By Dr Teck-Yong Eng

The People have delivered their verdict on the recent Malaysia’s 12th general election and it is time for all bickering about political rhetoric to take a back seat. In the midst of chaotic restructuring and constant backstabbing of politicians, the opposition could lose focus on turning the election manifestos into reality and serving the people.

Economic wellbeing and progress of the nation is one of the main reasons for the people’s dissatisfaction with the ruling government (BN), which transpired to a historic election defeat.

In a crude sense, our economic malaise especially economic and wealth distribution is not the sole responsibility of the current PM but has been simmering under the various positive headlines with politically motivated agenda of the previous premier.

To the uninitiated, poverty may not be physically visible as one observes our surroundings but when one probes and examines the deeper fabric of socio-economic deprivations and inequalities, the voice of dissatisfaction is loud and clear particularly for those in the lowest income group, where poverty is affecting them in a vicious circle on future generations in terms of education and knowledge, health service and proper nourishment for child development, and economic opportunity. This is even more profound when one removes government subsidies on basic commodities such as oil.

The result is disheartening, as the use of subsidies and short-term tax incentives for attracting foreign direct investment to propel domestic economic growth is unsustainable in the long term.

There are also greater socio-economic gaps between the working class and the middle class (not to mention the upper class). The indirect effects are marginalisation of certain groups of the population, creating various social problems such as community integration (e.g., recent protests of the Indian community), turning to crimes and vices for living, and downward spiralling standards of living for the majority.

So, to our leaders, what measures of economic and wealth distribution are in place to redress this economic imbalance and distribute economic wealth to the lowest population strata of economic wellbeing?

Unfortunately, there is no clear cut solution as economic, health and education policies are intertwined. Within the economic framework, economic and wealth creation and distribution are mainly driven by national economic policy across resource-based industrial and agricultural sectors, e.g., conventional government projects are meant to stimulate job markets, growth, consumer demand etc. from industry to micro-market or consumer level.

Setting corruption aside for another discussion, we could start by revisiting past and examining current and future economic policies. In this context, one would need to reflect on some of the following basic economic questions and brief comments whilst policies are being analysed and formulated:

1. What did we learn from past economic policies?

Over the last two decades, Malaysia’s economic focus in terms of trade and export incomes has tended to shift from agricultural resources to industrialised manufacturing (see: Malaysia’s Industrial Master Plans (IMP). Initially, from the look east policy of attracting foreign direct investment (re:Japan) and MNCs plants locational decision with various tax incentives, though some sceptics would argue that excessive red tapes hampered this effort.

Despite some success in attracting major MNCs (Japanese and Western corporations), the economic impetus stopped short of knowledge transfer initiatives and creation of new industries and opportunities. Evidently, the rise of China and India (not to mention competitive neighbouring labour markets in the Far East Asia Region) has caused policy makers to question the role and value of MNCs in job creation, and technology and knowledge transfer.

With the exception of Proton (though debatable and its global market position in under threat), there is little evidence of development and accumulation of intellectual assets through concerted and effective past economic policies.

The question is how foreign capital inflows, and both direct and indirect investments have resulted in adequate distribution of wealth in terms of knowledge transfer (such as technical knowledge and managerial skills) to blue and white-collar workers.

During the period of economic boom in the mid 1990s, the government have also championed information technology and knowledge based industries such as the creation of MSC. This has been a worthy economic investment, though it had not been carefully planned and implemented. In addition, the timing was wrong in terms of human capital and infrastructure development, e.g., there was no systematic policy in encouraging and developing ICT knowledge at all levels of education.

The lack of investment in technology-related and technical knowledge has been a critical shortcoming when potential investors and companies evaluate and make their investment choices, and decisions vis-à-vis other countries. So, what will the government do to nurture and create opportunities for future generations, who are likely to be relying more on knowledge-based industries?

After the Far East Asian economic crisis and various circumstances (September 11, bird flu, tsunami, etc.), one could argue that the government seemed to have lost its economic focus (e.g., incoherent economic direction in the Ninth Malaysia Plan) and hence, the search for new and major infrastructure projects took place, which resulted in the Iskandar Development Region (IDR) project in Johor.

Amid growing criticisms of economic stagnation during the period of 2004-2006, the government fumbled and resorted to driving internal economic demands through construction and real estate sectors, agricultural sectors, and extension of the Visit Malaysia Year campaign.

The post September 11 event has also facilitated the growth of Middle East investors in real estates and medical care services, and the idea of Islamic Banking hub. The idea of medical tourism was also put forward despite glaring basic health concerns of the national health policy for the people, e.g., the government could do more to educate people about the health risks of smoking.

There has also been substantial investment in petrochemical and chemical based products driven by natural resources in the face of increasing world demand of oil and chemical-based products.

While these industrial sectors are important to the economy, the government had been reactive or ad hoc (as opposed to proactive) in charting the strategic development of the economy. For example, what resources were allocated to help small and medium-sized enterprises (SMEs) and local businesses in developing skills and knowledge of modern agricultural techniques particularly with regards to previous economic plans? In what ways the current economic emphases are building on previous investments in MSC projects, industrial clusters and knowledge-based industries?

Furthermore, the Iskandar Development Region (IDR) (as much as a welcome boost of capital injection) baffled the geo-economic and strategic logic of effective allocation of scarce resources.

Although this can be seen as an attempt to distribute resources to other states in the country, the IDR project is arguably a wrong strategic and investment decision in terms of the following points (which can be discussed further in another article):

(a) diseconomies of scale whereby investment in existing industries and infrastructure is counterproductive and non-competitive when the region has little slack resources.

(b) When the choice of strategic position (location) may not be advantageous in terms of the presence of existing industries and services to support demand of technical skills, and the labour market is relatively small compared to other states. Also, not to mention there is little consideration of geography and population, and topography of the region, e.g., had the region been prone to flooding?

(c) When our neighbour, Singapore has established networks and advanced industries (Gulati et al., 2000). The thought of benefiting from economic spillover effects is also a non-runner – as Singapore focuses on highly technical industries such as financial hub services and international seaport services.

(d) When the cost-benefit and opportunity cost analysis had not been carefully examined, e.g., the use of existing strategic/national infrastructure airport, seaport and administration.

(e) When human capital development in a progressive manner from existing industrial regions had not been fully capitalised, e.g., there is a steep learning curve in the region that will further curtail skills upgrade in the extant industries.

(f) When our economic bi-lateral relationship with Singapore had not been carefully managed, promoted and professionally developed.

(g) When previous economic projects had not been integrated or further revised to capitalise on time compression diseconomies as opposed to inefficient allocation of resources.

(h) When FDI strategy mainly promises asset appreciation without transfer of technology or knowledge – further questioning the government policy of carefully planned distribution of economic wealth in the long term.

(to be continued)

[Dr. Teck-Yong Eng is Senior Lecturer, King’s College London, University of London, School of Social Science & Public Policy.
Email: [email protected]. Blog : http://strategisingmalaysia.blogspot.com/)