Need for a new socio-economic model

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THE The 12th Malaysian Plan (12MP) is largely a reaffirmation of the NEP (National Economic Policy). Its target does not offer any improvement in the Gini index. While average monthly income increased from 2016 to 2019, the overall Gini coefficient actually fell from 0.399 to 0.407, indicating a widening of income inequality (12MP, p.189). This is at a time when Malaysia’s Gini rankings are at the top of Asian inequalities.

The problem that needs to be addressed is that the B20, or 20% of the poorest income share, is only 5.9% of national income, while the T10, or the top 10% income share. , is 30.7%. The 12MP will do little or nothing to reverse this situation.

The incidence of relative poverty fell from 15.6% in 2016 to 17% in 2019 and continues to increase rapidly. Economic statistics are lagging behind, and economic recovery and relief are expected to be delayed, with little content in the 12MP to help. High unemployment and inflation are not taken into account.

To prevent the economy from doing much worse, a new socio-economic paradigm is needed.

Here are some important things the government needs to prioritize:

Focus on wealth creation and a targeted social safety net

The nation must move from redistributing wealth and equity to creating wealth. This requires nurturing a thriving Keluarga Malaysia as officially stated. It means protecting household buoyancy through a safety net and creating jobs and economic opportunities for all.

Make macro-policy more agile

With increasing poverty and unemployment, macro policy requires effective microeconomic initiatives to have a global effect. This requires the development and implementation of effective programs.

The priority concerns to focus on are income generation among the poorest 40% of the population; help small and medium-sized enterprises (SMEs), which employed 48.9% of the workforce of seven million people before the pandemic began in 2019; provide safety net assistance; and implementing targeted regional and urban development where the poor reside.

Building income, especially among the B40s

One of the key strategies for generating income in the B40 is to increase wages to reduce poverty and income inequality. This is perhaps one of the most difficult aspects of politics, but it can be accomplished through the labor market and other reforms.

The lower end of the labor market has around two million migrant workers who put downward pressure on wages. In addition, the working conditions are bad and even dangerous.

The next problem is socio-cultural. The jobs traditionally held by migrant workers are viewed by today’s younger generation as totally undesirable. Local employers complain about the spasmodic attendance and low productivity of local employees.

Reforms should also address barriers to women’s participation, employability of young and old, equal opportunities between ethnic groups and investment in skills development of the workforce. of work.

Help more SMEs

The 12MP did little to identify the issues facing Malaysia’s 1.15 million SMEs today. The main issues that SMEs face include liquidity issues, access to appropriate technology, inability to develop relevant skills, and lack of ability to collect market information and gain clients.

Previous government SME assistance programs have reached only a small number of people in need. In the aftermath of the pandemic, too many SMEs have found the conditions for getting help difficult, as banks have imposed stringent lending terms such as guarantees, vouchers and a performance track record.

Rather than creating another agency to help entrepreneurs get paid faster by the government, a national factoring program could be put in place to speed up payments and increase the speed of money in the economy.

Immediate tax relief is needed to help homeowners reduce rental and leasing costs for SMEs to enable them to survive.

Industry 4.0 and digitization are going well once the country’s SMEs have reached critical health levels, are qualified and ready to grow. Unfortunately, for most Malaysian SMEs, this is not the case.

Safety net help

For those who do not have a job, the solution is to put an income back into the hands of those who need help and income protection. This requires a total overhaul of social safety net programs.

Some form of universal income test based on an insurance fund or scheme is needed to help those who fall into unemployment, illness, disability or fail to earn sufficient income.

According to economist Geoffrey Williams, a program to cover the above contingencies of 1.24 million households currently below the relative poverty line of RM2,937 per month would cost RM10.2 billion, or RM3. 2% of the government’s annual budget.

A safety net system could be associated with a universal income-based pension scheme, built on the current Employee Provident Fund (EPF) system. Currently, 2.23 million people are 65 years of age or older, and this percentage is increasing.

According to ETH statistics, 46% or 2.7 million workers saved less than RM 10,000. This means that only a small number of people of retirement age have enough funds to stay out of poverty. This situation is worsening The overhaul of the pension system is needed to avoid a crisis of poverty among the elderly in the near future.

Institutional reforms

The Malaysian civil service is bloated. There is a great deal of waste of financial resources and over-staffing in many departments and agencies. While the public service automates many jobs through IT, the number of employees has increased rather than decreased through increased productivity.

The civil service costs 47.4% of total operating expenses as part of the annual budget. In 2019, this amounted to 122 billion ringgit. This budget could actually be reduced by 25%, or 30 billion ringgit or more, without loss of operational efficiency.

The workforce has grown to 1.71 million employees, although systems and procedures have been computerized. The 12MP foresees an even greater expansion of the civil service, mainly for the purpose of monitoring the markets within the economy, which is unnecessary.

The government must reduce the size of the civil service and implement a “flexible and varied” contractual regime to alleviate the burden of ever-increasing emoluments.

In addition, there are many federal and state government-related enterprises (GLCs) that are in debt, loss-making, and whose products compete with private companies. These GLCs should be identified and closed to avoid further waste.

The above savings could be reinvested in a national safety net assistance program. Creating a universal income-based safety net is the redistributive game change that Malaysia needs right now.

Conclusion

Finally, but not last, Minister of the Prime Minister’s Department, Mustapa Mohamed, said the RM400 billion to be spent under the 12MP is the highest in Malaysian history.

It is not the size that matters but the efficiency and impact of what is spent that is important. Financing the growth of the public sector, creating new agencies and departments and taking on more debt will be counterproductive.

There is an urgent need to look at political innovation, which the 12MP lacks. There are examples from home and region that can be learned and used for better policymaking.

One approach to help fund a Malaysian safety net could be to funnel profits from Petronas to the EPF to fund a scheme similar to Norway’s highly successful government pension fund.

Covid is forcing change across the region and around the world. There is going to be an economic rush and a battle to recover. If Malaysia does not prepare with a realistic, competitive and sustainable economic stimulus package and a new socio-economic paradigm, it will quickly fall behind the rest of the region.

The 12MP, in its current form, will miss this opportunity.

Written jointly with Murray hunter and Ramesh chander. Ramesh Chander is a former Chief Statistician of Malaysia and Senior Statistical Advisor at the World Bank in Washington, DC Murray Hunter is an independent researcher and former professor at Prince of Songkla University and Universiti Malaysia Perlis. Comments: [email protected]


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