Can we talk about the economy?

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  • Sunday, 23 Jun 2019

Looking ahead: In 1997, we spent on massive highway infrastructure and got ourselves out of the recession. Today, we need to spend in ways that will fundamentally change the majority of our society from backward and inward-looking to modern and progressive.

YES. Let’s not talk about sex, lies or videotapes. I am just not very interested in such things. Nor am I going to touch on the Bateq Orang asli issue as I am waiting for some news on it.

This week, my attention was drawn to these two clips of news – one of economist Dr Jomo Sund­ram warning Malaysians to brace for tough times and the other of Prof Dr Terence Gomez on the political economy of the various state and federal tied government-linked companies (GLCs).

Their messages are both short and sweet: Economically, we are in big trouble and we are not going to be out of it soon. Not by a long shot.

So, I’ve decided to dig into this.

How did we get here when almost 30 years ago, our new old Prime Minister declared Vision 2020 of a developed Malaysia?

Let’s start there.

Do you know where South Korea and Singapore were economically in 1991 compared to us? We had a national car in Proton in the 1980s, ahead of any such industry in South Korea. Singapore’s GDP

in 1991 was about US$46bil (RM191bil) and ours was US$49bil (RM203.4bil); today both have grown in excess of US$300bil (RM1.25 trillion). And our population is 32 million while theirs is a mere 5.6 million with no natural resources.

We did not get here because Malays are lazy, as some might be prone to say. We got here because we as Malaysians have wasted

our opportunities. Well, not us Malaysians per se, but those we elected who led us into this chasm, so we must take the blame as well.

While it is very easy for so-called “leaders” to chastise the population from their bully pulpits, it is their leadership, policy-making, direction and implementation that have led us to this disaster.

On May 9 last year, it was the rakyat who finally bailed the leaders out of the mistakes of their own making to give them an opportunity to correct their wrongs.

So please get off your high hor­ses, sirs and madams, and get to your real work of fixing the damage all of you politicians have done to this nation.

Stop your politicking, jostling for position – ministerships and premiership – and the blaming of us for your previous incompetence and corruption. The hypocrisy and jarring arrogance have been absolutely nauseating.

Did anyone else notice that one year on, the Pakatan Harapan government has yet to announce any national economic agenda? The Prime Minister, as the chief executive officer of this nation, has yet to even articulate his plan to turn around and grow this economy. No vision and no overarching plan on what this government will do to stop the rot, turn around the economy and grow it for the long term.

While we appreciate the hunting down of corrupt ex-ministers and renegotiation of mega investment scams ... err, projects, what is The Plan to move our economic future?

Hello, Mr Economic Affairs Minister? Anyone? All we hear are ad-hoc initiatives of building flying cars or black shoes that would stimulate shoe sales.

Okay then, how about I, an ordinary lawyer with no real-life financial background, take a stab at it.

It’s really not that difficult when you have friends who run companies and GLCs and can pick their brains here and there and put it into perspective.

Let’s start with the funda­men­tals. I’ll try to make it simple in layman terms.

At this stage of our development, foreign investments will never return to the heydays of the ‘80s, as such monies search for high growth potential in less developed countries or unless our economy booms to such an extent, which can only come after we get things right and growth is beyond our wildest dreams.

So if we are going to draft “The Plan” to turnaround this country’s economy, which would essentially count out foreign investments, what would we do?

There should basically be two components to this plan. One is what I would call: The Malaysian Turnaround Plan.

Which essentially means, how do we do our business better? Where are we wasting money? How can we be more productive and get better returns? We basically need to create a corruption-free, liquid and unfettered, free economy. The cost of doing business must be minimised and wastage must be plugged.

1. Eliminate state and federal GLCs

Taking a leaf from Prof Gomez’s remarks, we need to abolish the monopolies and GLCs as much as possible. All of these GLCs have no other purpose but to provide for the political patronage, plain and simple. Almost none of them make any profits, except for the monopolies.

The rakyat should not be expected to tolerate the use of their tax monies and deficit financing to pay for politicians and their support in these artificial entities. This has to stop. Now.

The monopoly artificially increases the costs of their operations and therefore passes it to the other businesses and consumers, while providing patronage employment and benefits to politicians and the connected.

2. Reduce the size of the Federal and state governments

The federal deficit has been averaging almost a negative 3% of the GDP since 1988. This year, the estimate is approximately 3.4% of the GDP. At about US$354bil (RM1.4 trillion), the Federal Government is running a deficit of about US$12bil (RM50bil).

We cannot keep this up. We are not the United States of America, where we can keep printing money because people buy up our currency to trade.

We have a terribly outsized civil service, which also includes a non-productive religious machinery like no other in a modern society – all to the tune of RM223bil in operating expenditure for a population of some 32 million. That is effectively RM7,000 for every Malaysian man, woman and child per year. How much would that be for every tax-paying citizen?

Drastic times calls for drastic measures. We need a 20% to 30% cut as minimum to the operating budget.

Cut down on unproductive units. No government should be operating religious departments. No government should be hiring religious teachers. It should only monitor content and teaching to ensure moderation and prevent radicalisation. Downsize all ministries across the board.

Privatisation, if done right, can boost the economy. Privatise JKR (the Public Works Department). Privatise RTM. Privatise the Road and Transport Department completely. Sell Malaysia Airlines. Let companies bid in an open tender. Worried about corruption? That is what the MACC is for and why Latheefa Koya is heading it.

3. Intensive deregulation of the economy

We need a federal task force to look at all ways and means to reduce bureaucracy and the cost of doing business and eliminate them as much as possible at the federal, state and municipal levels.

Licences have become a rent-seeking and an instrument of corruption. Approved permits have to be abolished. Where we can, such administrative bodies for licences and approvals should be closed down. Where we cannot, we should consolidate them into one-stop centres.

Make the mechanics of the economy efficient and remove its stumbling blocks. If we want to be a developed economy, we have to fashion our economy into one.

Next, we come to the second component of The Plan. While you cut operational expenses that are wasteful, you need to put that money in places where it can take up the slack of all the cutbacks and be used to fund productive and growth-based activities.

In that way, you also allow people excised from your waste reducing savings to enter into work in growth areas.

Hence, we come to The Malay­sian Growth Plan:

1. Increase liquidity and risk-taking

With every economist I spoke to talk of this as well as clients in my practice, nothing seemed to jump out more than this. In a market economy like ours, we need to leverage on money, assets and expertise to get more money to flow into the economy so that it can move.

We need businesses to have competitive, efficient and available financing. But ever since the consolidation of banks after the 1997 financial crisis, there seems to be a structural impediment to this essential need for commerce.

We seem to always provide the wrong remedy for what ails us. We had crony-lending in hundreds of millions and our remedy was to consolidate banks into mega ones that take no risks and put rules that move banks away from their customers rather than closer to them in the misguided effort to have an arm’s length so-called objective evaluation of risks.

In one fell swoop, we destroyed long-term banking and commerce relationships that have powered economies. The banks no longer care about their customers, they only care for their bottom lines.

Small- and medium-scale businesses (SMEs) suffer greatly for lack of available and efficient funding. They are seen as risky and provide too little return for these consolidated mega banks, which are now almost completely risk-averse.

In fact, we need more banks, less regulations and more incentives to lend to SMEs, which have always been the engine of growth for market economies. We need to have banks to take risks in our economy. Bank Negara needs to drive a financial industry that supports an entrepreneurial economy, not one of mega banking capitalism.

Failure must be an option. This is how western economies develop. They thrive on risk-takers. In this respect, Parliament needs to get in on the act. We need a law in the mould of the US version of Chapter 11, a comprehensive one that would allow for ailing but viable businesses of all sizes to continue operations, protected from lenders and creditors, and even acquire fresh financing on improved terms, while being restructured.

We need an environment that is conducive for businesses to take risks, fail, recover and thrive.

2. Spend our way out of a recession and build on fundamentals

Make no mistake – as Dr Jomo remarked, we are heading for tough times. But we do have an option. We can spend our way out of a recession.

That is the advantage of being a country, especially one with the natural resources. You can take on debt provided that you cut wasteful spending and use the debt in productive ways that will provide multiple returns.

Spending out of recessions is nothing new. We should not wait for it to hit us. We should act now. We have to spend it on the right things, for the right reasons, using the right people, at the right value.

The previous government took on debt, at enormous costs, spent it on themselves and benefited others. We must do it right.

In 1997, we spent on massive highway infrastructure and got ourselves out of the recession. Today we have a different set of problems; our growth strategy must hit sectors that will have an overall impact not just on themselves, but also our fundamental way of life.

This, to me, is something completely different. We need to spend in ways that will fundamentally change the majority of our society to one that is modern and progressive instead of the one we have today – backwards and inward-looking.

Otherwise, no matter how much money we spend we will end up where we started: Lacking in competency and ideas to move forward.

  • The views expressed in this article do not necessarily reflect the views of Sunday Star.

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