Human Capital Issues

The allocations announced in the Budget for human capital development are indeed impressive. However, the question arises if the nation will get value for its money. There can be no denial of the fact that the Malaysian educational system is in disarray.

Standards have fallen dramatically. Our universities turn out graduates who lack rudimentary skills demanded by employers thus contributing to low productivity and loss of competitiveness. Our secondary school system is in disastrous shape.

Those who are charged with educating the next generation of Malaysians to be responsible citizens are more interested in promoting race hate as recent episodes of misbehavior by teachers highlight.

The lack of an adequate reaction from the top echelons of the Government has sent a strong signal to others in the educational system to project the message of hate that BTN promotes with impunity. These despicable acts and patterns of behavior give credence to the notion that the 1Malaysia slogan is nothing more than a catchy slogan devoid of meaning or sincerity.

Creating a skilled, innovative and knowledgeable work force demands a major revamping of the existing system. The Prime Minister gave no indication that a rethinking is contemplated.

The fact that the country is entrapped in the middle income trap can in large measure be attributed to the fact that the current educational system and labor market policies have been inappropriate. It is clear that without a fundamental change in these areas the country faces the prospect of remaining a middle income country.

The Prime Minister made much of the fact that efforts are being made to attract Malaysians working abroad to return to the land of their birth. The establishment of a Talent Corporation has been announced with great fanfare. It is far from clear how and what it will do.

There is hardly any recognition of the fact that Malaysians migrate partly in search of a better quality of life and higher incomes. What is becoming increasingly evident is that race polarization and increasing intolerance are emerging as negative factors that encourage migration and discourage a return to Malaysia. It is most sobering to note that the Government has yet to acknowledge the need for addressing the root causes.

The Prime Minister made reference to the fact that 375 native English speaking teachers will be hired to enhance the teaching of English. This proposal is somewhat laughable as the number involved is minute in relation to the demand.

If the Prime Minister and his Deputy, the Minister for Education are sincere and acknowledge the role English plays in commerce and industry and the modernization process, there is a need to mount a crash program.

The Government should promptly hire 1000 lecturers to train existing secondary school teachers in the teaching of English as a second language. Other steps worthy of consideration would be to making a pass in English in the MCE a requirement; all undergraduates be required to pass a course in English.

Again large allocations have been made for programs for Intensifying Training and Skills. A new program (1Malaysia Training Program) has been added. There is no indication that these multiplicities of programs have had a favorable impact. There is a clear need to review and evaluate these programs and to ensure that they are effective in meeting new goals and objectives of national policies.

The proposed establishment of a National Wage Consultation Council as the main platform for wage determination represents a modest and belated attempt to bring greater equity in the determination of wages.

For far too long the Government has indulged in policies that favor employers. Its labor market policies favoring the inflow of low wage migrant labor have contributed to a suppression of wage levels and pushing many working Malaysians to below poverty income levels. These distortions have become serious and require rectification. Time will tell if the new Council will contribute to correcting these anomalies.

The ad hoc setting of wage levels for different occupations such as security guards, postmen etc that the Prime Minister cited raise an issue of equity. It is hard to rationalize why there should be different minima for different occupations and these minima are either close to or even below the poverty line. In setting a minimum wage, it is imperative that wage levels be not near or below the poverty line.

Budget expenditures

The Budget for the year ahead calls for an expenditure of RM 212 billion and is 2.8 percent higher than in 2010. There is however little doubt that the final outturn will exceed by a sizable margin the budgeted amount when customary Supplementary Allocations are taken into account. The projected reduction in the deficit to 5.4% from 5.6% is not likely to be met. It is also important to note that expenditure increases of the order of 2.8% are unrealistic when account is taken of likely inflation in the range of 2 to 2.5%. That expenditure in real terms will increase by only 1% stretches credibility to the limit.

It is to be noted that the expenditure proposals generously allocate funds to Federal Government controlled projects. The Prime Minister’s speech was eloquently silent on the amounts that are to be transferred to the various State Administrations. Federal revenue sharing in the face of major structural changes appears to be wholly ignored.

The revenue projections call for an increase of 2.3% in current price terms. Several comments are in order. Firstly, it is most odd that revenue growth will be slower than GDP growth. GDP at current prices is likely to be of the order of 7 to 8 percent. It implies that tax revenues will not keep pace and point to large leakages in tax collections. That expenditure growth will outpace revenue growth is most telling. It signifies that prudent budgeting principles are being set aside in the interests of short term expediency. The much touted goal of bringing the deficit under control is thus unlikely to be achieved. The Mahathir model of large deficits continues to drive economic policy.

The fiscal picture presented in the Prime Minister’s speech is far from transparent. No indication is given of the large hidden off budget transactions. Nor is there even a hint of the increase in contingent liabilities that the Government will assume via the granting of loan guarantees. The lessons from the PKFZ fiasco have yet to be learnt.

What the Prime Minister failed to disclose in his speech was that net domestic borrowings by the federal government would rise to RM51.1 billion in 2011, from RM36.5 billion in the current year. A 40% jump in net borrowing and the lack of disclosure of this fact in the Budget Speech is not an oversight or non-disclosure of a fact of insignificance. The concealment is a clear example of lack of transparency and accountability. The nation is being misled and lulled into a false sense of wellbeing.

Conclusion

What is becoming clear is that the Government is embarked upon a dangerous path of massive borrowing and spending. The spending is directed and channeled towards projects and activities that will not contribute to either enhancing the productive or the competitive capacity of the economy. The key beneficiaries are likely to be a small coterie with links to the Barisan.

Short term political objectives are being placed ahead of the long term needs of the nation. A weak and divided Government is being driven to adopt failed and disastrous policies of the past. Reforms are being obstructed by vested interests whose narrow agenda is without vision. The nation’s path to the future and its destiny cannot and must not be set by yesterday’s men. If this path is pursued, Malaysia tragically is headed towards the same situation as faced by Greece in its recent economic crisis. A crisis of that nature will result in deep austerity, a falling of living standards and the destruction of wealth.

Malaysia must move away from that path to the precipice and must instead embrace reforms that will lead the country to a higher plane.