Saturday January 7, 2012
Your 10 questions for Prof Datuk Mohamed Ariff
Prof Datuk Mohamed Ariff - What are the three most troubling economic issues facing Malaysia today, and how can we tackle them? Bulbir Singh, Seremban
Persistent
and endemic fiscal imbalance, growing income disparity and
overdependence on foreign workers top the list. Malaysia lacks fiscal
discipline. In the last 54 years since Independence, Malaysia has had
budget surplus only in 7 years. Fiscal prudence demands counter-cyclical
fiscal policy with surplus in good times and deficit in lean times,
which allows fiscal stimulus during economic downturns to be financed by
the accumulated surpluses without borrowing. As this has not been the
case with Malaysia, the nation's public debt has been growing. National
debt has risen to RM430.2bil in the first quarter of 2011, roughly 55%
of gross domestic product (GDP), up from 41% in 2008. To balance the
books, the government must rein in its operating expenditure and
introduce tax reforms. The government's reliance on oil and gas which
accounts for about 40% of total revenue is simply untenable. Federal
revenue growth has failed to keep pace with GDP growth, so much so that
the revenue/GDP ratio has fallen to 22% from the 10-year average of 34%.
The
growing income disparity is also worrisome. The bottom 40% of the
households account for only 14% of national income, while the top 20% of
the households account for roughly 50% of aggregate income. Income
inequality in Malaysia hovers at levels higher than that in Indonesia,
the Philippines and Thailand. Regional disparity is equally striking.
Sabah is the poorest with 20% of the households living below the poverty
line. Sabah accounts for 43% of the country's poor, trailed by Sarawak
(12%) and Kedah (9%). These three states jointly account for nearly
two-thirds of the poverty in the country. To fix the problem, the
government must revisit and review its affirmative action plans so that
the benefits accrue directly to the poor and the marginalised,
regardless of ethnicity.
While one must thank foreign workers for
their contributions to the economic growth and development of the
country, their numbers have grown far beyond “optimal” level. This
overdependence on guest workers has contributed to the middle-income
trap, as their over-presence tends to suppress wages. In the early
1990s, it was thought that Malaysia could stay competitive
internationally by keeping wages low and hence the opening of the
floodgates to foreign workers. Experience has shown that such
input-driven growth is unsustainable. High wages backed by high
productivity can translate into low labour costs. Malaysia needs to
ensure that the locals have the necessary skills as the economy moves up
the value-chain.
- Why did you choose economics as a career and what are some of the most memorable/exciting experiences you've had? Lisa Lim, Kuala Lumpur
I
found economics interesting and challenging. I was attracted by the
logical structure of its construct. More specifically, I was fascinated
by the history of economic thoughts, the evolution of economic theories
and the beauty of its empirical literature. The most memorable
experiences I have had were during my sabbatical attachment to the
Institute of Developing Economies in Tokyo, the Australian National
University in Canberra, and the East-West Center in Honolulu, Hawaii
which I found most stimulating and inspiring. Exciting experiences were
during crisis times, especially the 1997-98 Asian financial crisis, as
the head of the Malaysian Institute of Economic Research (MIER),
crossing swords with policy makers on issues relating to crisis
management, particularly the capital controls and the currency peg that
were put in place in September 1998.
- Are all the measures we have put in place sufficient to ensure that we become a developed nation by 2020? What are we not doing right, if any? Abu Hassan, Petaling Jaya
The
long-term Vision 2020 was both laudable and feasible. It was like
running a marathon. The mistake we made was to run it like a sprint at
maximum speed right from the start, pursuing input-driven high growth
single-mindedly. In the process, we seem to have fallen unwittingly into
the middle-income trap. We needed to grow only at 7% per annum to be a
developed nation by 2020, and there was no need to grow at overheating
double-digit pace. Malaysia's potential growth rate has fallen from 7%
in the early 1990s to roughly 5% now. We need to raise our growth
potentials by reinventing the economy. We need to move away from low
value-added to high value-added activities, but this is easier said than
done. It calls for bold policy reforms which may not sit well with
vested interests that support and benefit from the current order.
- What are some of the things that a teacher can do to make economics a more interesting subject to his or her students? Mrs Rajoo, Petaling Jaya
Economics
can be made more interesting by mixing theories with empirical
observations. The notion that theory is different from practice is a
non-starter and counter-productive. Theory has an important role to play
in understanding the happenings and in formulating policies. Economic
policies without theoretical underpinnings can be hazardous. It is in
this sense that theory precedes practice. Nevertheless, theories can
become obsolete if the underlying assumptions no longer hold, in which
case theory will have to change in accordance with practice. In this
sense, theory follows practice. In any case, serious disconnect between
theory and practice is not good for any discipline.
- What is your opinion on the Economic Transformation Programme (ETP), Government Transformation Programme (GTP) and all the other transformation programmes? Reuban John, Klang
The various transformation programmes including the ETP
and GTP are significant steps in the right direction. Much however
would depend on their implementation. Besides, as the saying goes, the
proof of the pudding is in the eating. Experience has shown that such
programmes tend to work well if they are perceived to be bottom-up, not
top-down. To reinvent the Malaysian economy, what we need is a holistic,
not selective, transformation. In any case, change should be gradual,
for “big bang” can be disruptive.
- What do we need to do most in order to stem the brain drain in the country? Li Ming, Johor
Brain
drain need not be seen negatively in the first place. I once heard
someone quip “brain drain is better than brain stuck in the drain.” It
can play a positive role by creating a diaspora with pivotal
international connectivity which is equivalent to gaining offshore
economic space generating income inflows for the home country. The flip
side, however, is that it deprives the nation of skills much needed to
transform the economy. To stem the brain drain, we need to identify the
root causes and tackle them effectively. Brain drain can be due
primarily to the pull factor or the push factor. If it is the former,
little can be done as it is purely external, but if it is the latter, it
can be fixed domestically. We need to create lucrative job
opportunities with levelled playing fields at home and eliminate the
disincentives that encourage skilled personnel to exit. A reasonably
liberal environment can be a powerful plus factor. A strong domestic
currency would also discourage brain drain, just as a weak home currency
would do exactly the opposite.
- How do you usually relax and unwind after work? Johan Salleh, Melaka
I
am very mindful of the fact that time is the most precious of all
God-given resources, which has to be managed very carefully. Unwinding
after work need not be just idling around. This after-work slot can be
meaningfully filled by doing things that are not work-related but
fruitful nonetheless, engaging the body and the soul (e.g. reading a
book, listening to a lecture, exercising on a treadmill). I have
discovered that grandchildren are stress-busters. It's fun to be with
them.
- Do you think that Malaysia is really losing its competitiveness to other countries in the region and what can we do to stop this? James Chin, Petaling Jaya
This is an
empirical question. Empirical evidence is not conclusive, although the
various competitiveness indices that rank countries provide some
pointers. However, there are concerns over Malaysia's declining growth
rates, with newly emerging economies in the region exhibiting greater
dynamism. It is quite normal for emerging economies like Vietnam to grow
faster than mature economies like Malaysia, due mainly to what
economists call the base effect. Malaysia is still fairly competitive as
shown by the seemingly perennial surplus in the balance of payments,
but no country can afford to rest on the laurels. Latin American
experiences are telling. Malaysia has huge potentials which are waiting
to be unlocked through real policy reforms that would allow greater
economic freedom to unleash the forces of transformation. It is
unfortunate that politics tends to override economics.
- Is it really a big concern that our top universities command poor rankings in the international arena and what had contributed to this in the first place? Lily Raj, Penang
This indeed is a big concern,
but we cannot blame it all on the universities as they partly inherit
the problems from secondary and primary schools. Our education system is
somewhat archaic with rote learning taking primacy over creativity and
thinking. Nothing short of a complete overhaul can fix the problem. In
short, we need to democratise our education system, but no one in the
corridors of power has the gumption to get it done.
- What do you hope to see happen in Malaysia next year? Susan Cheung, Kuala Lumpur
I
am afraid that we need to brace ourselves for a rough ride in 2012.
Malaysia's exports are likely to face strong head winds, with several
European economies shrinking and other developed economies stagnating,
compounded by a sedated slowdown in China. The prices of major
commodities, including gold, are likely to melt. The silver line is the
window for real reforms as tough times will force politics to take the
back seat. Hopefully, economic necessity will knock out political
expediency.
Coming soon
The raising of retirement age,
the ever-increasing use of foreign labour, the need to stem the brain
drain and attempts to bring back our own from abroad are issues
besetting Malaysia and other countries. Melissa Norman, Kelly Services managing director for Malaysia and Singapore, may have answers to these and other issues.
She has been with Kelly Services Malaysia for more than 16 years. If you have questions for her, email them to 10questions@thestar.com.my
Visit http://thestar.com.my/
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