Wednesday, September 4, 2013

Imbalance in economy as development hindrance

华商与经济转型系列62:经济不平等 发展绊脚石

夏伟文 & 陈薛卉

The word “unequal” is too sensitive in Malaysia. Minus the politic propaganda, inequality in economy is a common problem to developing countries includes Malaysia. Unequal economy becomes so sensitive because we view it in a very narrow concept, which is inequality between ethnic groups. In fact, economic development can be unequal in three aspects, namely (i) between sectors of economy, (ii) geographically, and (iii) between ethnic groups. Each has its impact to Malaysia development goal towards industrial nation by 2020.

Economic Inequality between Sectors
Pre-independent, Malaysia economy was heavily dependent to tin mine, then rubber and palm oil. After that, industrialization has shifted the imbalance in favor to manufacturing and service sector. Data from Malaysia Statistical Department shows that mining sector only contributed about 12.6% of Gross Domestic Product (GDP) in year 2010. In the same year, agriculture contributed 10.6% as compared to manufacturing (26.1%) and services sector (32.3%). Meanwhile, Despite agricultural modernization effort, Bank Negara Malaysia Annual Report 2011 shows that capital intensity (capital assets to employed person) for agriculture sector is just RM12, 573 for the period between 2001 and 2010 as compared to manufacturing sector (RM78,317) and service sector (RM105,893). Mining sector recorded an extraordinary capital accumulation due to mineral exploration in oil and gas industry.

Focusing on high value-added manufacturing and services sector will help to sustain our rapid economic growth. Thus, economic inequality between sectors gives no harm as long as it did not jeopardized food security. In fact, developed nations from United States to Germany and Japan all have economic inequality between sectors. Decades ago in India, they planned to put almost all their attention and resources on information technology (IT) sector. Their then Prime Minister and government reasoned that trickling-down-effect from IT sector will provide resources for development of other sectors and overcome poverty. Switzerland, a relative small country in Europe is famous and success with its banking and Swatch watch. Does Malaysia have its own recognized brand, trademark or extraordinary successful industry?

Hope that ETP and other strategic plan can produce Malaysia first “Oppa Gangnam” success – extraordinary hit (investment return) with just one song (specific sub-sector). If that happened, it is a good inequality, right?

Geographical Economic Inequality
Economic inequality also can happen geographically. It is common that urban is more developed than rural for almost all countries include Malaysia. Since colonial era, Western Peninsular Malaysia is more developed than its Eastern part. Malaysia Statistical Department estimated that in year 2010, Kuala Lumpur has the highest GDP per capita at RM55, 951, which is about 6.8 times more than Kelantan, the lowest at RM8, 273. Kuala Lumpur GDP per capita almost doubles Penang, the second highest state. Sarawak and Selangor come third and fourth highest. High concentration of industries and businesses activities in Kuala Lumpur, Penang and Selangor greatly improved the income level of those states. Sarawak has its timber and oil to make it into among top income states in Malaysia.

Nonetheless, there are two critical aspects to ponder. Firstly, what could be the impact of such inequality between states? Secondly, can ETP solve this inequality?

On the first aspect, recent happening at European Union (EU) countries, particularly to Greece can be a lesson. If Greece or any member countries bankrupt or greatly lagged behind in economic development, the whole EU economy may be dragged into trouble. The more developed West Germany did saw this problem during their reunification with East Germany. Young workers were moving to the West, causing further imbalances and disturbances to both economies. Thus, the West had been subsidizing and helping the East to bridge this inequality gap.  

Economic disparity between states in Malaysia has seen similar happening. Youngsters from poorer states like Kelantan, Terengganu, Kedah, Perlis and even Perak moving to Klang valley for jobs. As a result, insufficient manpower in emigrating states but overcrowded and high demand for basic necessities in recipient states caused inflation to rental, food and other goods and services. Those in Johor crossed the causeway to Singapore, thus resulting in brain drain. These certainly disrupt our economic progress.

Currently, the five economic corridors, Greater Kuala Lumpur Plan and ETP seem covered the development of all states in Malaysia. However, bias attentions still give in favor to Klang Valley area. Perhaps, development of oil and gas under Eastern Corridor Economic Region (ECER) and ETP may uplift the states of Terengganu and Kelantan.

Economic Inequality between Ethnic Group
Inequality between ethnic groups has always been the most sensitive and important in Malaysia history and contemporary. It is this inequality that gives birth to the much debated New Economic Policy (NEP). This type of inequality is dangerous. With unscrupulous politic propaganda, it could create racist riot that will disrupt our economic progress. Therefore, after 55 years of independent, there must not be any inequality between ethnic groups. British’s “separate-and-rule” colonial policy must be replaced with strong nationalism towards Vision 2020.

Two questions to ask ourselves. Firstly, what is the true scenario of ethnic inequality? Yet, answers are elusive because there are many twists and turn but knowing the true version enables the country to completely solve it from the root cause. Secondly, how can ETP solve this inequality?

Some published reports may give some insights of the situation. Perhaps, the most shocking is the “Corporate Equity Distribution: Past Trends and Future Policy” report by Centre for Public Policy Studies (CPPS) of the Asian Strategy and Leadership Institute (Asli). This report disputed the official figure on capital ownership by ethnic groups. The report also claimed that affirmative policy in favor of Bumiputera regardless of their income level or asset owned benefited the middle and upper class, thus creating intra-Bumiputera wealth disparity and did not help much in solving economic inequality between ethnic groups.

Between November 1997 and February 1999, Socio-Economic and Environment Research Institute (Seri) surveyed 3,100 Indian households in Penang. The results sadly shown that there is not much trickling down effect to the Indian communities despite robust economic growth. Among shocking highlights are (i) 60 percent were wage earners in the lower income brackets, (ii) Seven percent were living in hardcore poverty, (iii) Nearly 30 percent were squatters or living on temporary occupation license land, (iv) At secondary level, 80 percent of pupils had stopped schooling after Form Five, and (v) Nearly 40 percent of the state’s suicide cases involved Indians.

Common perspective is that Chinese community is relatively wealthier and get better job. If it is so rosy, why Chinese recorded the highest brain drain? Financial constraint has also deprived the poor Chinese of proper healthcare and children schooling. There are some live in shabby house and involve in vice activities due to financial poor condition.  

We have tried so many years and methods. Thus, it may be good time to try from new perspectives. To solve this inequality, we should first take it out from being misused as political tools. Then, instead of aggregate perspective based on separated ethnic groups, micro perspective policies on intra-inequality within each ethnic group could be tried out. We may try micro-financing program based on merit, which has been successfully reduce poverty in Bangladesh. Education, especially until tertiary level, can help break poverty cycle for all ethnic groups. Meanwhile, moral and good ethnic cultivation can ensure holistic development.

In conclusion, inequality between sectors can be ignored. However, economic disparity between geography (states or rural-urban gap) and between ethnic groups could disrupt the country’s economic progress. Besides that, inequality within each ethnic group is an important aspect that we overlook. In contrast, it needs our urgent attention most.

[Chinese version published at Nanyang Press, 28th January 2013. Available online at This English version may be slightly different from the Chinese/ newspaper version]

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