Opinion  |  FEBRUARY 20, 2013 9:21AM

Time for an economic debate between Najib and Anwar

Terence Gomez econoclast-thumbnail

Although the 13th general election is imminent, Prime Minister Najib Razak still appears reluctant to engage in a public debate with Opposition Leader Anwar Ibrahim. There is undoubtedly a need for this debate, focusing specifically on Malaysia’s economic and social policies.

The global financial crisis in 2008 drew attention to the urgent obligation of the Malaysian government to carefully review neoliberalism, the dominant model of development that had been actively implemented since the early 1980s by then Prime Minister Dr Mahathir Mohamad.

Mahathir had been deeply enamoured with the core tenets of neoliberalism that had been actively advocated by Margaret Thatcher and Ronald Reagan from the late 1970s. These conservative leaders would come to obtain huge support worldwide for their argument for less government intervention in the economy and for their zealous endorsement of the private sector as the primary engine of growth, including through active de-regulation and privatisation.

The global crisis discredited neoliberalism when the social inequities it had wrought, particularly the growing divide between the rich and poor, was so devastatingly exposed. Neoliberalism’s precipitous fall from grace was most conspicuous when the governments in the US and Britain had to support massive bailouts of powerful huge financial institutions to stymie the collapse of these economies.

When reluctantly endorsing this bailout, Nancy Pelosi, the US House of Representatives leader, stressed greater regulation given the problems of a market left to its own devices. President Barrack Obama, but only in his second inaugural presidential address, would overtly acknowledge the need for greater government intervention in the economy, covertly dismissing neoliberal ideas that had long been propagated by every one of his predecessors since Reagan.

In Malaysia, as solutions were sought to deal with the serious post-crisis recession, one would have presumed that the government would have been wary of neoliberal ideas. And, at the onset of the recession at 2009, Malaysians were heartened to hear that in the pipeline was a ‘New Economic Model’, an ‘Economic Transformation Plan’, a ‘Government Transformation Plan’ and, later, a (much required new) ‘Education Blueprint’.

What is clear, however, is that the policy recommendations introduced by Najib in response to the crisis did little to provide an alternative to the neoliberal strategies introduced by Mahathir. In fact, Najib’s recommendations appear to vindicate Mahathir. There is little political will, not even a brave attempt, to advocate a genuinely different development model that will address the serious inequities and structural problems that exist in Malaysia.

Malaysia undoubtedly has serious economic and social problems that have to be addressed. This country has one of the highest ratios of inequality in industrialised East Asia. Around 90 percent of Malaysians have no savings and 14% have no wealth. The bottom 80 percent of individuals own only 5 percent of total financial assets with the top 20 percent holding nearly 95 percent of private assets. Regional inequalities persist with communities on the east coast of Peninsular Malaysia and in Sabah and Sarawak still mired in hardcore poverty.

A colossal 80 percent of the Malaysian workforce has only SPM (or O-level) qualifications, in spite of the extensive privatisation of education and a phenomenal increase in the number of public universities in recent decades. The declining quality of education provided by public institutions has been acknowledged by the government, even as fees paid by students, particularly at tertiary level, have been increasingly burdening them with huge debts long before they graduate. As one bright young undergraduate in University Utara Malaysia courageously argued, education is a social right that has to be accorded to all young people free of charge. No one is listening enough to present a radical new model of just development.

Or is more going on here than a reluctance to listen. The key question is clear: if the prevailing economic development model is so unjust and Malaysia is in dire need of radical change, one clearly involving government intervention, why then are political parties not willing to debate these matters? One alarming possibility is that political leaders in both the Barisan Nasional and the Pakatan Rakyat subscribe to neoliberal ideas in spite of its serious flaws.

Pakatan Rakyat’s form of economic governance in industrialised Penang and Selangor indicates a subscription to neoliberal policies that differ little from the Barisan Nasional state governments they replaced. Pakatan Rakyat has, however, cultivated a reputation for a more transparent and accountable form of governance while its micro-level policies involving issues such as affordable transportation and reducing the budget deficit are well articulated.

It is also possible that both political coalitions are fearful of changing the current neoliberal policy direction because they dare not suggest the need for greater state intervention. Politicians on both sides of the floor are well aware that domestic investors fear government intervention. Domestic investors attribute most of Malaysia’s economic woes to state intervention, especially through affirmative action policies in business.

And yet, change is imperative, and investment figures reveal why. Malaysia’s high savings rate is clear testimony that there is little desire to transform it into investment. Private investment is only around 14% of GDP and there is poor investment in R&D to upgrade technology that would lead to enterprise development.

Whether we like it or not, government intervention to foster socio-economic equitable transformation is fundamental because of the extensive presence of government-linked companies (GLCs) in all key sectors of economy. Even banking is a predominantly government-owned sector.

Since there is much concern over the poor capacity, or willingness, of domestic firms to move up the technology ladder, it is essential to create a transparent and accountable tripartite compact between the government, banks and industries, particularly small and medium-scale enterprises (SMEs) to shape the mode of development of the economy.

It is not that Malaysia has no experience employing such a tripartite compact to develop domestic SMEs. This occurred in the 1970s when funding institutions known as Development Financial Institutions (DFIs) were established. These DFIs include the Agro Bank, EXIM (Export-Import) Bank, Bank Pembangunan and Bank Industri & Teknologi, the latter two consolidated as the SME Bank in 2005.

However, the financing of SMEs by these DFIs was not always based on merit and conducted in a transparent manner. What is clear is that the DFIs function differently from government- owned commercial banks such as Malayan Banking and CIMB which are motivated by profit maximisation and increasing market share. The important role that DFIs can play in nurturing domestic enterprise is not well appreciated, consumed as the government is with creating big banks with a huge global, or at least, ASEAN presence.

Najib’s government actively endorses privatisation as a method to resourcefully employ the GLCs. However, privatisation outcomes have been dismal, and this is not just because they were privatised to well-connected businesspeople. Privatisation outcomes have been similarly disappointing in the industrialised West; just look at Britain.

The overwhelming presence of GLCs in key economic sectors should not be seen as an impediment to economic growth. Leading European firms in the industrial sector have been under government control and ownership at various stages of their development, including in highly industrialised countries such as France and South Korea.

Malaysia’s business community would be hesitant to support government intervention since this has led to cronyism, corruption and expropriation of the enterprises they had long nurtured. Interestingly, too, given the enormous influence that the neoliberal model has had on the mindset of Malaysians since the 1980s, it will probably not be seen as obsolete and in need of replacement, particularly by a plan that may involve the need for more taxes.

Political parties may, indeed, have to be wary about propounding alternative development models before a general election!

But alternative, even more just, models of development exist. Some examples include the social market economy in Germany, the developmental state in Japan and, now that Malaysia is a middle income country, the Scandinavian model. All three are highly industrialised countries or regions where government intervention had been crucial and where there is a sense of social justice not as prevalent in the US and Britain.

We may not be able to replicate these models in Malaysia. And there have been major changes in these models as these countries industrialised. But there are lessons to be learnt here which should be fed into public debates about what is now most suitable for Malaysia. Other segments of society, not merely the business community, should be privy to input about Malaysia’s mode of socioeconomic development.

With an election pending, this debate between the prime minister and the opposition leader, preferably moderated by an individual with a different economic orientation, is vital if we are to know Malaysia’s mode of development, one that would rectify social and economic injustices.

There may well be major differences in the way these two coalitions feel the country should develop, but these viewpoints must be articulated and deeply probed. But first, Najib must agree to debate. As Prime Minister, he is obliged to do so.

Terence Gomez is Professor of Political Economy at the University of Malaya. His publications include Malaysia’s Political Economy: Politics, Profits and Patronage; Politics in Business: UMNO’s Corporate Investments; and The New Economic Policy: Affirmative Action, Ethnic Inequalities and Social Justice.

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