Sunday, December 7, 2014

Reply to a libertarian

 "...without the NEP, Malaysia could have grown faster and that the NEP caused Malaysia to grow only as fast as experienced"  

Betul ke?

Hafiz Noor Sham, a self-professed libertarian, wrote a review of The Colour of Inequality, link here . Thank you for the review Saudara Hafiz.  I'll buy you a cup of kopi cap kapal api.

Lets go straight to the key issues, or critiques,  raised by Saudara Hafiz. 

First, and most important : Saudara Hafiz got my name wrong. It's Muhammed, not Khalid. That's my father. Unless, of course, the review is directed at him.  

Second, Saudara Hafiz refutes the fact that NEP does not retard growth. He says ""As you can see, I am quite sceptical of his argument that redistributive policy has no impact on growth. I think Malaysia can afford to commit to some redistributive policy but there is always some cost". He further argues "The counter-factual is that without the NEP, Malaysia could have grown faster and that the NEP caused Malaysia to grow only as fast as experienced"

Ok. Does redistributive policy has no impact on growth? Could Malaysia grew faster without NEP? Unfortunately, alternative economic policy cant be tested in a science lab. But that doesn't mean we cant test that hypothesis. In fact, empirical evidence suggests the exact opposite of what Saudara Hafiz argues. IMF  paper [link here ] concludes that "redistribution appears generally benign in terms of its impact on growth; only in extreme cases is there some evidence that it may have direct negative effects on growth. Thus the combined direct and indirect effects of redistribution—including the growth effects of the resulting lower inequality—are on average pro-growth".

Perhaps, just perhaps, growth could be higher for Malaysia, but what is the point of achieving higher growth if it is only benefited certain groups, and resulted in social instability? Let us not forget that the post-Merdeka laisse faire sans redistribution -winners -take- all -economic -policy presented us with a very unequal society, of which we paid a dear price couple of years later. 

How much actually the redistributive policy [NEP] cost us? 10% of the budget? 20%? 50%? UNDP report [link here ] has the figures. From the 2nd Malaysian Plan to the 9th Malaysian Plan, funding for poverty eradication programs is equivalent to 4.1% of total federal budget, and the share of the restructuring of society equals to about 1 percent.  Not much really.  To put things in perspectives, we spent more in the past one decade on fuel subsidies compared to the entire four decades on NEP programs. 

Third, Saudara Hafiz finds that is it ok for the colonial master to ignore rural development and focuses only on urban areas. He says "I am unprepared to blame the British for focusing on urban development". We can’t blame them for that, but surely we should blame them for extracting our natural resources, and exploiting the natives and the immigrants. All the proceeds from tin and rubber were expatriated back to London. Their discriminations on the masses were evident if we look at their education policy, which explicitly held the natives back from social mobility. Access to schools was severely limited. Most schools, with English as medium of instructions, were built in urban areas, to the detrimental of rural inhabitants. Yes, they did build Malay schools, but it was small in number, and those Malay-medium schools were provided only for the sons of nobility, and not for the rural population.  Even then, the syllabus for Malay schools was rural in orientation, not unexpected as the aim was "…to make the son of the fisherman or peasant a more intelligent fisherman or peasant than his father had been". Those words were uttered, proudly and arrogantly, by British Chief Secretary of Federated Malays States, George Maxwell. Their primary goal is clear - to hamper and to curtail the progress of the rural population. 

Lastly, which is equally important, is that many critiques tend to forget why we have growth with equity/redistribution policy. Unlike other countries, our policy was designed with one ultimate objective - national unity. To a certain extent, it worked as it has created social and political stabilities, " ...which was an important component of Malaysia's intangible capital that allowed long -term productive investments to be undertaken [World Bank 2013, link here ]. That, to me, is priceless. It is far better to have steady long term growth where everyone benefits, rather than unsustainable rapid  growth and leaving many behind. Economic growth is just a means to an end, not an end in itself.

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