Pakatan Rakyat Budget 2012 (Part 6 of 10)

5 Thrust 1: Empowerment, Opportunities and Dignity for All Malaysians

5.1 All Malaysians and government must collaborate to restore dignity The holistic economic and structural policies of Pakatan Rakyat will:

• Restore dignity to all working Malaysians and their families.Dignity through improved skills, increased productivity, higher incomes, better job conditions and better quality of life;
• Re-establish incentives for businesses and investors to upgrade and launch innovative high-value added product and services activities, and
• Enhance the motivation of government employees to facilitate this bold transformation process.

But the Pakatan Rakyat government cannot carry out these essential policies by itself and in isolation. The rakyat, as employees and employers; as housewives, caregivers and students, and most importantly as contributing citizens must play their individual and collective roles and take their place in advancing this brave agenda to move Malaysia forward to greater heights to stand tall globally. To increase productivity, the rakyat must improve their skills:

• Pakatan Rakyat will work on policies to improve and strengthen education to increase skills, including through programs to up skill and retrain workers. But workers must be prepared to undergo additional training and continued education to secure the better paying jobs, higher incomes and ultimately a better quality of life;
• Pakatan Rakyat will augment and broaden the technical skills of the workforce through a complete overhaul of technical education in collaboration with the private sector particularly in apprenticeship schemes and industrial attachments;
• As Pakatan Rakyat structural policies for business and new sources of growth take hold, there will inevitably be disruptions in some sectors as industries adjust and shed jobs in declining sectors. Workers must be prepared to relocate to areas where the new and higher paying jobs may be clustered;
• Pakatan Rakyat will have policies to strengthen the worker safety net that will be centered on retraining and up skilling, job search and relocation assistance, as well as unemployment insurance. The social safety net will also be enhanced to support those who are made redundant and require longer to rejoin the labour force.

Pakatan Rakyat will help employers and investors by providing incentives, reducing the cost of doing business and making the recently enacted Competition Act work effectively as described in Section 5.7 below.

• Industry must be prepared to retool, move up the value chain and reduce reliance on low-wage foreign labour. Pakatan will facilitate entrepreneurs from SMEs and support R&D for innovative products and processes;
• With inputs from industry and worker representatives, Pakatan Rakyat will align education and training policies to deliver the right mixed of skilled employees for industry. It will also facilitate the entry for skilled foreign labour that cannot be sourced locally in support of high value-added industry;
• Pakatan Rakyat will expect that employers must reward high skill workers accordingly and be prepared to more equitably share the productivity gains of industry with workers.

In short, success of this initiative is dependent on all citizens of Malaysia and the government collaborating effectively:

1. Employees must be willing to adapt, learn, reskill and retool;
2. Employers, businesses and entrepreneurs must value productivity and innovation and reward accordingly; and
3. Government must put in place appropriate policies and give support where necessary.

5.2 Raising incomes through skills, productivity and a minimum wage There are many reasons why Malaysian productivity is low. One is that employers have had little incentive to invest in productivity improvements because Barisan Nasional federal government policies have allowed reliance on excessive numbers of unskilled, low-cost foreign labour.

It has been estimated that there are about 1.9m legal and up to 2m illegal foreign workers in Malaysia, who are mostly unskilled. On this basis, there are 4 mostly unskilled foreigners for every 10 Malaysian workers.

Chart 2: For every 10 Malaysian workers, there are 4 foreigners

Chart shows total number of workers. Source:Derived from Principal Statistics of Labour Force, Malaysia, June 2011 from the Ministry of Labour; and the estimates on foreign labour cited above.

Pakatan Rakyat notes that cheap foreign labour is a subsidy to businessmen taken from unskilled Malaysians. Lower income Malaysians have sacrificed decent jobs, housing and lifestyles so that businesses could enjoy high profits the easy way without having to invest in productivity improvements.

Pakatan Rakyat believes that a well thought out, effectively implemented mix of holistic policy measures will help spur productivity improvements and sustainable increases in domestic demand:

• Cheap labour spares businesses the effort and cost of investing in productivity improvements and making jobs better. For example, delivery personnel and taxi drivers are generally not equipped with GPS systems, despite the relatively low cost of such systems and clear productivity gains to be reaped;
• Cheap labour also results in brain drain as our best and brightest move on to economies which reward their efforts;
• Upskilling, increasing productivity and higher wages will lead to higher purchasing power and greater demand for goods and services, driving a virtuous cycle of domestic demand growth.

Pakatan Rakyat concurs that incomes can only grow sustainably in line with productivity gains. To sustain productivity, workers must be prepared to upskill themselves, retrain and be relocated to new regions where the higher paying jobs may reside. But Pakatan Rakyat recognises that in the immediate short term, the wage setting mechanism in many key sectors of the Malaysia’s labour market has become dysfunctional. This phenomena is clearly reflected in the chart below.

Chart 3: Value Added per Worker and Wages are not significantly correlated

Source: Reproduced from Minimum Wage in Malaysia – Potential Impacts, Design and Next Steps. The World Bank, 19 Jul 2011.

This shortcoming is particularly acute in the lower wage segment of the labour market. For this reason, Pakatan Rakyat is in favor of a national minimum wage policy, to correct for the deficiency in the wage setting mechanism in the labour market.

Pakatan Rakyat is of the view that a minimum wage policy is only one among a package of instruments to raise household income which has stagnated for a large segment of the Malaysian population. Indicators and notions of meeting “a living wage” or “the poverty income line” are best addressed by an enhanced social safety net program which will more comprehensively and broadly address the needs of the poor and disadvantaged segment of the population.

Pakatan Rakyat will support a single national minimum wage. States such as Sabah and Sarawak will be allowed more time to converge:

• Pakatan Rakyat will propose amendments to the National Minimum Wage legislation to strengthen the governance of the wage decision by the National Wage Consultative Council (NWCC) and reduce the current unlimited discretion granted to the Minister of Human Resources;
• The minimum wage (defined to be total compensation) will be determined by a NWCC, based on a set of objective indicators and appropriately explained discretions;
• Any allowed deviation from the established national minimum wage must be set on the basis of the ability to pay of employers and the likely impact on employment in the affected states;
• In addition, Pakatan Rakyat will also allow for a fixed deviation for young workers and disabled members of the community.

Chart 4:Wages in the Klang Valley and Penang are far higher than elsewhere

Chart shows % of labour force in each state below the wage levels cited. Source: Reproduced from Minimum Wage in Malaysia – Potential Impacts, Design and Next Steps. The World Bank, 19 Jul 2011.

Pakatan Rakyat will recommend to the NWCC a national minimum wage of RM1,100 per month. This level of minimum wage would have the largest impact on workers in the wood products (excluding furniture) and agriculture, fishing and forestry industries where about 80% of workers would be affected, as shown in the chart below. Without other government incentives and policies, it is estimated that about 10% of foreign direct investment (FDI) could be lost. Some of this FDI would be in low-end labour-intensive areas which are no longer desirable or appropriate for Malaysia. Pakatan Rakyat anticipates that in the medium-term, together with other good governance initiatives and policies outlined in this document, FDI will rise.

Chart 5: Distribution of wages by sector

Chart shows % of labour force in each sector below the wage levels cited. Source: Reproduced from Minimum Wage in Malaysia – Potential Impacts, Design and Next Steps. The World Bank, 19 Jul 2011.

Pakatan Rakyat views this policy on the national wage policy as one of the measures among the holistic policies to improve labour productivity and income. This policy on minimum wages will only be effective in correcting the deficiencies in the labour market in tandem with the broader labour market policies described in this document.

In addition, Pakatan Rakyat will introduce specific policies to reduce reliance on the use of low wage foreign workers which has also contributed to suppressing wages at the low end of the labour market. However, Pakatan Rakyat recognises that many important sectors will continue to have a need for low-skilled foreign workers because of the small size of Malaysia’s labour market relative to the volume of the country’s economic activity.

• For employers, Pakatan Rakyat will set up a special Facilitation Fund, to help entrepreneurs, SMEs and small firms which meet qualifying conditions to retool, mechanise and adjust their operations to meet the minimum wage requirement. In consultation with SMEs and cooperatives, Pakatan will formulate the implementation framework and amount for this Fund, but an initial size of RM2 billion could be allocated for such a purpose;
• Similarly employees who had previously been apathetic due to the lack of rewards for up skilling may need a helping hand. To support employees during this transition period, the Pakatan Rakyat government will consult with employers and worker representatives on the kinds and levels of skills needed. At the same time, all existing government funding, government-funded programs at tertiary and higher learning institutions and GLCs training schemes would be reviewed and consolidated into a strategic framework aimed at a sustained upgrading of skills for all economic sectors. In addition, the operations and contributions of the Human Resources Development Fund (HRDF) will be folded into this more purposeful training scheme. Pakatan will place special emphasis in three essential areas:

5.3 Unlocking private sector potential Wages, like all prices, are a function of supply and demand. Increasing the supply of skilled workers and imposing a minimum wage will not result in higher overall wages and employment if there is insufficient demand by employers.

Khazanah Nasional in a report concluded that:

• Only government investments in infrastructure – such as roads and ports – complements and stimulates private investment;
• Government involvement in directly productive economic activities crowds out private investment.

In plain language, government involvement in business has replacedrather than created jobs. Entrepreneurs and private businesses choose to leave the market rather than compete with the government, resulting in fewer job opportunities.

This lack of employers is another reason for the wage suppression in Malaysia as the bargaining power of employers becomes strong compared to that of workers. Existing firms have little to fear from new competition and can maintain wage growth below productivity growth without worrying that their employees can move on to other better paying jobs.

Besides the crowding out by government, the lack of private activity can also be attributed to excessive bureaucratic red tape and regulatory burdens dissuading new investments and new firm creation and operation:

• 14% of manufacturing firms actually had to hire special consultants to deal with pemits, licenses and approvals;
• According to the Doing Business Indicators produced by the International Finance Corporation, Malaysian ranked 113th out of 183 countries in the world in terms of ease of creating a business in 2011.

Khazanah pointed out, and the World Bank concurs, that our physical infrastructure – ie roads, airports, ports, utilities – is generally sufficient. It suggests that the government must now invest in soft infrastructure, instead of more physical infrastructure.

Three elements are key to unlocking private sector potential:

1. Promoting competition;
2. Allowing price determination to be more market-driven; and
3. Further improving the investment climate.

The Pakatan Rakyat government will reduce its involvement in direct economic activities that crowd-out the private sector; and expand its involvement in areas that complement private sector initiative – crowd-in investments instead.

5.4 Rewarding innovation and productivity via procurement policy The current policy of negotiated/closed contracts rewards know-who rather than knowhow. It deters innovation, creativity and productivity and also impedes price discovery. Pakatan Rakyat will implement an open tender policy for government procurement. Information on the contract details and winning bidder will be clearly published on-line.

It is anticipated that as companies compete openly and fairly for government contracts:

• Some of the fees and “commissions” now paid to various “agents” will be spent on higher wages for talented employers and better products/services instead;
• The costs charged to the government will also be reduced as these companies strive to offer better terms in an open tender environment;
• More firms will be attracted into the arena, creating more jobs.

Pakatan Rakyat recognizes that, to achieve inclusiveness, calculated policy interventions are still needed to narrow income disparities between ethnic groups and regions in Malaysia. Accordingly, Pakatan Rakyat will continue to provide affirmative support and opportunities for disadvantaged groups based on need.

• With full transparency, Pakatan Rakyat will work with Bumiputra and disadvantaged groups to refine the objectives and execution of affirmative support initiatives including a vendor development scheme for entrepreneurs;
• In particular, Pakatan Rakyat will focus on strengthening the capability of the disadvantaged groups through targeted education, training and financial support;
• Pakatan Rakyat affirmative measures will be subject to mandatory biennial reviews as to their impact and effectiveness.The ultimate purpose of affirmative action will be uplifting income while shrinking the size of this group and thereby drastically contracting disparity sufficient for it to become a non-issue.

As much as possible, Pakatan Rakyat is in favor of upholding fair and equal opportunity to allow the economy to be competitive by arousing market confidence. Pakatan will face resistance from cronies that desire to perpetuate patronage and rent-seeking. With the enlightened rakyat as our buttress, Pakatan Rakyat will meet the challenges for managing these disruptive groups that lack foresight and propagate divisiveness.

5.5 Increasing incomes and employment opportunities for Malaysians in rural areas

Pakatan Rakyat will increase incomes and employment opportunities for Malaysians in rural areas. In the medium-term, regional and rural development will be boosted through administrative decentralisation as covered in this Budget. In the immediate term:

• BERNAS’ monopoly for the import of rice will be abolished. Import licences will be awarded through a competitive and transparent process.
• RM200 million will be allocated to agricultural research institutions such as MARDI.
• More competitive wholesale markets and mechanisms will be developed and established to ensure fair prices are paid for farm produce.

5.6 Civil Service Excellence and cutting red tape to serve the rakyat better 5.6.1 Restoring the glory of the Civil Service The support of the civil service is crucial. Government policies will remain merely theoretical ideas and documents if the civil service is unable or unwilling to implement these policies effectively.

The Malaysian civil service is admittedly large. It also suffers from the perception that it is inefficient, sloppy and sometimes suffers from impropriety. Restoring the lustre of the civil service is a joint responsibility of the political leaders of the day and the civil service:

• Pakatan Rakyat recognises that political interference has been a factor behind the decline of the civil service. Good, professional civil servants have been overlooked nd ignored by the Barisan Nasional government as it pursued political patronage strategies;
• Pakatan Rakyat is committed to an independent, professional civil service. Pakatan Rakyat leaders will accord civil service personnel with professional respect and will reinstate the eminence of the civil service in policy development;
• On the other side of the coin, civil servants must restore the culture of excellence, rewarding high performers and addressing underperformers.

Pakatan Rakyat proposes a Civil Service Excellence Initiative (CSEI) to restore the glory of the civil service. The CSEI will include:

• Improving job satisfaction and thereby productivity and efficiency. Responsibilities and jurisdictions will be clarified, reducing unnecessary overlaps, duplication and bureaucracy;
• Putting in place remuneration, reward and promotion schemes that reward highperformers as well as ‘work-out’ schemes by which under-performers can be counseled and retrained, or ultimately released.

5.6.2 Less red-tape eases life for the rakyat and promotes economic activities A dynamic and forward-looking civil service is crucial in streamlining the regulatory environment for businesses including licensing requirements and barriers to new investment. This will encourage new businesses to be formed and existing businesses to expand.

It is envisaged that such expansion will increase demand for labour. This will in turn create a virtuous cycle where increased demand for labour makes firms more efficient, more likely to participate in the formal economy, and more amenable to better compensation and employment conditions which in turn spurs more demand and more business activity.

The current regulatory framework in Malaysia is awkward and burdensome at all levels of government. Pakatan Rakyat will put in place a wide-ranging regulatory reform scheme to stimulate productivity and competitiveness resulting from greater innovative investments.

The new regulatory environment will highlight certainty, reduce distortions and ensure policy consistency in line with international best practices and standards. The new framework will have regulations and licensing requirements that are proportionate and thereby contribute to keeping business costs low and free of excessive procedural complexities. Departments and offices at all level of government must adopt a new tradition that strives at reducing the regulatory burden and red tape. Specifically:

• Pakatan Rakyat will adopt the Principles of Good Regulation. These include transparency, due process in administration of regulations, predictability, proportionality, accountability, and non-discrimination;
• All new regulations must be subject to a Regulatory Impact Analysis (RIA). This makes clear the impact and expected outcome of the regulation and calls for mandatory consultations with affected stakeholders;
• All regulations must have sunset clauses or mandatory review following fix periods of their existence to assess their effectiveness and continued need;
• A proper registry or database of regulations (existing and new) at all levels of government must be established and managed centrally. This will allow businesses and the rakyat to have a proper view of applicable requirements and allow government to track and reduce overlaps and inconsistencies.
• A time-based reduction of the regulatory burden will be developed. With the database available, several approaches to undertake this deregulation will be adopted, e.g. by subjecting all existing regulations to RIA; by targeting a removal of a set number or percentage of regulations every year; and by targeting the simplification or streamlining of a set number or percentage of regulations annually.

Civil servants will spend more time interacting with the public in field audits rather than sitting in offices reviewing paperwork and issuing permits:

• Usage of on-line and electronic processes will be broadened and widened;
• Except for critical security or health related activities, self-declaratory, lapse-oftime, and disclosure based regulatory regimes will be implemented.

This will speed up response and efficiency but must be backed-up by strict but transparent compliance audits and excruciating penalties for violations. Pakatan Rakyat will strengthen enforcement to generate better compliance effectiveness for regulations and licensing requirements.

5.7 Lowering costs – curtailing lop-sided concessions, monopolies and oligopolies 5.7.1 Remove lop-sided concessions

The Malaysian economic landscape is littered with many one-sided contracts and concessions under which private entrepreneurs reap supernormal profits while government or government-linked companies continue to bear considerable business risks and consumers and businesses bear unnecessarily high costs.

These private entrepreneurs sometimes also enjoy subsidies while running inefficient operations. For example, take the case of independent power producers (IPPs). Gas used in power generation is heavily subsidised in Malaysia. Over in Singapore, there are no such subsidies. It has been estimated that without subsidies, electricity from Malaysian IPPs would cost 57% more than from Singaporean power generators.

There is no easy solution to this issue.

• On one hand, Pakatan Rakyat fully supports the principle of sanctity of contract;
• On the other, allowing such unfair contracts to perpetuate would continue to inflict unfairly high costs on millions of Malaysians, raising the cost of living and adversely affecting our national competitiveness.

To resolve this conundrum, an Unfair Public Contracts Act will be enacted and an independent Public Contracts Commission will be formed to review such lopsided concessions and agreements that are deemed to be against the public interest.

Such an act will be similar in nature to the Land Acquisition Act 1960, which allows the government to acquire private land for public purpose, provided adequate compensation is paid.

The Public Contracts Commission will also fully explore remedies available within the contracts and concessions. For example, the concession agreement for Lebuhraya Damansara-Puchong (LDP) contains an expropriation clause under which the government can buy back the LDP for an estimated RM1.4 billion. This compares to an estimated RM1.54 billion in compensation which the government is currently expected to pay in addition to the billions of toll collectible from motorists.

In addition, monopolies and oligopolies will be curtailed and regulated. The Competition Act 2010 is intended to be enforced effective January 2012. This act aims to prohibit anti-competitive agreements and abuses by dominant players such as pricefixing, bid-rigging and predatory pricing. However, the Competition Act 2010 does not cover businesses regulated under the Communications and Multimedia Commission Act 1998 and Energy Commission Act 2001. This means very key and large business sectors including the telecommunications companies, satellite-tv provider Astro and the independent power producers (IPPs) are exempted.

Pakatan Rakyat will extend the Competition Act to all sectors of the economy. In particular, where the jurisdiction of the Competition Commission overlaps or is limited by the activities of other statutory regulatory agencies, for example the Securities Commission (SC) or the Malaysian Communications and Multimedia Commission (MCMC), Pakatan Rakyat will take the position that the objectives of free competition should prevail and therefore policy inconsistencies must be reconciled. Pakatan will give prominence to addressing any gaps between regulatory agencies that may give rise to uncompetitive practices and will clearly designate the lead agency responsible for resolving competition issues so that businesses are not subject to a bureaucratic merry-go-round.

5.7.2 Monopolies and Oligopolies: The Great Reducer of Average Malaysian’s Income Pakatan Rakyat recognizes the debilitating effects of monopolies and oligopolies on the long-term economic health of the country and ordinary Malaysians in general. Hence, being in line with the enforcement of the Competition Act 2010 on 1st January 2012, Pakatan Rakyat is cognizant that reforms and corrections need to be swiftly implemented. Therefore Pakatan Rakyat is committed to:

• Abolishing Padiberas Nasional Berhad (BERNAS)’s monopoly for the import of rice. Instead, import licences will be awarded via a competitive, open and transparent process;
• Telekom Malaysia (TM) will be instructed to release its stranglehold on the “last mile” market of broadband internet service and focus on its backbone business – data and telephony – thereby creating a robust and competitive “last mile” market. This will subsequently lower costs and enable enhanced broadband penetration;
• Telecommunication companies’ cartels will be dismantled;
• Press and media cartels will be dismantled;
• Airline services cartel will be dismantled;
• Astro’s monopoly of direct broadcast satellite pay television service will be broken up;
• Taxi licences will be given directly to individual taxi drivers.

5.8 Enabling GLCs to soar free Implementation of the GLC Transformation Program has failed to match the required sense of purpose. Management and staff at GLCs seeking excellence are still impeded by stifling political interference.

Pakatan Rakyat is supportive of the aims of creating GLCs that are not only competitive within the domestic framework, but also regional champions that will carry Malaysia’s flag.

Pakatan Rakyat believes that the GLCs have the professional abilities to achieve excellence. Therefore, under Pakatan Rakyat, GLCs will be set free to pursue initiatives that they consider best. By the same token, the Pakatan Rakyat government will also not automatically guarantee the liabilities of GLCs nor afford special preferences to GLCs in federal procurement transactions.

• Government representatives on the GLC boards of directors should primarily focus on normal fiduciary responsibilities, corporate governance, evaluation of business strategies and scrutiny of management controls;
• Pakatan Rakyat will refrain from making GLCs champion growth in emerging sectors and activities; but if needed, GLCs should as far as possible partner with the private sector to undertake such high-value activities with clear a strategy for exit when the situation permits;
• Pakatan Rakyat will want GLCs to have greater but transparent collaborations, and certainly not adversarial relationships, with private businesses to better leverage economies of scale, expanded dynamic integration/networking into national and regional supply chains, and to create opportunities to become regional and international champions.

The conditions will be created for GLCs to soar. It is intended by 2020 that we have:

• World class champions that can compete internationally and become multinationals with multiple listings; and
• Locally-based GLCs which are synonymous with excellence – in the products and services they deliver, in their role as employers and trading partners and in the quality of their managements.

Corollary to the enhanced, transformed GLCs will be their increasing attractiveness as investments. It is envisaged that investors will be increasingly interested in GLCs as their prospects improve. This will be the ultimate success of GLCs – when they are held by the private sector and completely free.

Government will retain control of certain GLCs in strategic sectors, to be determined following a study. Outside of these sectors, and in the right conditions, orderly and transparent disposals of government holdings will be conducted. Besides freeing GLCs completely from direct management by politicians, there will also be positive ancillary effects such as for financial services, market capitalisation listed on Bursa Malaysia and trading velocity.

The freeing of GLCs will address two major issues:

1. The crowding out of private enterprises, as explained earlier, as these GLCs will now become full-fledged excellent private enterprises themselves; and
2. The significant conflicts of interest posed when the government is involved in business:

_______ Foreign Worker Levy Hike in 2011. The Malaysian Insider, 20 May 2011. Human Resources Minister Datuk Dr S. Subramaniam quoted in Move to minimise confusion in registration of legal and illegal workers. The Star, 4 Aug 2011. Cited in Repositioning for Growth. World Bank, Nov 2009. Inclusive Growth.World Bank report, 2009. Is the gas subsidy protecting inefficient IPPs? REFSA (Research for Social Advancement), 13 Jul 2011. Democratising Malaysia’s Economy: DAP Alternative Budget 2010. Democratic Action Party, 2009.

[Pakatan Rakyat Budget 2012 released by Datuk Seri Anwar Ibrahim on behalf of PR in Kuala Lumpur on 4th October 2011. Part 6 of 10]