For months since Covid-19 unleashed its devastating impact, we have been consumed by conversations, in Malaysia and elsewhere, about how the pandemic would fundamentally alter our economic and social life and usher in a new paradigm in economic policies. Some predicted a new era in human development; others called for a reset of the economy.
So, when Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz declared in his budget speech that the depth of the crisis facing us is the kind unseen “since the Great Depression in the 1930s”, it heightened our expectation that Budget 2021 would include some bold plans, not just to lessen the impact of the virus, but most importantly, to reflect a new approach that would correct the fault-line that has long existed in our economy.
Alas, apart from a long list of short-term goodies and commendable initiatives to restart the economy, it does not offer the vision and strategies needed to turn the economy into one that truly serves the broad section of the society. It brought cheers to targeted groups for the immediate future but is lacking in prescriptions that would ensure lasting economic security long after the pandemic is over.
For far too long, the Malaysian economy has been uneven, developed in a manner that has benefitted the top instead of the 90% at the bottom. According to data from the Forbes List, the 50 richest individuals in Malaysia control about 23% of the economy. With a combined net worth of about RM328 billion, they own more than what five million households in Malaysia earn in a year.
In a more scientific term, if one takes an income approach to calculate the gross domestic product (GDP), the share of corporate profits constitutes about 60% of the economy. Salaries and wages, or in economic parlance, labour share, only take up about 30% of the pie.
In contrast, the labour share in Argentina is at a respectable 44%, and Singapore’s is at close to 45%. Even in the US and the UK where the owners of capital supposedly rule the economy, the income earned by the employees constitute more than 50% of the GDP.
Those representing the employers would blame the low income level on the lack of productivity. This is far from the truth. In a 2018 study undertaken by Bank Negara Malaysia, workers in Malaysia, in comparison to other benchmarked economies, were found to be paid below their productivity level.
By way of illustration, for an output of US$1,000, a Malaysian would be paid on average US$340 while those working in countries cited in the Bank Negara study would earn about US$510.
Because of the disconnect between the compensation and the reality on productivity, the central bankers have learnt that Malaysians, particularly those living in urban areas, are earning below the living wage — an income level defined as sufficient to meet the minimum standard of living.
Therefore, it would not be a surprise, for example, to discover, as Covid-19 has laid bare, that 54% of Employees Provident Fund contributors above the age of 54 only have less than RM50,000 in their retirement fund.
There are many factors contributing to this disturbing state of affairs. Apart from our liberal policy on foreign workers, we do not have clarity on policy to promote innovation and use of technologies on a big scale in our companies and industries. A change to these policies alone would have reversed the downward pressure on income and generated high-paying jobs for our educated lot.
Thus, despite the serious structural issues, highlighted by no less than its own agencies, that have the potential to threaten social stability and the long-term health of the economy, it is perplexing that the government has not found it important to use the occasion of a major policy proposal in this time of crisis to set the stage for a restructuring of the economy.
By getting the major glove makers to contribute RM400 million to the government coffers to fund the various social programmes, Zafrul has shown his capacity to be innovative in his policy.
But a small one-off contribution, instead of a more structured tax framework, from an industry that made a windfall from foreign labour and cheap rubber supplies, is akin to dipping a toe in the water. It will not address the fundamental problems that will tilt the economic scale even slightly towards the interest of society rather than just the businesses.
If history is any guide, moments of deep crisis would be taken as an opportunity for governments to pursue a new set of policies intended to revamp, reboot or restructure the economy.
Whether it was the New Deal in the US in the aftermath of the 1929 Great Depression that ushered in the welfare system, or the Thatcher Revolution in the 1980s to reverse the economic stagnation in the UK, or the conception by second prime minister Tun Abdul Razak of the New Economic Policy to correct the deep chasm that triggered the race riots in Malaysia in 1969, they all had the effect of resetting the trajectory of the country and revolutionising the way the economy interacts with society.
One does not expect an annual policy document like the national budget to provide long-term solutions for every economic ill. But given a once-in-a-lifetime opportunity to redefine our economic approach, as many have pointed out, it should at least put forward some agenda for real change.
So, for the government to make a historical comparison of Covid-19 to the Great Depression, it is quite a disappointment to find a fiscal policy conceived in such an extraordinary time to remain fixed in the old paradigm.
Nazim Rahman works in private equity