Unsustainable industries must go, focus on high-growth ones

K-SHAPED recovery is most likely to happen in most countries after the Covid-19 pandemic, including Malaysia.

As a result, the government, businesses, communities and people should tune their directions and strategies to leverage this recovery or, to some extent, mitigate its impact.

K-Shaped recovery emerges from digital transformation and, compounded by the pandemic, it ultimately creates the perfect storm on the socio-economic environment.

It begins with a huge slump of the economy across all industries due to major catastrophes, such as the Covid-19 pandemic.

Subsequently, the recovery pattern will split into two paths (see graphic).

One may be deemed as a temporary rebound after being severely hit by the crisis. However, the recovery pattern is not sustainable and, eventually, will fade and become obsolete.

On the other hand, the other path will excel and even surge to unbelievable levels.

That is why these scenarios are known as the K-Shaped recovery, where certain industries will survive while others will no longer be relevant.

We are at the crossroads of the century. The normal patterns of economic recovery, such as Ushaped or V-shaped rebound, may not be the answer in future, and the K-Shaped recovery is expected to be a new norm.

Before the pandemic struck, the Fourth Industrial Revolution (IR4.0) had already dawned upon us. At that moment, some industries had gone through certain hardship regardless of corporate, business or individual standing.

The affected parties experienced stagnation of income, and some even had to go out of business entirely.

Sadly, the most affected individuals are those in their 50s and above, who usually have very high liability and family commitments (with ageing parents and children to look after).

Most of them cannot adapt to all kinds of new digital innovations and transformation.

Last week, I took a taxi late in the afternoon and the driver complained to me that I was his first customer of the day since he started working in the morning.

The digital transformation has wiped off the relevance of certain industries. The worst thing is that this disruption will become significant in future, with new inventions and massive investments. In contrast, some traditional industries will become more vulnerable than ever.

Last year, as the government was in the midst of formulating initiatives to assist parties in coping with the digital transformation, Covid-19 struck and reversed all the country’s gains.

The government has categorised the people into the T20, M40 and B40 income groups, but now, some of the T20 have fallen into the M40, and some of the M40 have also fallen into the B40, and the pool of B40 people has become larger.

Digital transformation may become a disaster for the entire country if the people are not engaged with effective policies.

I agree that digital transformation will bring huge opportunities. However, I foresee in society a widening income gap, the worsening of vulnerable groups, and deteriorating wealth concentration if we don’t manage the issues effectively.

The immediate question is whether the government should continue providing aid to unsustainable industries, or stop the bleeding and carry out a bold strategy to champion a sustainable and high growth industry based on our country’s competitiveness.

After the massive handouts under the Penjana economic recovery plan last year, the fiscal muscle to further aid industries has become exhausted.

The government must realise the fact of the economy coming to a K-Shaped recovery, and carry out bold and long-term strategies with short-term pain.

We must learn to let go of certain industries as there is very limited hope for them in the future. Continuous investment in these industries will yield only unsustainable results and put the entire recovery effort to waste.

At such critical time, we need bold leaders to make bold decisions that may not be popular, and champion the adaptation of high-growth industries.

Of course, the affected workers should be assisted in making a transition so that they can rejoin the economy and participate in sustainable and high-growth industries.

Malaysia is at the crossroads of developing strategies in dealing with the challenges of a K-Shaped recovery. I hope the leaders in the government and private sector will make the right decisions.

The writer is associate professor, School of Business and Economics, Universiti Putra Malaysia