Do not do mindless consumption for vanity

别为虚荣盲目消费

Economics always assume that you can do only two things with your income (money), namely consume (spend) it or save it. An interesting question is how about “burn” it? Some may consider burning money as “spending” but it does not create the multiplier effect as when money are actually spent.

The more important matter is which one is more preferable? Spend or save? Parents, particularly in Asian countries, will tend to advise their children to save as much money as possible for rainy days. Government may prefer us to spend to boost the economy. Through banking system, economist may assume saving equal investment. The money households save in the banks will be lend to companies for investment (consumption).

In a macro-institutional-economics perspective, an important aspect is how the government spends public fund. Is money being spend on essential economic “needs” or just unnecessary “want”? “Needs” is something necessary for human to life a healthy life. In economic sense, “needs” is necessary elements or conditions for sustainable development. “Want” is some sort of emotional desire. Thus, it can be related to “economic ego”, which function may be merely for self-boosting.

Unfortunately, the temptation to spend on “want” is way too strong to resist for developing countries including Malaysia. To a paraphrase the famous Nike’s slogan, Malaysia’s government’s “just spend it” attitude on particular two aspects needs to be moderated. First aspect is unnecessary financial burden spending on large public sector. Second is appetite on building mega projects, perhaps for glory?

(i) Public sector costly responsibility

If we take economic analysis as human anatomy, public sector is like our blood vassals. It must not be too large or too small but must be efficient to enable blood (economic activities) to circulate to all over our body (whole economy/country). If public sector is getting too big, unnecessary spending is required to support it. Worst case is this sector grows until become “too-big-to-fail” and thus, becomes too costly to be downsized. Unfortunately, Malaysia’s public sector is too big, but still can be downsized to a more effective level with strong political will.

Based on Table 1, Malaysia’s federal government’s expenditure is relatively higher than all five selected Asian countries (Thailand, Singapore, Indonesia, Japan and South Korea). It is relatively lower than selected European countries (Germany, United Kingdom, Greece and Iceland), United States and Australia. Nonetheless, this could be due to high social welfare expenditure for senior citizen and unemployment benefit given by those Western countries but not Malaysia. Therefore, Malaysia’s federal government spending is not relatively overly high but there are two glaring aspects for improvement.

First is compensation to employees (public servants) is too high. World Bank defines this “compensations” as “all payments in cash (e.g. salary), as well as in kind (such as food and housing). Malaysia’s compensation to public sector employees is highest, comparable only to Singapore.

Table 1: Expenses and Cash Balance

Countries	Expense (% of GDP)		Compensation of employees (% of expense)		Cash surplus/deficit (% of GDP)
	2011/12	Average	2011/12	Average	2011/12	Years of deficit
Malaysia	21.65	18.83	29.45	27.85	(4.53)	14 out of 14
Thailand	20.98	18.10	37.15	36.55	(2.15)	4 out of 10
Indonesia	16.53	16.53	14.43	12.44	(1.67)	8 out of 8
Singapore	12.74	14.35	28.72	29.76	8.70	zero
Japan	19.39	17.36	6.32	7.24	(7.99)	8 out of 8
South Korea	18.90	17.90	10.12	10.91	1.69	zero
Germany	29.15	30.88	5.63	5.54	0.14	12 out of 14
United Kingdom	44.71	40.24	14.11	14.34	(5.80)	11 out of 14
United States	23.89	22.08	10.34	10.43	(7.52)	12 out of 12
Australia	26.35	25.57	10.52	10.40	(3.04)	5 out of 14
Greece	54.03	46.28	20.64	22.74	(9.40)	14 out of 14
Iceland	35.90	33.78	24.08	27.92	(3.41)	8 out of 14

Note: Average is from 1999 to 2012; number of years subjected to availability of data

Source: World Bank

However, in term of public sector’s efficiency, Singapore is well known as much better than Malaysia. Table 2 shows some analysis of Malaysia’s operating expenditure as well as brief comparison with Singapore.

Table 2: Malaysia’s Operating Expenditure Analysis

Malaysia (ratios)	2010	2011	2012
Total operating expenditure to GDP (%)	21.02	22.38	23.87
Federal government operating expenditure to total operating expenditure	79.00	80.40	80.76
State government operating expenditure to total operating expenditure	5.21	4.92	4.67
Local government operating expenditure to total operating expenditure	12.57	11.69	11.68
Statutory body operating expenditure to total operating expenditure	3.21	2.98	2.88
Singapore (ratios)	2010	2011	2012
Total operating expenditure to GDP (%)	10.37	10.48	10.07

(Source: Ministry of Finance Malaysia & Department of Statistic Singapore)

Malaysia’s total operating expenditure to Gross Domestic Product (GDP) is twice larger than Singapore. In addition, the Malaysia’s figure has been rising in the three years as shown in the table. Federal government expenditure takes up majority share of total operating expenditure, rising from 79% in 2010 to almost 81% in 2012.

Does those statistic implied that Malaysian public sector has becomes too big to fail? Government may face serious negative consequences from public servants if they try to downsize to force improvement of efficiency. The consequences may vary from protest to loss of votes in general election.

Secondly, the public administration also has various record of unnecessary and/or unaccountable spending. Various yearly Auditor General’s Reports highlighted various unnecessary (and/or unaccountable) spending that included projects delay, cost overrun, assets missing and over-priced purchases. Five general weakness that causes lots of unnecessary spending by public administrators being mentioned in Auditor General’s Report 2102 were “improper payment”, “work or supplies not according to specifications, low quality or inappropriate”, “unreasonable delays”, “wastage”, “weakness in management of products and assets”. These inappropriate spending is waste of public funds that can be used to develop the economy. Yet, why we want to keep on “just spend it” whenever is it regarding public sector?

(ii) Builds mega projects for glory?

Mega projects in Malaysia was cheers by Michelle Gyles-McDonnough, the United Nations System’s Operational Activities as “important and would indirectly enhance labour productivity within the domestic workforce”. Nonetheless, not all mega projects are necessary or important.

There is a story goes like this. Once upon a time, astronauts in space cannot use their pen to write because zero-gravity effect. Then, country A spend lots of money and time to research on solution and new pen that can write on zero-gravity. In contrast, Country B immediate solved it by a simple, cheap and fast solution – use pencil to write.

Applying the moral of the story, are we having no more under-utilized buildings to become Matrade exhibition center instead of building a new one? From cost-benefit perspective, some mega projects do not justify high amount of money spent on them. One may question whether Sepang International Circuit, Warisan Merdeka Tower and Angkasawan Program are needs (necessary) or want (for ego). How these projects can enhance our labour productivity or welfare? Given that Bukit Bintang area already well-known and there are so many other shopping attractions in Klang valley, is there also a need for Bukit Bintang City Centre?

On a smaller scale one may frequently see very good condition roads being “re-furnished” again and again. Will money be better spent to upgrade soil road in suburban areas? Will losses on government-linked-mega-companies better utilized on other development projects? Not all but there are few gardens in Putrajaya and around Malaysia need plenty of money to build and maintain. Do these gardens have many visitors consistently to justify the cost spent?

On the other hand, there are some mega-projects where money is well spent. High cost on five economics corridors (Iskandar Malaysia, NCER, ECER, SCORE and SDC) and MRT Project could be justifiable by huge benefit to the economy and society in future. Nonetheless, progresses of those corridors are to be seen. MRT is built to ease traffic congestion on the road. However, some MRT proposed stations are not near town, hence defeating its purpose to provide convenience transport.

Conclusion

Having million or billion of public fund sitting idle in the treasury is not a good practice for any level of government, be it federal, state or local council. Yet, over-spending too much until public debt accumulated is even worst. Since long time ago in ancient Western Zhou Dynasty, its government followed public finance management principle “to limit expenditure in accordance to income”. Thus, please don’t “just spend it”. Instead, spend public fund prudently and on economics “needs”, not “want”.

[Chinese version published at Nanyang Press, 6th October 2014. Available online at http://www.nanyang.com/node/654057. This English version may be slightly different from the Chinese online/printed newspaper version]