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.

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