‘Wealth gap between rich and poor getting wider’

KUALA LUMPUR: Blindspot, an economic think-tank, has warned that profiteering and Malaysian crony economics is widening the wealth gap between the rich and the poor.

As a consequence, there is a disparity and wages are not keeping up with the rising cost of living.

Its co-founder and researcher, Azlan Awang, said the economic gap can be seen when the country’s wages are compared with the gross domestic product (GDP).

GDP is the monetary value of all the finished goods and services produced in a country within a specific time period.

“If we look at wage to GDP, the present ratio is about 33 per cent. This means only 33 per cent goes towards wages of workers; while 67 per cent to companies as profits.

“In advanced countries, the distribution is almost reversed – 50 to 60 per cent of GDP goes towards wages and the remainder goes to the company as profits,” he told FMT.

Azlan said it looked like capital owners in Malaysia can accumulate more money by paying less in wages.

He said looking at the macro perspective, by right Malaysian companies could afford to pay higher wages to Malaysians.

He added that lower wages had caused households to have lesser savings.

He said based on Khazanah’s research in 2014, 74 per cent of households are vulnerable and have savings of less than six months.

“Most may not even have any savings at all.

“If the main breadwinner loses his job or a family member falls ill and requires expensive medical treatment, they might fall into serious debt.”

Employees Provident Fund’s research in 2013 showed 64 per cent of workers earn below RM2,000 and 92 per cent earn below RM6,000, he said.

“Where is the middle class? If we need RM3,000 to RM4,000 a month to survive in cities, the EPF statistics shows only 8 per cent earn RM6,000 and above a month.”

Azlan said although it was a good move to finally implement minimum wages, which forces companies to pay their staff RM1,000 a month in the peninsula and RM920 in Sabah and Sarawak from July 1, the amount is almost on a par with the poverty line.

He said a worker will not be able to support himself or the family.

Azlan said companies should pay the “poor” higher wages as it will indirectly benefit the companies.

He said these “poor” are the ones who can stimulate the economy.

If their wages are increased, he said, they will buy better books for their children, more insurance, vehicles and houses and other household products. He said the chain reaction will help the country’s economy to grow.

“When companies or rent-seeking individuals make profits, they invest in the speculative market like derivatives, futures, stocks and property. These do not stimulate the economy.”

He said the problem with Malaysian workers’ wages was that it was not keeping up with the cost of living. He cited an example.

“Based on the minimum wage of RM4.33 per hour: it will take 56 years for a Malaysian worker to own a bungalow home (which is 45 minutes from the city centre) and 11 years to buy a Honda Civic as compared with Australian workers where their A$17.29 an hour minimum wage gives them the liberty to own the Honda Civic with only seven months’ wages and 10 years’ wages to buy an equivalent bungalow house in Australia.”

He said in any country, there is an economic gap between the rich and poor, but it should not be to a point where the poor cannot make a decent living as it can slow down the economy.

Azlan said there was a high level of profiteering within big companies in Malaysia, especially by rent seekers, where an individual might get a government contract and make millions of ringgit.

“Or he might successfully lobby for a government policy or regulatory change that instantly makes him millions if not billions of ringgit in profit.

“A change in policy creates money. But the money should also go towards paying higher wages.”

In May this year, the crony capitalism index, where a billionaire’s wealth percentage is compared against the GDP, ranked Malaysia No. 2 after Russia.

Azlan also claimed the country’s economy is “hollow” as 40 per cent of Malaysia’s economy is still reliant on assembling electrical and electronic products, a job that pays low wages, and 20 per cent is from petroleum products.

“We are left with 40 per cent. It is the backbone of the country’s economy.

“The electrical and electronic sector will eventually look towards Vietnam due to cheaper cost of labour. Because of this, the government was supposed to move into high-value high-income jobs.

“It has been slow in achieving high-value jobs. We are still stuck in inviting foreign direct investment into the country.

“Foreign investors are here, enjoying lower taxes and power bills. Some of them employ just about 300 workers, but enjoy a lot more benefits.

“Their profits do not benefit us as investors take the profits back. For us to succeed, the government has to invest in its people and commodities.

“Have more people produce local gadgets and things locally. Create domestic demand through high wages.”