A conjuncture of developments, short and medium-term, has conspired to further slow the world economy. In recent months, the International Monetary Fund, among others, has acknowledged that global economic prospects are worsening, forcing it to make not one, but five consecutive growth forecast revisions, all downwards.
With Malaysia’s economy more open than ever before due to past government policy decisions, near-term economic prospects are bleaker than ever. In such circumstances, it would be prudent, even necessary, and certainly not profligate, to turn to counter-cyclical, expansionary fiscal policy. To act otherwise would be like rearranging the deckchairs on the Titanic as it was about to crash into the iceberg.
Conservative or “neo-liberal”, economically dogmatic lobbyists, including some who have “infiltrated” the Barisan Nasional and Pakatan Harapan (PH) administrations are still chanting their old mantras while their gurus in The Economist and The Wall Street Journal, for instance, have become more pragmatic by necessity.
While these gurus have revised their old dogmas in the face of the reactionary ethno-populist challenge in their own ranks, their loyal but foolhardy followers in emerging market economies continue to insist on their tired old slogans such as the now analytically discredited fiscal consolidation in the face of the looming slowdown.
All over the world, more realistic economists now publicly recognise that medium-term fiscal positions can be improved by appropriate short-term deficit spending.
But such fiscal spending should not only seek to buffer the short-term economic downturn but also lay the foundations for medium-term economic development, which Malaysia has desperately needed since the 1997/98 Asian financial crises.
Instead of creating more public-sector jobs or building infrastructure white elephants that would burden future generations for time immemorial, as with Najib Razak’s East Coast Rail Link, to cover the 1Malaysia Development Bhd losses and for political fundraising, the new administration should make fiscal commitments to improve human welfare and yield development dividends.
Instead of the current, poorly and expensively administered plethora of ineffectual petty “welfare” payments, social protection should be consolidated and disbursed more effectively and efficiently (for example, using MyKad) to strengthen aggregate demand from the deserving to improve human welfare, including that of preschool children and the elderly.
Appropriate investments to improve health, nutrition, education and training will pay significant development dividends in the medium and long term.
Universal healthcare financing from tax and other revenue can be consolidated in a health fund, reflecting the spirit of the PH electoral pledge as it is now universally accepted — except by lobbyists — that insurance options are more costly and result in “perverse” behaviours.
The education minister has announced a scaling up of the school feeding programme. Khazanah Research Institute has been advocating a transformative, Japanese-style universal school lunch programme to enhance nutrition, learning and culture for all who engage with it.
A more coordinated “all of government” effort to improve the scheme would yield huge dividends. Meanwhile, the Ministry of Health’s initiatives in Johor with parental participation have demonstrated better outcomes at lower cost.
Schools’ food procurement policy can be used to transform smallholder food agriculture away from the colonial fixation to reduce rice imports in favour of safe, healthy and more affordable vegetables and fruits.
Finally, selective investment and technology promotion is desperately needed after years of chimera-chasing and Davos sloganeering. As the world struggles to mitigate global warming, Malaysia is well placed to do much more with renewable energy, particularly photovoltaic solar panels and palm oil bio-diesel.
Similarly, the development of generic medicines, especially for neglected tropical diseases and bio-fortified health food products, has tremendous potential well beyond existing market segments.
Prevent abuse from the outset
The sorely needed turn to counter-cyclical public spending must be mindful of the waste and abuse of the past hiding behind similarly noble-sounding intentions. Abuse of or even poorly conceived government spending will discredit public policies more generally.
Simply buying over existing privately held assets will not enhance economic capacities, capabilities and output. Similarly, pouring away good money after bad money, or worse, corrupt investments of the previous government will not improve them.
Finally, there is much room for improved tax revenue collection in a country where tax breaks were once given for reasons unknown while an estimated half of luxury car owners do not pay income tax.
And while consumption taxes are generally regressive compared with, say, progressive direct income or wealth taxation, last year’s Sales and Services Tax, replacing the Goods and Services Tax, should be rationalised with a new, more progressive Value Added Tax, long discussed since the 1980s.
Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development. He is the recipient of the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought, and a member of the Economic Action Council.