How to talk about the Malaysian Economy Post GE14

How to talk about the Malaysian Economy Post GE14

An interview with Lee Hwok Aun, Senior Fellow, Institute of Southeast Asian Studies

1MDB has catalysed a torrent of public conversation about the Malaysian economy. After what seemed an eternity of absurd impunity, at least this much is expected. But as with all fledgling movements grappling with social media, Malaysia’s most recent moment of clarity could very quickly be confused to death by oversharing. Understandably, talk about the country’s economy often veers towards topline figures, such as ‘quarterly GDP growth’, ‘the stock market’, ‘oil prices’ and the ringgit’s fluctuating fortunes. Even more popular are anecdotes about how racial politics distorts the market, and how we’re all not getting what (we think) we deserve because of ‘the government’, etc.

To give shape to the talk, it might be worth noting that economics is a suite of policy tools used by governments of the day to achieve desired social outcomes. (Usually by the production, consumption and transfer of material wealth. Basically, in the context of our material existence, ‘the economy’ is about the opportunity to get rich so we can buy what we want and need, in that order.)

What a desirable social outcome is, of course, a political decision based on a set of assumptions about its virtues. So, here we attempt to explore some assumptions that inform Malaysia’s economic policies, in the time when they were formulated, with the benefit of hindsight and recent research.

Ultimately, economics is about people. But speaking personally, as an admirer of the bleak science who is not an economist, the discipline (like other materialist sciences) is overdue a reassessment in how it views the economy as a machine fuelled by exploitable bits of life such as ‘natural resources’ and ‘human resources’. Indeed, the acme of life on earth, or in Malaysia, seems to be as a humanoid expression of the economy, when the economic machine could instead be an expression of our humanity. (Exhibit A: 1MDB and its chain of complicit, rapacious criminals.)

Perhaps this idea of ‘human resources’ also explains how the economy has fundamentally changed the Malaysian education system. The annual shouty debate about local university admissions merely distracts from elementary education, which goes to children’s socialisation and how we grow up. The cost, and quality, of private elementary, primary and secondary education seems to mimic that of private universities. What is its effect on inflation, and does Malaysia’s private education policy help to foster human values of inclusivity, diversity and acceptance? There is no doubt, however, that the growth of the private education sector contributes to the GDP.

Anecdotally, the enrolment of children in private schools (and colleges) comprises mainly non- Malays. So, at first blush, those in the public education system are generally poorer and Malay, while those in the private education system are more well-off and mainly non-Malay. Confounding this are the multiple systems of education across public and private schools in the country. The social and economic implications of Malaysian society being structured in this way are becoming plain to see, and lead to inane public issues. (Exhibit B: The mobbing of Attorney- General Tommy Thomas.)

So, the Malaysian economy now. What is to be done? The Peak speaks to Lee Hwok Aun, Senior Fellow at the Institute of Southeast Asian Studies; for some, TLDR.

What’s the first thing about the Malaysian economy that we should know about, so that we can begin to talk sensibly about it?

It contains many complexions and contradictions, and defies labels and simplifications. Malaysia’s economy has registered impressive macroeconomic performance – in GDP growth, investment, trade, employment – but is a source of dissatisfaction and insecurity in terms of income, cost of living and job quality. It’s an open economy, with extensive state intervention. It has some world-class infrastructure, alongside retrograde mentalities and practices.

What’s all this talk about ‘economic fundamentals’, and what’s so fundamental about them? It means we can service our MYR1 trillion-plus debt hole?

‘Fundamentals’ typically refer to the abovementioned macroeconomic figures, and usually include the debt situation as well. These metrics can be useful as baselines and for preliminary diagnostics about the health of the economy, but don’t give the full picture, especially in terms of who is benefiting from economic growth, and having solid ‘fundamentals’ does not insulate an economy from panic attacks and capital flight. Sometimes, financial markets just want short term ‘stability’ – no surprises, whether in policy stances or democratic elections – and sometimes fundamentals are only as credible as the data that governments disclose. On Malaysia’s MYR1 trillion debt, the full picture is still unfolding, but I believe the country can pull through, with patience and sustained growth, and by taking a long-term perspective.

How concerned should we be about foreign funds exiting the country, and the deals that the Najib government cut with China? Are foreigners jealous of our success?

It depends on the reasons for the outflow. The funds that left due to change of government, or revelations of the fuller extent of debt and liability, chose to be fickle and flighty. We should be more concerned if Malaysian funds make any massive exit, or foreign direct investments pack up. The potential ballooning of foreign debt owed to China is a legitimate concern, and a cause to re-evaluate the mega deals.

Briefly, if you wanted to impress company over dinner when conversation turns to the state of the Malaysian economy, which ministries should you be keeping an eye on?

The newly conceived Economic Affairs Ministry is probably the one to watch. It’s been tasked with setting the policy agenda and making major investment decisions, and will be reviewing the next stage of Malaysia’s development – specifically, the mid-term review of the 11th Malaysia Plan. The functions under its purview were previously held by a Minister in the PM’s Department, but as a full-fledged ministry, one would expect that it operates with more power and autonomy, and that it will flex its muscles, moreover, being helmed by the ambitious former Selangor Menteri Besar, Dato’ Seri Mohamed Azmin Ali. Of course, we should also be attuned to the custodians of financial allocations, public procurement, economic regulations, and trade and investment: the Ministries of Finance and of International Trade and Industry. If interested in Malaysia’s prospects a generation from now, one should take interest in the policies of the Ministry of Education to lift Malaysia’s schooling system out of its morass of mediocrity.

Speaking of which, let’s talk about the education sector, which propagates the key animating ideas of the Malaysian economy (affirmative action, meritocracy). There’s plenty of contention over quotas for bumiputera undergraduates, how this is not meritocratic and how it’s making the Malaysian economy uncompetitive with that of its neighbours, not to mention the rest of the world. And, yet, the complaints about the quality of Malaysian education, especially of its public universities, regularly make the headlines. There is a clamour for university places but a high unemployment rate among (bumiputera) local graduates. Can economics explain this paradox?

Public universities do have particular deficiencies, but the problems of higher education and graduate quality are more systemic, involving both public and private institutions. And I would attribute this to both public policy deficiencies and ‘short horizon traps’, which cut across public and private sectors.

Preferential entry to university – stemming from ethnic quotas in matriculation colleges and preuniversity programmes – are parts of a system that academically underequips students for the rigours of university-level study. Ethnic quotas and preferences are complex and entrenched. I think access to Malaysia’s higher education needs to shift to a less ethnically delineated and more merit-based system, with increasing outreach to the socioeconomically disadvantaged, the majority of who are bumiputera. But to take meaningful and substantial steps in that direction, it is imperative to first reinforce the pathways to university, by raising standards and academic rigour of matriculation colleges and other pre-university programmes.

The problem of graduate unemployment and lack of language (especially English) proficiency, plus communication, thinking and technical skills, may on average be more acute among public institute graduates. Achievement gaps still prevail. But private higher education also leaves much to be desired. There’s been a gold rush of profitoriented colleges and universities into academic programmes that are supposedly more ‘marketable’ and in-demand – such as business and information technology – but the predominance of these programmes confines the knowledge and skills availed our economy and society. About 35 to 40 per cent of public higher education enrolment is in science and engineering; in private higher education, the share is less than 30 per cent. Of course, science and engineering instructional and research facilities are expensive, testing the financial bottom line. But the failure of private higher education to deliver what the market needs for sustained, long-term progress must be addressed. The lack of scientists, researchers and engineers – a major constraint on Malaysia’s economic progress – is a problem for which all sectors are responsible.

Let’s now talk about ‘meritocracy’, which is taken by some as a kind of natural law that should be the criterion for university admissions and the job market, including ministerial portfolios. The presumption is that the ‘best person for the job’ is the one who is ‘most qualified’ for it, with academic credentials being highly valued. Frequently contrasted with meritocracy is ‘affirmative action’ (of American etymology). What does the research show about how both ideas influence how they are received by public and private sector employers?

People often stake out dogmatic and monolithic positions on this issue: pure meritocracy (delivering excellence, success) versus fullon affirmative action (inflicting mediocrity, failure). It’s not so simple and dichotomous. Malaysia’s record shows that a country can implement affirmative action, while attaining considerable success in economic growth and development, but at the same time, the policy has many shortcomings and failures, particularly in cultivating capability and competitiveness – which is its ultimate purpose and a precondition for affirmative action to be rolled back.

Of course, it is important for selection processes in education admissions, hiring and promotion, contracts and licenses, and so on, to be based on ability, experience and qualifications. But we must also recognise that in some countries, the prevalence of deep disparities between groups is a problem. In particular, persistent absence or exclusion of particular groups – whether identified by race, ethnicity, gender, caste, etc – in higher education, professional and management positions, business and wealth ownership, warrant special measures to promote their elevation to these spheres. In Malaysia, the constitution articulates some qualified provision for such special measures. Affirmative action can be a useful instrument for allocating opportunity to the beneficiary group, in ways that promote upward mobility, and develop capability and competitiveness. It must be done effectively and achieve these objectives – in order that the beneficiary group is sufficiently empowered and that preferential treatment can be rolled back. Many policy changes are needed but, pertinent to this question, integrating more merit-based selection into bumiputera programmes – which bolsters capability and competitiveness – will help facilitate the transition away from ethnic preference.

What is affirmative action, anyway? It seems that the idea, and its careful incorporation into the Federal Constitution, needs to be salvaged from populism. Is this a job for the economist?

I define affirmative action as preferential measures to promote the participation of a disadvantaged group in higher education, high-level employment, business and ownership. The provisions for affirmative action in Article 153 should be examined. Article 153 actually does not confer an absolute mandate to implement race quotas, but permits them ‘in such manner as may be necessary’. The constitution implies that quotas and reservations can be temporary; they are to be applied if Malays and indigenous groups need such special intervention.

Article 153 also specifies areas of intervention – scholarships, public sector employment, and permits and licences – which involve learning, training and productive work. Not get-rich-quick schemes or sinecures, but opportunities to gain capabilities and experience. The New Economic Policy, introduced in 1971, expanded affirmative action broadly consistent with Article 153. Undoubtedly, there have been achievements and successes, and shortcomings, missteps and outright failures, along the way. Opposition or condemnation of affirmative action often stems from the ways UMNO-BN utilised the policy for political gain and patronage. It certainly must be de-politicised and de-corrupted. But such repair jobs are not enough to lay the groundwork for reform. Many also believe that affirmative action should be replaced with need-based policies that help the poor.

In some – but far from all – existing affirmative action programmes, specifically in higher education, we can incorporate more assistance to the poor and phase out assistance based on race. It makes sense to do so, from a moral and philosophical perspective, because the beneficiaries are predominantly young dependents who are disadvantaged by circumstances not of their choosing – upbringing environment, school quality – and hence deserve to be given some preferential treatment. It is also practically feasible for higher education institutions to take into account applicants’ family backgrounds when evaluating admissions.

The path to reform must unwaveringly continue pursuing the original ultimate goals: developing capability and competitiveness, along with self-reliance and selfconfidence, especially through education, such that the beneficiary group does not need overt ethnic preference, and is able to contemplate and conduct real policy reforms, rolling back the system.


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