Wednesday, November 26, 2014

Growth, income distribution and poverty in Malaysia

Who should offer insights into how Malaysia has developed and how Malaysia should develop?

Who should offer insights into how Malaysia has developed and how Malaysia should develop?
What if I told you an activity to collect those insights and use them to develop national policy recommendations has already been completed?
What if I told you the three principal authors are two of Malaysia’s most humble and competent economists, Dr Muhammad Abdul Khalid, Director of Research at Khazanah; Dr Lee Hwok-Aun, a Professor of Economics at University Malaya; and one of Malaysia’s most distinguished economists, Tan Sri Prof Dr Kamal Salih, now of University Malaya?
What if I told you that contributors include Azmi Sharom, the University Malaya Law Professor who is now charged for Sedition and Dr Denison Jayasooria, Secretary General of Proham (and a Principal Research Fellow at the Institute of Ethnic Studies, UKM)?
What if I told you that the bulk of the hard numbers in the report were provided by the Economic Planning Unit and the Statistics Department?
What if I told you that the work was commissioned and funded by the United Nations?
Suspend your disbelief. All of the above are true. Today the UNDP released the Malaysia Human Development Report 2013: Redesigning an inclusive Future (MHDR2013). There are many striking things about the report. I compliment the Umno-BN government for having the courage to release data to people whose conclusions they could not dictate.
The report, launched in Kuala Lumpur today, covers about 350 pages. It is a vast compendium of data which is not available elsewhere. It will be a much quoted document in the days and years to come. I’ll just highlight ten of their findings:
1. Middle class. Only 20% of Malaysian households may be classified as middle-class (households whose income lies between 80% - 120% of the median household income).
2. Income disparity. Non-Malay Bumiputra in Sabah and Sarawak have fared very poorly; also, the average income of those who dwell in rural areas is about a third the income of urban-dwellers.
3. Income inequality in Malaysia is amongst the worst in the region, and has remained at the same level since 1990. The disposable income of the top 1% is 22 times the disposable income of the bottom 40%.
4. Low wages. Wages have not kept up with the productivity of labour; the situation has worsened since 1996. Wages make up only 28% of national income. The corresponding figure for the Philippines is 29%; for India, 30%; for Singapore, 42%; and for China, 48%. The lower share of Malaysia's workers is attributed to declining bargaining power: it is our national policy to discourage the formation of workers unions. [I have not read the report closely enough to say if it touches on our bloated civil service.]
5. Low savings. 53% of Malaysian households have no financial assets (rural: 63%; urban: 45%). This means the social effects of any economic downturn and corresponding loss of income will be severe.
6. Wealth distribution. 11% of the population own 50% of the wealth. The wealth of the richest 40% of the population amounts to about 22% of the Gross Domestic Product.
7. Inequality within the Malay community. 3% of Amanah Saham Bumiputra (ASB) is owned by 74% of unit-holders, while 8% is owned by 0.2% of unit-holders.
8. Impact of ethnicity on hiring. The private sector is pro-Chinese in hiring whereas 90% of civil servants are Bumiputra.
9. Gender inequality. Women have lost out on growth as they are “disproportionately low in the occupational hierarchy,” are paid less than males for similar work and have difficulty re-entering the workforce.
10. The NEP was successful in the first two decades (1970-1990), but was much less successful in the next two decades (1991-present), when assessed using the measures of real growth, inequality and number of middle class households.
As is to be expected at this stage of the report, the policy recommendations are tentative.
Some recommendations though worthwhile, are banal, e.g. “maintain pro-poor strategy;” “enhance (1) affordable housing, (2) access to credit for enterprise growth and (3) education for children;” “reduce practices that may lead to corruption and bribery;” “enhance independence and credibility of the Malaysian Anti-Corruption Commission as well as the judicial system;” “enact and implement a Freedom of Information Act at Federal and State Levels.”
Some recommendations are odd, e.g. “Implement GST to broaden the fiscal base, with exclusion lists to protect the poor and vulnerable groups.” This is odd because those who will benefit most from the GST are rich ‘consultants’ who provide GST accounting solutions – made worse by a long list of exclusions.
Some recommendations are laudable, e.g. introduce old age pensions, increase access to affordable healthcare, implement unemployment insurance, enhance and better implement the Competition Act to remove the negative impacts of cartelization and monopolies.
Some recommendations require elaboration, e.g. “promoting stronger fiscal federalism (including resource tax allocation and oil royalty).” I hope this means devolving power to local governments.
The question and answer session focused on labour. The most striking data is the number of foreign workers in Malaysia: there are over 12 million Malaysian workers and over 6 million foreign workers. We are in this situation because local labour, deprived of bargaining rights, has not been able to press for fair treatment – despite productivity increases.
Employers have a preference for foreign labour in the lower occupations, since these jobs are viewed as “beneath us.” In developed nations – without cheap and easily exploited foreign labour – employers have invested in automation to reduce manual exertion. We have not done so.
We need to dis-incentivise employers from employing even documented foreign workers. This will draw forth much protest, but if we don’t do it, we will not succeed in re-investing work with dignity.
We are a nation of slave-owners. This is especially apparent after the tragic and shocking revelation last weekend that we even have North Korean workers who are worked to death in under-the-radar coal mines. MHDR2013 takes too little notice of our proclivity for exploiting foreigners. Nevertheless, MHDR2013 is a very welcome report. Well done, Tan Sri Salih, Dr Muhammad, Dr Lee and UNDP. – November 26, 2014.
* Rama Ramanathan reads The Malaysian Insider and blogs at
* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.
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