夏伟文 & 陈薛卉 (11 Jan 2016)
Long time ago, economics debates were dominated by Classic versus
Keynesian school of thought. Classic school advocates free market through price
mechanism while Keynesian school supports active government intervention in the
economy. Nonetheless, both mostly focus on accumulation and use of capital to
generate growth. Indeed, some may wish to take a bit from each school of thought,
which are the efficiency of competition under free market to generate growth and
role of government to ensure fruits of growth are share equally among citizens.
Adds some political flavor to economics theory, comes the term “people
economy”. Indeed, Bill Clinton’s 1992 United States Presidential election
campaign slogan is “Putting People First”. Somehow, similar slogan (“Rakyat
Didahulukan / People First”) is also used by Najib Razak in his 2013 Malaysian
election campaign and government policies. The people economy concept itself
brings two different perspectives. First is how the economic system and/or
government’s policy can maximize the welfare of the “people” (citizens). Thus,
“people” is the end focus of economy and acts as success-or-fail indicator of
economic system and planning. Second is the emerging trend of “people”
(human/labor/talent) in replacing capital (money/machines) as most important
input to the economy. Here, “people” is the beginning of economic process in
generating growth. We would like to combine both the first and second thought
for a fully people-centric economy. In this case, “people” will become an
important input while people’s welfare will be a desirable output to the
economy.
People welfare
Professor Dr. Robert
Pollin has published an article in New Labor Forum (2007, Vol. 16, page 9-17),
associating “people economy” as an egalitarian economy, where all members of society receive equal amount of goods, rights and
opportunities. He is Professor of Economics and
Co-Director, Political Economy Research Institute, University of
Massachusetts-Amherst, Economic Spokesperson, Presidential Campaign of Gov.
Jerry Brown and consultant to various United States agencies and departments.
Dr. Robert Pollin highlighted five objectives to
achieve and four obstacles to overcome for the United States to be an effective
egalitarian people economy that are also very relevant to Malaysia’s economy. The
five goals are (i) something close to full employment at decent jobs; (ii)
universal health care; (iii) dramatically expanding decent educational
opportunities at all levels; (iv) creating a clean environment on the
foundation of conservation and renewable energy; (v) rebuilding an effective
system of business regulations, in particular, in the areas of financial
markets and antitrust. These five objectives provide moral imperative for fair
economic system. There are four main economics obstacles most likely may
prevent the achievement people economy’s goals. They are (i) the federal
government’s fiscal deficit; (ii) the prospect of an investment strike by
private business; (iii) controlling inflation; and (iv) countering the
pressures resulting from globalization, including the trade deficit,
immigration and managing the dollar. Overcoming these four obstacles is also essential
for sustainable development.
Obstacle
1: Fiscal deficit
Malaysia
has been running budget deficit for many years. At its peak in 2013, fiscal
deficit reached RM45,056 million (see Table 1 and Figure 1). This is equal to
4.13% of gross domestic products (GDP) or 23.52% of revenue. Nonetheless, the
deficit reduced in 2014 to RM36,077 million, which equal to 3.25% of GDP or
17.44% of revenue.
Table
1: Malaysian Government’s Fiscal Account (RM million)
Component
|
2014
|
2013
|
Public Sector Operation
|
||
Revenue
|
206,901
|
191,554
|
Operating expenditure
|
242,978
|
236,610
|
Deficit
|
36,077
|
45,056
|
Gross Domestic Products (GDP)
|
1,106,600
|
1,018,800
|
Deficit / GDP
|
3.25%
|
4.13%
|
Deficit / Revenue
|
17.44%
|
23.52%
|
(Source: Expenditure and revenue from Bank Negara Malaysia, GDP from
Statistical Department of Malaysia)
Figure
1: Malaysian Government’s Fiscal Deficit, 2007 - 2014 (RM million)
(Source: Bank Negara Malaysia)
In order to
further improve the fiscal balance, expenditure cutting as well as Good and
Services Tax (GST) have been implemented. No doubt those strategies are
necessary but various questions still linger? Yet, how effective can these
strategies help to solve fiscal deficit problem? Will these strategies (particularly
GST) bring negative side effects such as spiral inflation that can deteriorate
people welfare? Is there any other better solutions?
From
expenditure perspective, compensation to employees (public
servants) takes up large portion of total public expenditure in Malaysia and
its amount is too high. Public sector
grew so large. Since public servants are expected to vote for the ruling
government in election, public sector becomes “too-big-to-downside” and like a
cancer cell in Malaysia’s public finance.
Cutting
expenditure to reduce fiscal deficit is good but making sure every Ringgit
spent worth it is better. Table 2 shows “worthiness of
money spent” in term of “total operating expenditure to GDP” for Malaysia and
Singapore.
Table 2: Malaysia’s Operating Expenditure
Analysis
|
Total operating expenditure to GDP (%)
|
2010
|
2011
|
2012
|
|
Malaysia
|
21.02
|
22.38
|
23.87
|
|
Singapore
|
10.37
|
10.48
|
10.07
|
(Source: Ministry of Finance Malaysia & Department of Statistic Singapore)
Malaysia’s total operating expenditure to GDP is twice larger than
Singapore. This implies every unit of currency Singapore spent yield twice
return as compare to Malaysia. In addition, the Malaysia’s figure has been rising
in the three years as shown in the table, thus putting extra difficulties to
overcome fiscal deficit obstacle.
Malaysia’s fiscal deficit is improving since 2014 and expected to
get better in near future. However, its cumulative of years of deficits will
eat up people welfare for years to come. Imposing new taxes on public like the
GST on one hand improve fiscal deficit but on the other hand burden the people,
thus also an obstacle to achieve truly people economy. Perhaps, drastic
downsizing and restructuring public sector are the answers. This Milton
Friedman’s (Nobel Prize in Economics) advice may be a valuable insight:
“The cure to big government is not by having a bigger government.
Instead, the most effective cure is to reduce the size of the government by
getting the government out of involving in businesses and prohibiting
government in engaging activities that can benefit certain groups.”
Friedman’s
advice reflects the economics classic school of thought – free market with
minimum government intervention – that forms the foundation for microeconomics
studies. In this case, it justifies the downsizing and
restructuring Malaysia’s public sector towards people economy. Preventing
government from favoring certain groups (selective business groups) can swing
the welfare from crony capitalists back to the people.
Obstacle
2: Investment
strike by private business
Investment
strike is blamed for British economic slump in 2008 and 2009 that had drag-on
effect until 2012. The
investment strike is a refusal by the private sector to invest. Thus, reduction
in interest rates may not be effective because firms are saving instead of
borrowing to invest. Micheal Burke (2012) claimed that investment strike caused
British pound fell by around 30% in 2008 and has recovered only a proportion of
that ground since. How about Malaysia
and its Ringgit?
Malaysia’s private investment seems easily effected by
negative happening. As shown in Table 3, private investment recorded negative
growth rate during Asian Crisis years (1998 & 1999), burst of “Dot.com”
bubble (2001 & 2002), Severe Acute Respiratory Syndrome (SARS) epidemic
(2003) and Global Financial Crisis (2008/09). Public investment looks to acts
like counter-cyclical to private investment. However, given huge burden of debt
and administration expenditures, can Malaysia’s increase its public investment
if private investment decline? A “no” is more likely answer.
|
Year
|
Private
investment
|
Public
investment
|
FDI
inflow
|
|
1996
|
15.8
|
3.2
|
5.0
|
|
1997
|
11.0
|
11.9
|
5.1
|
|
1998
|
-53.3
|
-0.3
|
3.0
|
|
1999
|
-24.1
|
3.1
|
4.9
|
|
2000
|
26.7
|
21.7
|
4.0
|
|
2001
|
-19.7
|
15.5
|
0.6
|
|
2002
|
-6.1
|
9.8
|
3.2
|
|
2003
|
-1.1
|
3.6
|
2.2
|
|
2004
|
15.8
|
-3.5
|
3.7
|
|
2005
|
8.5
|
1.9
|
2.7
|
|
2006
|
7.0
|
8.9
|
4.7
|
|
2007
|
12.3
|
8.0
|
4.7
|
|
2008
|
1.5
|
0.7
|
3.3
|
|
2009
|
-21.8
|
12.9
|
0.1
|
|
2010
|
13.8
|
5.5
|
4.4
|
|
2011
|
14.4
|
-2.4
|
5.2
|
|
2012
|
21.9
|
17.1
|
3.2
|
|
2013
|
13.6
|
6.3
|
3.7
|
|
2014
|
11.0
|
-4.9
|
-
|
(Source: Bank Negara (BNM) Annual
Report various years. Note: All growth rates are in nominal term except investment
in 2000, 2002 and 2003 due to lack of data available. Figures are quoted from
their respective years in BNM Annual Report (AR) to avoid discrepancy. However,
public investment growth for 2013 is quoted from BNM AR 2014 because figure
shown in AR 2013 (0.7%) is likely typing error). FDI Inflow is in percentage of
GDP.
Several unfavorable events around the world may again
trigger decline in Malaysia’s private investment as well as foreign direct
investment (FDI) inflow. Examples of those events are continuous oil price
slump (Malaysia as net oil exporter), political uncertainty (which include
variety of corruption scandal brought up and spread into international news), low
value of Ringgit and potential global economic crisis due to economics problem
in countries like Greece, China, Costa Rica, Argentina, Brazil and Venezuela.
Decline in private investment will negatively affect
economic growth. Subsequently, reduce in growth (or even recession) may decline
people welfare. This is a potential obstacle we should ensure it would not
become reality.
Summary
Budget deficit reduces ability of government to
provide people-oriented welfare or increase development expenditures that are
needed to generate higher growth. Various potential social, political and
economic factors domestically and internationally put investment growth into
serious danger. Decline in investment cost loss of employments and negative
impact to economic growth. All these are serious obstacles for the government
to achieve what they have promised – people-economy.
[Chinese version published at 南洋商报经济周刊 Nanyang Press – Business News, page A8 on 11th January 2016. Available online at http://www.nanyang.com/node/743403. This English version may be slightly different from the Chinese online/printed newspaper version]
