Can Malaysia Deliver Inclusive Growth?

By Gemma Corrigan

Sep 8 2015

World Economic Forum

In Asia, as elsewhere in the world, there is a growing consensus that economic growth should not be a country’s ultimate policy objective. Broad-based improvement in living standards matter as well. And while it is hard to raise living standards without economic growth, it is certainly possible for a country to achieve impressive strides in GDP per capita without most of the population feeling the benefit.

But what does a country need to do to ensure that economic growth benefits all citizens? That is a relatively new question on the research agenda, one which has moved into the mainstream only as the aftermath of the financial crisis lays bare the shortcomings of previous assumptions in economics.

According to a new contribution to this research by the World Economic Forum, one country that is doing most things right given its level of development is Malaysia.

The Forum’s new Inclusive Economic Growth and Development Report 2015 identifies 140 indicators that are thought to contribute to an economy’s capacity to grow inclusively. These 140 indicators are grouped into 7 pillars and 15 sub-pillars. Not a single country scores above average in all sub-pillars relative to its peers, but Malaysia is one of a handful that come close.

Because there is no research consensus on the relative importance of factors that could contribute to inclusive growth, the report does not attempt to rank countries overall. Instead, it ranks them on each indicator against a group of peer countries at similar income levels. The aim is to enable meaningful comparisons of relative strengths and weaknesses.

A comparatively low level of corruption is among the country’s strengths, with Malaysia ranking top among the 26 countries in the upper-middle income range for indicators such as ethical behaviour of firms and public trust in politicians. It also scores top on a measure of avoiding market dominance by incumbents.

Chapter 4: The MIER Years, Episode 5 Winding Up to Wind Down is NOW OUT!!

Read it HERE

It was during the final prepatory meeting on the MAPEN Report that I received one day a call from Zainol Mahmud, director-general of the Implementation Coordination Unit (ICU) in the Prime Minister’s Department informing me that Dr. Mahathir wanted to see me.   I assumed that it was about the MAPEN Report, or the fact that I had submitted to him previously a proposal to set up a Science City in the Ulu Langat area.   It turned out to be neither.  It was about another letter I sent him regarding an investment opportunity in Langkawi that was brought to my attention by Mark Heng and a scion of the Kuok family, Kuok Hoon Ping.   This was about the government’s  proposed divestment of the Langkawi Resort Hotel, the first 5-star hotel before the island got its duty-free status.  Mahathir immediately put me at ease upon my entering his office, and as he is wont to do, immediately came to the point saying that he could not accede to my proposal to buy over the Langkawi resort, since he had already promised that to a Negri Sembilan royalty and their Japanese partners.  There was still 19% he said I could participate in, to which I said I would only be in the minority and could not control it.  He suggested to take it anyway, and perhaps later unload it for a higher price.  He wanted me to learn the ropes, I guessed, but I declined and said I’d wait for another opportunity.

Read it HERE

Kamal on Bloomberg: Moving Malaysia, Malaysia to Face Fiscal Problems If Oil Below $40: Economist

September 4, 2015 (Kuala Lumpur) — Kamal Salih, economics professor at Universiti Malaya, says that Malaysia will face fiscal problems if oil prices dip below 40 dollars a barrel. He also discusses key themes shaping the local economy with Bloomberg TV Malaysia’s Sophie Kamaruddin.

Experts Point the Way Forward for Singapore Economic Growth

Kamal Salih Comment:

E.F. Pang and Linda Lim's comments on Singapore economic growth may well be relevant for Malaysia's own economic prospects for the medium term.  Our immediate concerns, however, are markedly distinct respectively, namely the fiscal capacity of the government to promote aggregate demand in order to sustain growth above 5% in the face of declining oil and other commodity prices and the declining Ringgit.  Singapore's immediate concern is over slowing growth (below 4%) and stagnant productivity under conditions of budget surplus.  I wonder if there is anything useful from this following article for the Special Economic Committee to consider in delivering better news for the Malaysian economy. 

Here is Pang and Lim's article:

COMMENTARY BY PANG ENG FONG AND LINDA LIM

Both in Singapore Economic Review Vol. 60 No. 3 (2015), Special Issue on A Fifty-Year Retrospective on the Singapore Economy

Economists, government leaders and opposition politicians all agree Singapore must jettison its development model of “extensive growth” based on factor accumulation - the addition of more labour, talent and capital to the singularly scarce resource, land, that defines our territorial space.

We must, like other developed countries whose ranks we supposedly lead on many metrics, rely on productivity increases to deliver output growth at a much lower but more sustainable rate of 1-3% per year.

From our own experience and that of other rich countries, we know this is a difficult and long-term task requiring considerable behavioral adjustments at the individual and household as well as business and government policy levels.

Our recent survey of numerous labor market studies* shows low labor productivity has characterized Singapore’s economic growth as long ago as the early 1970s and as recently as the last several years. The heavy reliance on imports of foreign labor has depressed wages for low-wage citizen workers, contributing to our higher income inequality (income-only Gini of 0.46, not including wealth inequality which is typically higher) and poverty rates (20 to 22%) compared with other rich countries.

Singapore GDP ChartFrom Focus Economics

Cutting back on labor imports can deliver productivity increases in sectors such as construction, retail and F&B where our productivity greatly lags that in other rich countries. But the cutback will be painful for businesses and households whose profits and consumption have been subsidized for too long by cheap labor imports. Our capacity for imitation, flexibility and innovation should help us adjust at least as well as other developed countries.