The Department of Statistics (DoS) recently released the 2014 social accounting matrix (SAM). It revealed some intriguing facts and patterns about the structure of the economy. The SAM is a methodology of decomposing the economic activities in a given year into a matrix that shows transactions and transfers between factors of production, economic activities and economic actors within the economy.
This input-output table, and what it means, describes a country’s socio-economic landscape. I will focus on three features which will, in my opinion, shape economic and political priorities in the future.
From the perspective of income, the SAM shows that gross domestic product in 2014 was RM1,106.5 billion, of which RM379.0 billion (34.3%) were wages. The much larger portion of GDP, 62.7%, was generated by gross operating surpluses of businesses. Another way of looking at these numbers is to conclude that, in aggregate, capital is rewarded with about twice what labour gets.
This says a lot about the production function of the economy — what we do to create value has a lot to do with how we reward factors of production. In aggregate, these numbers suggest that what we do does not require highly skilled human capital — a challenge of transformation that we are aware of.
Of course, total household income of RM638.8 billion was derived from more than just wages in exchange for labour. Wages’ share of total household income stood at just under 60%, which suggests that there are households, those with high income, that derived a substantial portion of their income from non-wages. An estimated 27.5% of household income was made up of profit — effectively, returns from capital.
If we consider this, and the fact that the ratio of household financial assets was more than twice household debt, it is clear that the high-income households must have owned most of these financial assets and derived their income substantially from non-wages.
Unfortunately, the published DoS tables decompose households by the uneven measure of the top 20%, middle 40% and bottom 40%, a classification that is too broad to gauge the precise level of inequality. It would be interesting to see the share of the top 1% or 5% of households.
These numbers reflect the inequality of household income and a likely worse inequality of asset ownership, which is not unknown to policymakers. It also shows that wages are relatively low, especially compared with what capital gets rewarded. The capital-friendly nature of the economy, and an equally capital accommodating taxation policy, contributes to economic growth, but these same factors are also the best explanation for why we have this inequality. Those without high enough wages to acquire assets, physical and financial, will see their total income increasingly diverging from households that own these assets.
The issues of a high level of indebtedness, rising cost of living and being displaced from the housing market are all consequences of the relative low level of wages. That BR1M payments included households making RM4,000 a month when the median household income (2016) was RM5,228 says a lot about the median level of income — that it is low. And that the mean household income for the same year was one-third higher than the median says something about how skewed income distribution is.
Only slightly over half of women who are of working age are in the labour market, compared to over 80% for men, based on an overall labour participation rate of 68%. Given that the labour force is made up of some 15 million people, approximately 7.1 million people are therefore outside the labour force. DoS statistics show that 45% of those outside the labour force are studying at various levels, but it also shows that some 42% of those outside the labour force, who are not of retirement age, stay at home. One can assume that the overwhelming majority of these people are housewives and mothers. It is estimated that there are three million women in this category.
Given that there are more girls in schools than boys and more women than men in universities, almost all of these three million women who are outside the labour force are literate and potentially productive. Even if only one million of them were working for the average wage today, they would add some RM27.5 billion to GDP. That is almost a quarter of the income derived in the whole upstream oil and gas industry, for example.
Equally disturbing, and consequential to the low participation rate of women, is their share of total income. The SAM table shows aggregate numbers that are quite glaring in this regard. Of the RM379 billion of wages paid to employees, women’s share was RM127 billion or just 35% of the total, which is even lower than their (low) presence in the labour market, suggesting that women are generally paid less than men.
There are serious social consequences to this gender disparity. The issue of gender inequity is about financial independence and the choices that come with it. Therefore, it has a significant bearing on overall national productivity and economic growth.
At the same time, the divorce rate among all communities is alarmingly high and rising, and this has been partly attributed to financial issues. This speaks to the strength of a fundamental institution in society, the family, and, in particular, about child development as issues related to women are linked to those of the child. These are issues related to the social development of the country and have direct economic consequences for the future.
The bumiputera-non bumiputera convergence
For so long, politics and public policy — some might even say the national psyche — were based on a bumiputera-non-bumiputera dichotomy. The SAM tables reflect this approach as it divides households in the economy into bumiputera and non-bumiputera, which allows for the share of economic activities by this classification to be determined.
The SAM shows that the bumiputera share of total wages paid in 2014 was 62.55%, slightly below the bumiputera proportion of the population. There is, therefore, proportionality at the aggregate level between the share of population and the share of total wages, notwithstanding the point made earlier about the sizeable portion of aggregate household income being made up of returns on financial assets and the skewing of the distribution of such assets.
These numbers make two points. The first is that in terms of share of aggregate household wages, at least, there has been convergence to proportion between bumiputera and non-bumiputera households, which makes the issue of inequality much more a national problem instead of one coloured by race.
This is a clear indication that past policies that targeted the bumiputera community have succeeded to some extent. But left to perpetuate themselves, the same set of policies will actually be detrimental to further upward mobility of the bumiputera, which will depend on having the capabilities and resilience that can only be obtained by having more competition and not being sheltered by policy preference.
The second point is that the removal of the bumiputera-non-bumiputera lens in addressing inequality removes the probable capture of policy by underserving bumiputeras and possible neglect of deserving non-bumiputeras. Addressing inequality will become much less fractious if the focus on race is removed. Fiscal policy priorities and interventions addressing inequality and social mobility would then be redistributive and needs-based.
Fiscal spending should focus on the provision of a broader social safety net, allocating more resources to help women with children and those displaced from the job market. The tax regime will also have to be re-evaluated for a more re-distributive outcome.
DoS deserves praise for its work and what seems to be an openness about disclosing and sharing the data it has collected. Putting data in the public domain invites its use by all kinds of researchers with different objectives and methodologies. It will be noisy, but the debate, and there should be debate, should concentrate on the robustness of the theoretical framework and the rigour of the methodology used to arrive at conclusions.
This openness and the opportunities for the exchange of and advocacy for ideas should be welcomed. The decision by some universities to curtail discussions by its students and faculty is antithetical to this ethos, and it is disheartening. That is, however, the subject of another essay.
Dr Nungsari Radhi is an economist and managing director of Prokhas Sdn Bhd, a Ministry of Finance advisory company. The views expressed here are his own.