By Ramon Navaratnam
Khazanah Research Institute, Khazanah leaders and the managing director of KRI, Charon Mokhzani, should be commended and not criticised, for presenting us with the professional report entitled State of Households II.
From its insightful findings, we get the clear impression that all is not well in the state of Malaysia. In fact it appears that our wealth and incomes are still badly inequitable, after 59 years of Merdeka. The hard evidence in the State of Households report also shows that our Economic Model and its implementation has perhaps become skewed?
How is it that our households earning less that RM3000 per month, have such severe debt problems? How come they borrow about seven times their incomes, in order to keep their heads above water? This lifestyle would make them very desperate as they will surely be living well beyond their means.
They will therefore become almost permanently indebted to money lenders, loan sharks and banks and will be at their mercy. This is not only a skewed situation but indeed a pathetic way of life, that no one would want to face.
Why is this so? Have our Five Year Plans and our Annual Budgets not provided enough Basic Needs like Housing, Health, Transport and Education for the poor and low income earners? Have their salaries been overly depressed and has inflation gradually made it so difficult to sustain themselves?
Ironically, at the same time we keep lauding our reasonably high economic growth rates of 4-5 per cent per annum. But where, we can ask, has all the high economic growth been going? Has it mostly been accumulated by the rich and powerful and at the expense of the poor?
The KRI shows that only about 10.8 per cent of urban households are resilient to shocks such as unemployment, accidents, death, interest rate changes and economic and financial slow downs.
So what will happen to the vast majority of the 89.2 per cent of Malaysians who will be badly hit by economic and financial uncertainty and even recessionary and inflationary developments? They will surely suffer from new and severe hardships and will find it extremely difficult to make ends meet.
Worse still, if we do not urgently address these issues in the coming Budget and in future economic planning, there could be greater risks of social tensions, and even social unrest, sooner than later.
What can be done?
1. Review and revise our current economic model to make it more competitive, efficient and productive. Phase out protectionism and preferences embedded in the economy. Khazanah could take the lead by becoming more open, less protected, more competitive and more productive.
Protection and privileges that are provided and enjoyed at the top echelons of our society, do deny the full benefits of competition and higher productivity, that would definitely benefit the poor and the less privileged. The proposed New Economic Model has to restructure our outmoded NEP model to improve economic growth and provide better income distribution.
2. Increase food supplies and thus reduce the cost of living. This can be done by opening up more land for food and fish cultivation to all enterprising farmers and fishermen on a more equitable basis. Similarly, licences, permits, tenders and contracts etc, could be made more competitive, so that production and productivity are encouraged rather than stymied.
3. Drastically reduce high wastage, corruption and inefficiencies. If greater political will is shown, to catch the really big corrupted fish, the present inefficiencies and distortions in the economy, would be dramatically reduced. The impressive large government expenditures incurred every year could have resulted in more benefits to the poor and low income groups.
4. For the longer term, we need a major restructuring in our economic plans and annual budgets. The 2017 Budget, due next month, could reallocate much more funds for the bottom 40 per cent of our people, by providing far more funding for basic needs, like housing, transport, health, and even higher wages, that can be related to productivity and performance.
The structural changes will mean a better tax structure that will raise taxes from the higher income groups, through more estate duties and wealth taxes.
Most importantly, the education system must be revamped and made much more relevant. Graduate unemployment which is rising, should be reduced by increasing science technical training, with the greater use of English.
A better education system will also certainly arrest the debilitating brain drain and capital outflows that are and will continue to stifle economic growth, employment and higher incomes and keep us caught in the middle-income trap.
The proposed solutions are by no means exhaustive. But they represent some of my ideas on the essential need to better prepare our annual budgets to be more innovative and differently from the past. It cannot any longer be just business as usual.
I hope the Government realises the grave significance of the Khazanah State of Households report and boldly addresses and arrests the seriously skewed socio-economic distortions taking place.
Ramon Navaratnam is chairman of the Asli Centre for Public Policy Studies.
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