Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on January 6, 2020 - January 12, 2020

If we break up the last three decades differently and in the following way, 1987-1997, 1999-2008 and 2009-2019, and calculate the average real gross domestic product (GDP) growth during the periods, we would see the averages falling from 9.6% during the decade before the Asian financial crisis (AFC), to 5.9% between 1998 and the 2009 global financial crisis (GFC), and 5.8% in the last 11 years.

We can form two conclusions from these broad macro observations. First, the economy lost quite a bit of zeal after the 1998 AFC that it never recovered from and, second, that the economy has been on a secular downward trend ever since. This much is factual and cannot be refuted.

The response to the AFC was decisive — formation of the National Economic Action Council (NEAC) that worked daily to collate and conduct analyses and proposed solutions. The National Economic Recovery Plan was a well-thought-out document and was supported by sound research. There was much work in the aftermath to restructure companies and banks. Capital controls provided the breathing space to do those things.

Perhaps, the capital controls and the fixing of the exchange rates that proved effective during the crisis were in place for too long, resulting in relative prices being distorted. And while the economy recovered, it began a domestication of the economy that partly explains why growth rates since then have not been as high.

The initial post-GFC response too was commendable. It started with a massive stimulus package to prop up demand and proceeded with the deliberations on the New Economic Model (NEM) with its three pillars of growth, inclusiveness and sustainability. It turned out that the size of the countercyclical measure was more than what was required as the external environment improved quite quickly and commodity prices held up. While there were serious attempts at better fiscal management, the fiscal deficits accumulated and the ensuing Economic Transformation Programme (ETP), which is quite apart from the NEM, lacked the economic rationale to move the economy to a higher growth trajectory.

Going by track record, it was the policy stance put in place in 1990 — the New Development Policy (NDP), the successor of the New Economic Policy (NEP) — when Vision 2020 was introduced that generated over a decade of high growth. That policy framework had the right broader objectives — economic, societal and institutional ones — that characterised what a developed, mature and democratic country should be.

That policy embarked on market-friendly initiatives, starting with the privatisation of state enterprises and continued openness to foreign investments on a public-private platform of Malaysia Inc. Though the twin NEP objectives were preserved, it was couched fundamentally differently — as one to develop a Bumiputera Commercial and Industrial Community. The main thrust was national unity and nation-building.

Of course, there was over-exuberance and greed levels went into overdrive as animal spirits ran loose. The governance and regulatory framework then were inadequate to deal with mobility of global capital. The institutions of government too were weak and weakened by this exuberance as there were accusations of abuse and favouritism and dodgy price discovery in the privatisation of state assets and government procurement.

There was also de-nationalisation of many agenda and public institutions — what should have been about helping those most deserving became something else, standards were compromised and there was confusion between means and ends.

The recently launched Shared Prosperity Vision (SPV) 2030 was not a response to a crisis but a restatement of an election manifesto. It contains many weaknesses in the details, although the general messages are familiar — inclusive growth and addressing inequalities towards becoming a developed nation. It could use with some deeper thought and more detailed empirical basis for some of its assertions and predictions.

The broad objectives of the NDP should form the fundamentals of what the policy direction should be in the next decade. “New” Malaysia can use the good from the past and focus on addressing what was wrong in the past. A lesson from the past is that governance and regulatory framework must be strengthened. The government had started on parliamentary reform but it seems to have stalled. A lot of the public sector reforms are legislative in nature but empowering parliamentary oversight of the executive will also strengthen the separation and division of powers. This should be started in earnest.

There should also be focus on building governmental capabilities and the rebuilding of national institutions. The government’s economic planning capabilities have been found wanting and need serious upgrading if it is to do fiscal policy more effectively. Public institutions from parliament to schools should exemplify the national character and excellence.

Notwithstanding the challenges in policymaking, the biggest threat to the country in the coming decade comes from politics. The deteriorating and toxic political climate is worrying. The resulting divisiveness and instability do not produce an economically conducive political market. Ideological stances, even theocracy seem to have emerged. This is in contrast to the somewhat agnostic policy stance previously — a pragmatic, positive stance of doing what works rather than some value-laden normative approach to policymaking.

Policy choices are known — there are technically easy choices that are implementable, but there are also choices that require much political capital to implement. On another spectrum, there are choices that effect structural changes and those that are mundane. The reason why the last three decades have not seen major structural changes is that many such policies are both technically difficult to implement and require a lot of political capital.

A populist government will likely choose policies that are easy to implement and do not require much political capital, which will then not do much to bring about real change while incurring more fiscal expenditure. And the malady will continue; the economy continues its graceful decline.

How we will fare in this coming decade will depend on where we will find ourselves on this trade-off axis and that will largely depend on politics and on leadership — that mix of courage and the ability to communicate. Ideas are necessary but courage will be more important; but perhaps more crucially, we need to see some sort of a political equilibrium to obtain some certainty.

Some 40% of Malaysians today were not even born in 1997 when the economy went through what economists termed a structural break. Those of us who lived our adult professional lives in the roaring 1990s seemed to have failed to craft a solid footing for the 40% who were not around then.

Maybe the future will depend on how the young will come forward and shape their future themselves. Some have done so and the record has been mixed. Many more should do so. In the meantime, the aged and ageing should plant trees, for as the Greek saying goes: A society grows great when old men plant trees whose shade they know they shall never sit in. Here I am still looking for my tree!


Dr Nungsari A Radhi is an economist and the views expressed here are not related to any of his organisational affiliations

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