Work­ing on sus­tain­ing eco­nomic growth mo­men­tum

New Straits Times - - Business - The writer is Malaysian In­sti­tute of Eco­nomic Re­search chair­man

TWO ma­jor ini­tia­tives which sus­tain eco­nomic growth and de­vel­op­ment, at least based on our ex­pe­ri­ence, are eco­nomic diver­si­fi­ca­tion and hu­man cap­i­tal de­vel­op­ment.

Con­tin­u­ous ef­forts to di­ver­sify the econ­omy and place em­pha­sis on hu­man cap­i­tal de­vel­op­ment has as­sisted the long-term eco­nomic growth of both up­stream and down­stream ac­tiv­i­ties, while hu­man cap­i­tal ini­tia­tives en­hanced pro­duc­tiv­ity, cre­ativ­ity and in­no­va­tion, adding ex­tra mileage to growth im­pulses.

The process of eco­nomic diver­si­fi­ca­tion in our coun­try from tin, to rub­ber, oil palm, and mov­ing into in­dus­tri­al­i­sa­tion, be­gin­ning with im­ports re­place­ment strat­egy and later to labour-in­ten­sive in­dus­tri­al­i­sa­tion and ex­port ori­en­ta­tion, have sus­tained eco­nomic growth through the eight­ies and nineties.

The econ­omy is now build­ing its ser­vices in­dus­tries so as to lead the na­tion to have more ter­tiary in­dus­tries cater­ing for the in­creas­ing num­ber of qual­i­fied Malaysians, who have ac­quired skills and qual­i­fi­ca­tions at ter­tiary level of ed­u­ca­tion.

The chal­lenge of at­tain­ing a higher growth are, how­ever, more dif­fi­cult now, largely as a re­sult of our own do­ing; we have re­lied for a long time on labour in­ten­sive in­dus­tri­al­i­sa­tion, on for­eign labour and for­eign di­rect in­vest­ments, which have less affin­ity for build­ing lo­cal ca­pac­ity in re­search and de­vel­op­ment in the lo­cal econ­omy.

It is be­cause of this that many of our Gov­ern­ment Linked Com­pa­nies (GLCs), such as Petronas, Telekom Malaysia, Te­naga Na­sional, and DRB-Hicom, still have a prom­i­nent role in the econ­omy, as they take long-term view of the econ­omy by grow­ing lo­cal en­trepreneur­ship, tal­ent and tech­nol­ogy.

Un­for­tu­nately, many Malaysians do not re­alise this and keep on cir­cling back to the point that GLCs com­pete with lo­cal en­ter­prises.

As said ear­lier, the chal­lenges for us to achieve higher eco­nomic growth, of be­tween six and seven per cent a year, may be quite daunt­ing as we face the fourth wave of in­dus­tri­al­i­sa­tion, based on the evo­lu­tion of the dig­i­tal econ­omy, an­chored upon in­for­ma­tion tech­nol­ogy, the In­ter­net of Things, de­sign, and cre­ativ­ity.

Old tech­niques and meth­ods are de­stroyed, while new apps are be­ing cre­ated as soon as old tech­niques be­come ob­so­lete.

In a way, this process of “cre­ative de­struc­tion”, is the essence of cap­i­tal­ism, as ex­plained by ear­lier ob­servers of eco­nomic growth — the likes of Schum­peter and Adam Smith.

How ready are we, as a com­mu­nity, to en­ter the era of the dig­i­tal econ­omy? Are our crit­i­cal in­sti­tu­tions such as Malaysian In­vest­ment De­vel­op­ment Au­thor­ity (Mida), which has done a won­der­ful job in the past years, pre­pared to pro­mote in­dus­tries which con­trib­ute to the dig­i­tal econ­omy?

Have our skills train­ing in­sti­tu­tions pre­pared, or even trained, our work force to meet the needs of that econ­omy?

Have we done a thor­ough ex­er­cise to ex­am­ine what are the ac­tiv­i­ties and sub-ac­tiv­i­ties which are un­der the guise of the dig­i­tal econ­omy?

At this point of time, the level of dis­ag­gre­ga­tion in our In­put-Out­put Ta­ble, which ex­presses the coun­try’s to­tal out­put as a pro­duc­tion lin­eage, would not be able to fur­nish more de­tails of the ac­tiv­i­ties re­lated to the dig­i­tal econ­omy to help plan the var­i­ous pro­mo­tional ef­forts, in­clud­ing the pro­vi­sion of rel­e­vant in­cen­tives for such ac­tiv­i­ties.

It is equally per­ti­nent to note that the na­ture of dig­i­tal eco­nomic ac­tiv­i­ties may be largely ser­vice in na­ture and not much can be “com­modi­tised” to al­low easy iden­ti­fi­ca­tion. Thus, the com­mon fea­tures of ser­vices, (in­for­ma­tion and com­mu­ni­ca­tions tech­nol­ogy econ­omy, and high skills), are of­ten em­bed­ded in the ac­tiv­i­ties and prod­ucts which need to be pro­moted.

We may be largely pre­par­ing our­selves for the man­u­fac­tur­ing of bod­ies and parts, which are items that can be eas­ily “com­modi­tised”. We may also need to pre­pare our­selves for the ac­tiv­i­ties re­lated to sys­tems, avion­ics, com­mu­ni­ca­tions, etc, which cre­ate more value.

Fi­nally, mov­ing towards this di­rec­tion, is the need to es­tab­lish the whole ecosys­tem and sup­ply chain that can sup­port the unim­peded de­vel­op­ment of th­ese in­dus­tries, which have to meet high in­ter­na­tional stan­dards and ex­pec­ta­tions.

In this re­gard, the pol­i­cy­mak­ing ap­pa­ra­tus and plan­ning ma­chiner­ies need to take stock of where we are and what we need to do im­me­di­ately and in the medium term to en­sure that longterm in­ter­est is well po­si­tioned in our trans­for­ma­tion towards a dig­i­tal econ­omy.

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