This year will go down in history as the Covid-19 pandemic year — the worst outbreak in more than a century since the 1918 Spanish flu pandemic that killed an estimated 50 million people worldwide. Despite the recent development of vaccines, the Covid-19 pandemic is still ongoing. Daily cases are on an increasing trend globally, with total cases exceeding 78 million and more than 1.72 million deaths as at Dec 23. Malaysia’s own number of cases has crossed the 95,000 mark, with more than 400 deaths.
The economic consequences are severe and still unfolding. The World Bank forecast that the global economy will contract by more than 5% this year, with commodity-exporting economies such as Malaysia doing worse at about -7% for 2020. The recent rollout of vaccines has injected much optimism, but the health toll will get worse before it improves. The medium-term economic impact of this pandemic will also be a deep one.
The severe and abrupt contraction in demand and the resulting displacements that the pandemic has created, particularly for those in the informal parts of the economy, will be a major drag on the local economy when the global economy recovers from this pandemic.
The Department of Statistics’ 2019 survey showed that, last year, Malaysia’s informal sector made up 8.3% of employment in the labour market, about 1.2 million people in a labour market of almost 15 million. Given that the labour participation rate in Malaysia — the basis for determining the size of the labour market — is only about 70%, the humanitarian impact of this pandemic is extensive in an economy that was already weighed down by structural impediments to growth and productivity.
More formally, the pandemic has not only resulted in the unemployment of resources, but it has effectively shifted the production frontier of the economy inwards and adversely affected overall productivity. This is not just an external shock that will quickly rebound once demand recovers. The supply side of the economy has altered quite significantly and the subsequent equilibrating process will take time and entails both displacement and employment of resources.
This year is also supposed to be the major national milestone under Vision 2020. For much of my professional life, Vision 2020 was “the vision”, one that I find to be well-articulated, supported and aspired for the country. It was not just about the “high income” part so often quoted about the vision.
When Tun Dr Mahathir Mohamad launched Vision 2020 in 1991, he presented nine challenges for the country to overcome to become a “developed” country. It was never just about the level of per capita income. It was a comprehensive envisioning of what a mature, developed society should be, from societal norms to equitable economic outcomes.
It is evident that Vision 2020 will not be realised in 2020. It would have been the case even without Covid-19, but the pandemic pushed that possibility a little further away. It is also clear that the economic development goals failed because the necessary societal transformation did not sufficiently materialise.
It can be debated whether that caused institutions to weaken or that the lack of transformation was due to weak institutions, but it was not about the shortfall in the percentage of growth or levels of this or other variables. It was more fundamental than that. In the language of Vision 2020, the nation failed to overcome the nine challenges set out as prerequisites to become a developed nation 30 years from 1991.
Any long-term plan requires the appropriate adjustments as time passes and reality unfolds. This ability to monitor and calibrate requires administrative competencies, not just at the political leadership level but also, perhaps more importantly, at the civil service level where the details are worked out. While the issues of integrity and corruption have received the attention they deserve, the equally important issue of the competence of government as an institution has not.
One reason for the shortfall of Vision 2020 is the weakness in the economic management of the country. The honest truth is that the competency to plan, manage and monitor economic development, be it at central federal agencies such as the Economic Planning Unit and the Treasury or the various state governments entities, is seriously wanting. It has declined since the days when Vision 2020 was conceptualised.
The management of the government’s economic functions has grown in complexity and requires depth in technical expertise in the various fields, from the intricacies of the linkages between public finance and the capital markets to aspects of mechanism design, programme development and evaluation.
Unlike technical government departments such as health, which are manned by technically trained professionals, the economic central agencies are manned by generalist administrative officers. This needs to be addressed. On the political side, the life of elected officials — politicians — are still largely devoid of policy making or law making. Both the civil service and cabinet size may have grown, but not its competence.
The means by which the government manages its economic functions, be it the budget or the five-year plans, have remained largely the same despite the changes in circumstances and in the operating environment. After two decades of continuous budget deficits, with revenues just being enough to cover the operating expenses, the budgeting process itself should change.
The annual budget has basically come down to determining levels of borrowing to finance development expenditures, as there is very little flexibility on the operational side. What is the point of doing this kind of budget on an annual basis? What is the point of a five-year development expenditure plan that is tantamount to a five-year deficit plan?
While the fiscal situation is what it is — a longer budget cycle — something like a rolling three-year budget will probably make more sense even if, procedurally, approval is on an annual basis. And a vision to locate these budgets should span a longer period and the five-year plan mechanism needs serious overhaul as well.
Vision 2020 had a 30-year horizon and a new vision should at least have the same horizon, if not longer, to enable proper strategic long-term thinking while addressing current serious fiscal issues. Mindful of politics, the principles governing its implementation, including monitoring and revision mechanisms, should be legislated. Fiscal rules are not that inflexible, as parliament can always amend them, but they instil discipline as well as provide transparency.
Any new national vision will have to be achieved while consolidating the fiscal situation, rid the wastages on the expenditure side while seriously expanding the revenue base. The adoption of the accrual accounting system for national accounts should provide better visibility to effectively manage longer-term cash flows while optimising the national balance sheet. The government should also extract value from its expenditures on digital infrastructure by better using data to manage the economy.
However, the most debilitating factor that contributed to the failure of Vision 2020, in my view, was a national mindset that was trapped in the past, from the pre-Merdeka Emergency period to the May 13, 1969, tragedy, in the laws from those periods that we carry forward and in the new laws we enacted based on those laws.
The New Economic Policy (NEP), for example, morphed via some perverted logic into something else. Even today, it is discussed in terms of projects, contracts, quotas and licences. What was about development of capabilities became about distribution of rents. What was about need became about rights. In the end, it stunted the very group it was supposed to develop and it engendered disharmony rather than national unity.
We never became “psychologically liberated”, as so aptly stated in the Vision 2020 document. We failed to free ourselves from being trapped in mental models that became increasingly asynchronous with the external challenges of a globalised and a more intractable world. Instead of possibilities, we became constrained by our own demons in our collective heads.
We also never got to the point of being able to be honest and forthright about things. We never really embraced or even believed in liberties, in freedom of expression. They were always some sort of bogeymen for why that is so that it got to the point that we live in our own realities, imagined and contrived, and, unfortunately, ill-equipping us for competition in the real world.
We could not, as a nation, find that balance between the oftentimes contentious trade-offs between individual freedoms and the common good in the light of our diversity. Gradually, we lost the coherence of a national narrative, a nation fragmented into many self-images, crippled and therefore one that is suboptimal in many ways, and these have economic consequences.
There will be new visions, but whatever vision there is for the country, it must at least address the issues on competency, the formation of an inclusive national identity and the ability to be, again, “psychologically liberated”. The Covid-19 pandemic will come to pass, but the national imperative to survive and thrive will remain. However, we must get our act right. Without it, visions are just dreams — something to hope for in the coming year.
Dr Nungsari A Radhi is an economist and former member of parliament for Balik Pulau