Although poverty was thought to be fast becoming history in Malaysia, recent years have seen renewed concerns about its persistence. This followed adverse international publicity in recent years doubting actual progress, and alarm over Covid-19 impacts on the vulnerable.
The effects of the pandemic and government policy responses over the last two years have refocused attention on the resurgence of poverty in Malaysia, long touted as a nation on the cusp of becoming a high-income country.
To be sure, poverty in Malaysia did decline greatly, especially during the 1970s. Apart from reducing unemployment, government-funded programmes improved access to health, education and basic amenities, improving the well-being of many.
During the 1970s, policies targeted some major occupational groups — for example, rubber smallholders, rice farmers, other farmers, fishermen, new villagers and estate workers — and regions where many were deemed poor.
But it has long been widely presumed that success was — somehow — due to the New Economic Policy (NEP). Announced in 1971, the NEP claimed to build national unity by eliminating poverty and reducing inter-ethnic economic disparities.
Despite the much larger labour force, policy attention to employees’ exploitation has declined since the early NEP years. This is clear in the treatment of foreign labour, and the depressing conditions of Malaysian workers. Or employer resistance to raising the minimum wage from the decade-old RM1,200 level!
After decades of controversy, the government revised its poverty measurement methodology in 2019. The average absolute monthly household poverty line income (PLI) for
Malaysia was RM2,208, of which 53% was for food.
But using the relative PLI — defined as half the median income, the midpoint in the overall income distribution — of RM2,936, the poverty rate jumped from 5.6% to 16.9%, with poor households tripling from 0.4 million to 1.2 million!
This implied 0.8 million households had incomes just above the official absolute PLI, ranging from RM2,208 to RM2,936. While not deemed poor, they could easily fall into absolute poverty due to small income losses. Many with even higher incomes also catastrophically lost much due to the pandemic.
Using official data, Khazanah Research Institute’s (KRI) Demarcating Households study found that the bottom fifth of Malaysian households in 2019 were barely able to meet their basic needs, with another 50% unable to save much after doing so.
Hence, despite the low official poverty rate before the pandemic, at least 70% of Malaysian households were deemed vulnerable. Many could not have coped with pandemic income shocks without public provisioning and mutual support from kin and others.
The World Bank’s policy advice has long promoted targeting the poor. Specific policy measures — cash transfer programmes, for example — have been touted, with such best practices promoted as part of one-size-fits-all approaches.
Targeted anti-poverty policies claim to only help the “deserving” poor, that is those below the official poverty line. Focusing on the poor has increased reliance on money-metric measures to quantify income, poverty and policy efficacy.
But there are many complications in determining individual and household incomes, for example, in setting appropriate money income thresholds for eligibility. Also, such targeting typically suffers from errors of both inclusion and exclusion.
Thus, many otherwise deemed deserving may be left out, while some of the undeserving may benefit. Hence, policies ostensibly targeting the poor have often excluded numerous people who are really poor while including many who are undeserving.
Actual targeting procedures and related costs are typically considerable but rarely acknowledged by advocates. Targeting thus actually raises the costs of poverty and social protection programmes while rarely overcoming errors of omission and inclusion.
Fiscal resource constraints are frequently invoked to justify targeting the poor. Unlike universal benefits — which typically enjoy broad public support — targeting reduces public support for government funding, policies and interventions.
Some ministries and other government institutions have information useful for multi-dimensional poverty analysis. But poor inter-ministerial and inter-agency data transparency, harmonisation and sharing have prevented a better understanding of poverty, its reduction and social protection.
Worse, the efficacy of various measures implemented have not been subjected to rigorous analysis. With little such evaluation, there is little real understanding, let alone a consensus on how and why poverty declined.
Improving social policy
Mitigating poverty still dominates all too many social protection and welfare measures in developing countries. Hence, targeting the poor should not be allowed to determine social policy, which already leaves out many of the vulnerable.
With financialisation, contributory social insurance schemes have been touted as protecting against unemployment, disability, ill health and ageing-related risks. But only those who can afford the required regular payments can actually participate, with everyone else left out.
Of course, short-term, publicly funded social safety net programmes can be complementary in helping cope with extraordinary contingencies. But such social assistance is no substitute for comprehensive universal social protection.
Recent recognition of precarity implies almost everybody risks becoming economically distressed. With inclusive, comprehensive social protection, all can feel secure — at least to some extent — depending on fiscal resource availability.
While official poverty in Malaysia was low before the pandemic, gaps in social protection coverage remain serious. Broadly inclusive social security coverage was envisaged by the second prime minister Tun Abdul Razak Hussein half a century ago in 1972.
Although long part of official Malaysian discourse, it has been ignored since by all his successors. KRI has recently taken up the challenge by proposing comprehensive social protection over one’s lifecycle, from childhood — through working adulthood — to retirement.
Poor benefits for the poor
Following World Bank policy advice, supposed anti-poverty efforts broadened from the officially recognised poor to the poorest 40% of households (B40). But the “B40-M40-T20 percentage shares” template response to demands to address economic inequality has fallen between two stools.
The resulting one-template-fits-all focus on the B40, regardless of context, has failed to appropriately address inequality. While the number of social assistance programmes rose from 95 in 2012 to 137 in 2020, total spending fell 44% from RM45.5 billion to RM25.5 billion!
Thus, underfunding has worsened under-coverage, unpredictable benefits and programme fragmentation. Worse, benefits targeting the poor tend to be underfunded. As Amartya Sen famously observed, “benefits for the poor often end up being poor benefits”.
And contrary to World Bank claims, cash transfers are very prone to political abuse. Its touted policies have been much abused. Worse, such abuse of the most vulnerable in society is largely perpetrated by and to the advantage of the supposed benefactors.
Patronising the poor
Price subsidies for goods once deemed essential — sugar, for example — have been largely withdrawn. Instead of sustainable anti-poverty programmes, cash handouts go to those deemed eligible, broadening political support for the incumbent regime.
But experience suggests efficient public provisioning in kind — such as providing safe and nutritious meals for all in schools and pre-school facilities — has had significantly superior medium- and long-term outcomes for the recipients and society, but with little political advantage to the ruling party.
Many poverty programmes have been managed for political advantage by incumbent politicians. Several have tried to patronise often rural, but increasingly urban poor communities. Benefits have accrued unevenly, often reflecting varying degrees of political influence.
Selectively disbursing subsidies — in the name of development or welfare — has thus become key to clientelism by incumbent politicians. Of course, some satraps, cronies and lackey hustlers have gained much more than others from such patron-client arrangements.
The waste, abuse and corruption now going on in the name of development, welfare, poverty eradication and social protection have not only exploited the poor and others, but also fiscal resources and governments more generally.
Jomo Kwame Sundaram, a former economics professor, was UN assistant secretary-general for economic development. He is the recipient of the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.