and parliamentary democracy that remain unaddressed.

Liberal values have now become a favourite scapegoat of the present Prime Minister, who – in a misguided fit of amateur psychiatry – has even identified them as a source of paedophilia. Democratic reform, especially electoral reform, remains hostage to the ruling Umno. The freedom to debate the nation’s direction is directly threatened by the government’s aggressive use of the Sedition Act against critics, social activists, academics, journalists, and opposition politicians.

With all its talk of improving wages and incomes, the 11MP is silent on improving workers’ rights by 2020. There is even suggestion of making dismissals easier.

The International Trades Union Congress in its 2014 Global Workers Rights Survey gave Malaysia its lowest ranking, of 5 (1 = best) [4]. Repeated violation of workers rights, freedom of association, and limited guarantees places Malaysia alongside Bangladesh, Zimbabwe, and Saudi Arabia as one of the worst places to work in the world.

By British colonial design, our flagship workers’ organisation, the Malaysian Trades Union Congress (MTUC), is not even a trade union by law, and thus unable to undertake collective bargaining for workers.

Failures in industrial policy are not the only reason why Malaysian wages have been suppressed all this time. It is also in part due to government favouring business over labour rather than acting as an honest go-between.

Malaysians are not narrowly economic creatures. We will not feel a distinct sense of achievement from hitting an abstract economic target based on averaging out national wealth if we are bereft of fundamental rights and justice. 52 percent of Malaysian voters voted against Najib’s platform in the last election, instead they voted for a coalition that promised economic and political reforms.

The 11MP falls short of the reforms desired and needed by Malaysians. Malaysian development planning can no longer paper over persistent policy failures nor ignore demands for political reform. The election results have sent a very clear message. Politicians, even those protected by electoral manipulation and a police state, would do well to pay heed.

 

Yin Shao Loong
Executive Director
INSTITUT RAKYAT
Petaling Jaya

 

References

[1] Institut Rakyat, 2014. “Institut Rakyat’s Housing Affordability Index shows tremendous regional disparities in housing affordability,” 3 Dec 2014, http://www.institutrakyat.org/housing-affordability-index-shows-great-regional-disparities/

[2] Joe Studwell, 2013. How Asia Works, (New York: Grove Press).

[3] Rajah Rasiah, 2011. “Is Malaysia Facing Negative Deindustrialization?,” Pacific Affairs, Vol. 84, No. 4, December, pp. 715-736.

[4] International Trades Union Congress (ITUC), 2015. Global Workers Rights Survey 2014.