OUR INCLUSIVE ECONOMY PROPELS US
PERHAPS everyone would agree that from the gross domestic product (GDP) point of view, the Malaysian economy is in a sturdy position.
But, critics would argue that GDP is inadequate to evaluate whether the economy is healthy, as it does not reflect other parts of the people’s standard of living, such as income and wealth levels, employment opportunities, inequality and quality of life.
This is where the publication of the World Economic Forum’s (WEF) Inclusive Development Index (IDI) 2018 comes into play as an alternative to GDP in measuring economic progress.
The GDP indicator, as the report puts it, “is a necessary but not sufficient condition for robustly rising median living standards”.
In other words, GDP is important, but other indicators are needed to complement it rather than substitute it.
And that is why one of the three main pillars of IDI involves growth and development. The other pillars are inclusion and intergenerational equity and sustainability. Under the growth and development pillar, there are four sub-pillars: GDP per capita, employment, labour productivity and health life expectancy.
The second pillar, which is inclusion, is measured by looking at the median household income, poverty rate, income Gini (measuring income inequality) and wealth Gini (measuring wealth inequality).
For the intergenerational equity and sustainability pillar, there are four sub-pillars: adjusted net savings, public debt as a percentage of GDP, dependency ratio and carbon intensity of GDP.
Where does Malaysia stand in this ranking? There are 103 countries in this study, categorised under advanced (29 countries) and emerging economies (74).
Due to technical issues, such as definition of variables, we cannot compare advanced and emerging countries directly. The data is based on the percentage change between 2012 and 2016.
For advanced economies, Norway ranks No. 1 as the most inclusive nation, followed by Iceland, Luxembourg, Switzerland and Denmark.
Out of 74 countries in the emerging economies category, Malaysia is 13th, and the top five best-performing emerging economies are Lithuania, Hungary, Azerbaijan, Latvia and Poland.
Malaysia’s position is much better than BRICS (Brazil, Russia, India, China, and South Africa) economies.
But more importantly, looking at emerging Asian economies, Malaysia ranks No. 1 as the most inclusive one. This is another strong and authoritative evidence that the Malaysian economy is not just good on macroeconomic figures, but is also felt by most Malaysians.
Of course, more needs to be done, but credit must be given where is due.
Two lessons can be drawn from this study on inclusive development in the context of Malaysia.
First, we must understand that GDP is a basic and fundamental variable before we can talk about addressing people’s concerns about the economy, such as the rise in the cost of living. Focusing on the latter is like putting the cart before the horse.
The second lesson is that it is important to put issues into perspective. In other words, indicators or data must come from respectable and credible organisations and can be measured against other similar data on countries with similar levels of economic development.
If not, the consequence is selfevident, where issues could be blown out of proportion, or worse, politicised, leading to the possible creation of fake news.
Essentially, the IDI 2018 ranking of Malaysia shouldn’t be a surprise as Malaysia initiated a new paradigm of development as early as 2009 when the transformational agenda began to be rolled out.
Under the National Transformation Policy (NTP), people, growth and development have always been the priority in charting our country’s development.
Unlike the past economic model, which was preoccupied with growth, NTP has made a real break by not focusing only on growth, but also on inclusivity and sustainability.
Being inclusive means the focus is on the Bottom 40 (B40) and Middle 40 (M40) household income categories, where in the past it was race-based. Being inclusive means other competent Bumiputeras will get government contracts, where in the past, it was cronies who benefited.
Being inclusive means subsidies will be targeted and benefit the needy, where in the past, the subsidy mechanism was a blanket one and benefited the rich.
Director, Asian Research Institute of Banking and Finance, Universiti Utara Malaysia, and visiting research fellow in Islamic Finance at Oxford Centre for Islamic Studies, Oxford University
Malaysia ranks No. 1 as the most inclusive economy in Asia.