Malaysia needs new social compact: Jomo

> Economist says country must establish stronger basis and mechanism for future growth and development that all Malaysians can benefit from

PETALING JAYA: The country needs a new social compact similar to the New Economic Policy (NEP) of the 1970s to chart future growth and see continued improvement in Malaysian household income distribution, according to Khazanah Research Institute Visiting Senior Fellow Professor Jomo Kwame Sundaram (

The 20-year policy, launched in 1971, was to accelerate economic growth by reducing poverty and restructuring society, at the same time redirect the benefits more to the disadvantaged, in order to achieve its objective of national unity.

Although the current Gini coefficient measurement showed a decline to 0.399% in 2016 from 0.513% in 1970 indicates an improvement in Malaysian household income distribution, Jomo said, many of the recent policies are reversing what was achieved in the earlier period.

Jomo said the policy’s greatest achievement was during the 1970s, noting that Malaysian income inequality declined during the period.

“Contrary to what many people claim, the 1970s was a period of rapid growth, decline in inequality and disparities between town and country as well as among the ethnic groups. This is because there was a high growth … most people got better off, and so poverty went down.

“After that, the policies were quite different, and they had different consequences,” he told after speaking at the “Malaysian Income Distribution in a Global Context” seminar, jointly organised by Khazanah Nasional Bhd and Khazanah Research Institute (KRI) last Thursday.

During the last two decades, he said, the country encountered deindustrialisation, a turn towards traditional services despite the advent of modern services, slower growth, as well as less improvement in overall living standards.

“As the consequence of this, it is not clear where future growth is going to come from”, Jomo said.

Moreover, he said, the country’s high dependence on foreign direct investments and foreign labour is also among the major problems that it should be concerned about, noting foreign labour now constitutes about one-third of the country’s labour force.

Therefore, he said, there is a need for the country to establish a stronger basis and mechanism for its future growth and development, as well as to ensure that the people can benefit from it.

“We need a new social compact. We need to have an open discussion on that, not a manipulated discussion. A truly open discussion where you talk to all kinds of people, including people who may have different views,” he added.

Jomo was one of the guest speakers at the seminar, which aimed to explore income distribution in Malaysia within the framework of broader global income distribution patterns and failure and successes of policies across the world.