LET’S PRIORITISE JOBS, JOBS, JOBS

Recovery plan should focus on employment, household income

MALAYSIA’S forthcoming economic recovery plan, alluded to in the prime minister’s speech on Friday, will be the single most important set of economic policy decisions in a generation. In the middle of a steep global recession, the government must commit to a true north, even if it takes us through novel routes.

First, let’s dispense with the pretense. The Prihatin packages were not so much stimulus as they were a hibernation treatment on our economy. Likewise, any future recovery plan will necessarily include containment and survivalist components too, given that wide-scale unemployment and insolvencies have happened. There will still be a need for cash transfers and household liquidity assistance.

But what of the actual recovery part of the plan? I believe it begins with one key mindset shift: anchor onto employment and household income, not gross domestic product (GDP). Theoretical concerns about using GDP as a main indicator of economic health are well documented. Perhaps now with discourse fixated on retrenchments and income losses, we finally also have a pragmatic and present reason to say: “Prioritise jobs, jobs, jobs.”

To that end, the recovery plan’s true north writes itself. Return the economy to full employment as soon as possible.

Of course, this is easier said than done. As mentioned, companies have shut, and people have lost their jobs in droves.

I would’ve liked there to have been a more robust intervention in late March, but let’s focus on what we can do now. I offer some humble suggestions.

First, stem the flow of private sector job losses by increasing and simplifying wage subsidies. Grudgingly, Singapore offers a template.

Rather than complicated caveats, set sector-specific figures of say, 25 to 75 per cent of the wage bill capped at an equally arbitrary number of say, RM5,000 per employee per month.

The government is best positioned to calculate how much this might cost, but considering employee compensation is roughly 35 per cent of GDP, let’s presume a ballpark figure of around RM40 billion for three months.

Obviously, this massive injection must come with conditions that fulfil the aim of helping employment, not anything else. Think of terms like no share buybacks and no executive pay increases for the next three years.

Needless to say, this state bandaid cannot go on indefinitely. Treat the three months as breathing space to decide what the medium- to long-term game plan is. Here, radical measures ought to be considered if the worst of the crisis looks to extend beyond July.

For example, for critical sectors that provide livelihoods to the most vulnerable, the government can act as the buyer of last resort to make up the anticipated slack in demand. Whether it is agricultural produce or airline tickets, nothing should be off the table. Admittedly, this defies convention, but if we are still operating within orthodoxies, consider the battle lost.

I can hear screams of “no bailouts” as I write this. Such sentiments are not without basis, and hence any prolonged rescue should come with the option of the government insuring its position by buying into enterprises either via warrants for public companies or redeemable convertible preference shares (RCPS) for private counterparts.

If companies fail to pony up after the maturity date years later, the government can convert these instruments to ordinary shares and give itself the optionality when the dark clouds have cleared. Not only does this allow it a say in executive behaviour at a time when the moral hazard of corporate bailouts loom large, such measures also have the benefit of shoring up the government’s balance sheet (read: no free lunch) and allow it to be paid first before ordinary shareholders (read: tycoons).

If all else fails, or rather, if they prove insufficient, a government jobs guarantee programme can be instituted. I have been on record as a fan of the idea, although a fuller treatment of how it might work will require more column inches on another day.

All such options would mean large sums of money. They might require changes in law. And they would have to exist alongside longer term state-driven resiliency measures around building up our technological infrastructure and the green economy. Government debt would probably exceed GDP.

But look around. Japan, the United States, Singapore, Eurozone countries, without monetary sovereignty, one might add, are all close to or over that psychological 100 per cent barrier.

This crisis, ironically, has presented an opportunity to part with decades-old paradigms about debt, monetary operations and the government’s proper role.

Too often we fret over the price of bold, innovative actions. Perhaps consider the cost of inaction and orthodoxies, too. Persistent unemployment at a rate significantly higher than pre-crisis numbers and the spectre of stagflation is no happily free outcome either. The coming weeks will reveal to which side the government leans.