Globalisation brings both new threats and opportunities for the Malaysian economy. Should we rest on our laurels and continue to believe that we can be sheltered by the proverbial coconut shell, it will only result in irreparable damage to the economy. However, if we were to instil in our economy the spirit of resilience as well as the ethics of competition, hard work and innovation, Malaysia will be able to achieve its full potential via the vast opportunities provided by globalisation.

Today, capital, enterprise and talent are flowing to countries where government can be trusted, where the workforce is well-educated and skilled, and where the quality of life is high. These are key pillars of our economy and our country which we must build in order to reap the full benefits of globalisation.

Malaysia used to attract some of the biggest technological giants such as Intel, Motorola and Dell to develop and manufacture their latest technologies in the country. However, in the past decade, we have clearly fallen behind in terms of advancement in manufacturing technology. For example, Malaysia’s current leading semi-conductor wafer-fabricator, SilTerra Malaysia Sdn Bhd offers major foundry compatible CMOS logic, high-voltage and mixed-signal/RF technologies down to 130 nanometer feature size. SilTerra’s wafer fab has a design capacity of 40,000 eight-inch wafers per month.

However, semi-conductor technology has advanced significantly with state-of-the-art 90-nm technology on 300-mm wafers, and 65-nm production. In fact, 45-nm process technology is now under aggressive development. Our neighbours, Singapore, for example, is attracting more of the ‘first-of-its-kind’ investments such as the chip used in the latest PlayStation3 and Xbox. A French semiconductor company, Soitec, is investing $700 million to set up in Singapore its first offshore facility to make the wafer for this chip. It is high precision, high technology. The wafers have alternating layers of silicon and insulator, unlike conventional wafers which use silicon throughout. Singapore became the only country in Asia that it trusts well enough to set up its first manufacturing campus outside of France. Hence, it is key for Malaysia, in the age of globalisation, to bring back global investments in leading age technologies.

At the same time, with increased exposure to globalisation, we are clearly facing a worsening of our income distribution. In particular, there has been slow or no growth in wages at the lower end. The income share of the bottom 40 per cent of households decreased from 14.0% in 1999 to 13.5% in 2004 while that of the top 20% of households increased from 50.5% to 51.2%. Consequently, the Gini coefficient worsened from 0.452 in 1999 to 0.462 in 2004. All ethnic groups recorded an increase in the Gini coefficient during the period. The inequality among Bumiputera was the highest compared with the Chinese and Indians. Income inequality in Malaysia has been ranked the worst in Southeast Asia.

Globalisation, corresponding with a drastic increase in competition for skilled labour and global talents, has resulted in widening income gaps between the skilled and the low-skilled, between the young and old, between those who are nimble enough to adapt quickly to the market and those who aren’t.

Therefore our approach to globalisation is twin-pronged. Firstly, we must embrace globalisation, particularly in terms of open economic competition so that Malaysia, as a whole can grow to its full potential. However, we must at the same time carefully manage the negative impact of globalisation, particularly on the less educated and lower income group in the country.

To face up to the opportunities provided by globalisation, it is critical that we build capacity and capabilities, with the greatest emphasis on education and human capital development for the future. At the same time, we must attract new investments, grow new businesses, and create new and better paying jobs to replace old ones.

To bring the economy forward, it is hence critical that we develop a new national policy to fully exploit the strengths and talents of all Malaysians to contribute towards the growth of the country, which will replace the outdated New Economic Plan (NEP) with a distinct shift in focus from a race-based economic agenda to one which serves to promote efficiency, competitiveness and equality of opportunity for all Malaysians.

The new policy will promote a productivity driven and private sector-led economy that requires comprehensive reforms to education, as well as the private and public sectors. The reforms should increase the incentives of people to acquire and make the full use of human capital and for companies to invest and innovate to be stay ahead of competition. Earlier policies within the NEP which is incompatible with private incentives that causes the outflow of talented people and businesses to other countries that offer a better deal for their endeavours must be reversed.

An integral element of such a new policy is to ensure that business contracts tendered in the private sector, including Government-linked companies (GLCs) shall be based on the quality and price of the proposal, and not based on racial composition requirements. At the same time, to ensure a smooth transition from the NEP system, Government contracts shall be migrated to a open, transparent and competitive tender system based on quality and price over a 5 year period. The tender process for all government projects above the value of RM10 million shall immediately be migrated to the new system, and all such projects must be tendered openly and competitively.

Such a new policy will ensure that there will be minimal wastage of economic resources we have observed in recent years due to government bailouts of large projects. The poor delivery system has resulted in catastrophes, such as the Middle Ring Road II increase in cost from RM120 million to RM190 million and the MATRADE Building from RM167 million to RM287 million . It will also eliminate poor workmanship seen recently, such as the renovation works for the Parliament, the construction of the mega Jalan Duta Court Complex as well as the government buildings in Putrajaya.

However, as we grow the economy, we must ensure that no one is left behind, irrespective of race, religion or creed. All Malaysians have the opportunity to succeed. we must ensure that all social subsidy programmes target the deserving groups, particularly those from rural areas as well as lower-income families. Subsidies and grants shall be focused strictly on lower-income groups, instead of being abused and wasted on the wealthy.

There should be an allocation of RM9.3 billion in 2008 as grants and income supplements for the lower income groups. The key objectives of these grants and income supplements should serve the dual function of easing the financial burden of the needy as well as incentivising and improving their abilities to secure better opportunities. This programme is a major cornerstone for the Government to share the country’s wealth derived from the oil and gas sector with the rakyat.

(Speech 6 on 2008 Budget in Parliament on Monday, September 10, 2007)