EXIT THE MIDDLE INCOME TRAP
Malaysia must chart new growth sources
schools gets longer.
In charting new growth sources as a high-income nation, further improvement in access to basic social infrastructure involving all parts of Malaysia is non-negotiable. The urban-rural divide is much larger than it appears and is certainly real and there is a need to reduce the effects of uneven spatial development in Malaysia.
While it is possible for Malaysia to escape the middle-income trap, it may not be long before the country finds itself stuck in a “policy trap” whereby decadesold policies take precedence over new and progressive ones. This is by no means to argue that past policies must cease to exist in the future but rather to make a case for policies to evolve and move alongside a growing economy. If human behaviour can change over time, so should public policy.
Although Malaysia aims to be more inclusive in its policymaking, policies continue to exist in silos and exclusive in practice. It is perplexing as to why a centrally planned economy such as Malaysia often finds reforms notoriously hard to execute instead of the opposite. The country’s five-year plans were initially effective in structurally changing the landscape of the economy but today it merely acts as a guide rather than a policy in itself.
Since the 1980s, Malaysia’s policy design has been largely focusing on the need to deepen industrial development without having a complementary horizontal policy in sight, such as the minimum wage, competition law and tax reforms. As a result, Malaysia has one too many blueprints in almost every sector, neglecting the need to devise an overarching growth strategy that binds them all together.
One of the many unintended consequences of central planning is that due to active government intervention over the decades, the size of the public sector is not only large horizontally but vertically deep as well. There are many development authorities that carry overlapping and duplicative mandates at the federal, regional and state levels which are virtually impossible to consolidate or abolish. Official meetings are usually attended by copious amounts of government representatives, thus making the decision-making in the process slower and more bureaucratic.
It is also evident that at each point of an economic crisis, the relationship among public institutions, state-owned enterprises and Bumiputera-related policies gets closer. It is problematic to discuss such issues without a racial lens. Besides, since the power base of the present administration is largely urban and non-Malays, this can be a very touchy subject to deliberate on. Unless we find a reason to tackle the discussion in a much more mature manner, Malaysia will never get to record phenomenal growth rates like it used to.
Perhaps it is time for the federal government to warm up to the idea of administrative and fiscal decentralisation. Depending on whom you ask, this can be contentious judging from the power structure and legacies of the past. The idea here is not only to close the gap between decisionmakers and the rakyat but, perhaps more importantly, to ensure that states compete among themselves as individual profit centres. The federal government can play a role in strengthening horizontal policies — such as merging various investment authorities into a single body.
Policymakers must ensure that the benefits of economic growth are spread throughout the country so that the improvements in the rakyat’s quality of life will enhance labour productivity and invigorate greater trade and investment activities. It is of utmost importance for the government to ensure that each and every Malaysian can tangibly feel the fruits of a growing economy as the economic pie grows larger over time.
Firdaos is director of economics, trade and regional integration, ISIS Malaysia