Questions of a fair deal for all in the new economy

On July 26, 2019, a Malaysian economic symposium was organised jointly by the Parliament of Malaysia, the Backbenchers Council and the Caucus on Reform and Governance.

Zakiah Jaafar of the EPU talked about Malaysia’s overall impressive development record from the 1970s. Some recent challenges were identified, including youth unemployment, rising cost of living, relative poverty, constraints on public sector financing and inequitable wealth distribution.

Nor Shamsiah Mohd Yunos, the Bank Negara governor, spoke on the challenging global scenario and its possible effects on the Malaysian economy. Despite its strengths, further reforms will be undertaken to meet the challenges of the future.

Prof Edmund Terence Gomez’s presentation however was the most “direct”. In his usual style of not mincing his words, he went on to present part findings of his current research into “state-business ties” since the 1970s.

He decided to focus on the issue of reforms (or more precisely the lack of reforms) in the role of state enterprises.

He looked in detail at government-linked companies (GLCs) under the purview of the Prime Minister’s Department, Ministry of Finance, Ministry of Rural and Regional Development and the Ministry of Science, Technology and Innovation (now including the environment).

His stark finding: not much reform has taken place since the new government came to power in May 2018.

He also took a critical look at state governments and their role in business in the states of Selangor, Penang, Johor and Kelantan (to cover states administered by different parties).

His findings: government continues to play a large role in business; by and large there are still unclear boundaries between state and business; the existing system is subject to dominance of vested interests; existing government-business ties are not conducive to sustainably fostering economic development eg in developing entreprenerial SMEs.

He ended his presentation with some hard hitting questions, among them:

Why no reform of GLCs?

Should politicians sit on boards of GLCs?

Should ministries control GLCs?

Review the role of Chief Minister’s Incorporated in different states;

Why the concentration of GLCs in certain ministries

Why and how were entities transferred from one Ministry to another and by whom?

How to create state-business ties that would genuinely nurture entrepreneurial SMEs?

Unfortunately, there was no discussion time or a Q&A session after the presentations, although Anwar Ibrahim as chairman of the Caucus on Reform and Governance did try to answer some of the queries, admitting that the process of making reforms was sometimes very complex and resistance was sometimes found within the political establishment.

Those who had hoped for responses and/or a debate of sorts on the points raised, especially by Prof. Gomez, were rather disappointed that the session ended rather abruptly.

To all the important questions raised, the following questions on “equity” can be added:

1. Moving to an effective needs-based equity policy

Verified statistics and studies increasingly point to the fact that the gap between the rich and poor – rather than between the Malays and Chinese communities – proves to be the challenge in equity for Malaysia. The urban-rural divide and spatial inequality is also an issue and pockets of inequality among the bumiputera community have to be addressed as well.

One could argue that a genuine needs-based equity policy must be discussed and some kind of national consensus is needed. This will prove no easy feat as vested interests will always resist change, even if it is positive.

2. Equity between workers and employers/owners

An alarming fact was shown in one of the slides presented by EPU. The performance of capital, while worse than the productivity of labour, showed an increase in the share of GDP compared to labour’s marginal increase in GDP share.

This seems to support the complaint of labour unions that Malaysian workers have not been getting “their fair share” of the income of the country. Hence, there must be a clear policy that addresses this issue of workers or labour vs owners of capital.

Worse still when policies of political patronage pointed out by Gomez just adds to the development of “pseudo-entrepreneurs” or a rentier class in Malaysia.

3. Equity and the financialisation process

There is evidence to show that financialisation – the process by which the financial system and assets play a more dominant role in the global economy – has contributed to rising inequality.

Those who control and are dominant in the financial sector tend to be better off than the average worker in the financial sector and most other sectors.

There should be a comprehensive study done on financialisation and its impact on the Malaysian economy, equity and well-being of people.

4. Financial inclusion and equity

Better access to finance has been a major goal of Bank Negara Malaysia. Unfortunately, Malaysian household debt at 83% of GDP is one of the highest in Asia.

As someone who has called for a genuine Islamic approach to economics and finance it is less than satisfactory to see Islamic banking also promoting debt-based financing (although from a fiqh/legal contractual basis they are legitimate).

Has IBF in Malaysia made any significant difference to the debt-levels in Malaysia?

Issues of equity will play a very big role in determining whether or not Malaysia will be able to sustain itself in the new economic and political eco-system of the 21st century.

More sessions like the one organised at the Parliament are needed. However, much more open debate and discussion must take place.

Mohamed Aslam Haneef is an economics lecturer at the International Islamic University - FMT