MALAYSIAN ECONOMY 2016

I had not written anything on the Malaysian Economy for quite a while. On one part, I had to admit that I have lost some interest in the subject, and on the other part, I have not been spending much time on the subject, mainly due to what I observed as the “lack of interest” among the large populace to talk about “real economic” issues. At the same time, it seems that there are no pressing economic concerns which deserve any substantive attention of the time.

However, I have to admit that there are growing complaints about the populace about the general economic conditions – with comments such as “high costs of living”, “not making enough to pay the bills and loans repayments”, GST’s related complaints that cost of goods increased, issues of Ringgit Exchange rates that Ringgit is weaker in comparison to the US Dollar and other currencies, lack of job opportunities, lack of new business opportunities, and so on. In short, comments and complaints that had been dominating the scene for the past decade (except for GST, which is a newer subject).

Instead of trying to provide answers or commenting on these complaints or issues, I think it would be better to summarize the economic conditions of Malaysia in a comprehensive manner. This way, we could try to see the forest rather than analyzing the trees. This is what I will do here (within less than 5 minutes of reading). I will do it in point form.

  1. The Malaysian economy actually had grown out of its older phase of development, and is currently transforming to become a developed nation. What this mean is that we are increasingly begin to face “problems of developed nations”. The examples of higher costs of living, have to work harder to make ends meet, etc.; are all examples of developed nations problems. We could see that everywhere, such as Japan, Korea, Taiwan, etc., where people are facing these same issues that we are complaining about. They had been dealing with these issues much earlier than Malaysia, since they had attained and moved into developed nation status for quite a while back.
  2. Taxation: all nations that had increased the stature as a developed country, requires a higher amount of taxation in order to maintain the costs of operating the country’s budget. We are no different. Hence, the GST was introduced and implemented. If GST was not implemented, other forms of increase taxation had to be deployed. In another word, higher taxes is not a choice; the only choice is the form of taxation. Economically speaking, GST is the right and better form of taxation (from economists’ point of view). Therefore, GST is not to be blamed, but our choice of to be a developed nation is the root or the source of the need for GST.
  3. Lack of jobs, lack of opportunities – could be understood well if we realize that as developed nation, the country naturally is moving away from manufacturing, construction, mining, agriculture, etc., to be a “service based” activities. Most developed nation’s Gross Domestic Products have more than 50% of it’s GDP to be of “Service” related activities, and lesser of the others. For example, the Services Sector of Malaysia’s GDP for 2014 is 56.4% (as an evidence of what I claimed), compared to less than 30% in 1985’s GDP. The comments of “lack of” – are due to people looking into their traditional approach (in looking for jobs or opprtunities), instead of looking into “newer areas” of the economy, which is service oriented. The natural displacement from “older jobs or opportunities” into “newer jobs and opportunities” is the root of the cause of problem; not because there are real slack of jobs or opportunities.
  4. Currencies, resources, international balance and trades – this issue relates to the continued trends of globalization – which Malaysia as an international “trading nation” had faced in the past, and will continue to face in the future. This is all part of our ability to adjust. As a globalized economy, we had to be flexible, and able to adjust in accordance to the international movement of currencies and resources, as well as trades. Being able to perform adjustments; being prepared to deal with changing rates and environments; being resilient and sustainable; are all part of fair game. Those who couldn’t learn to adjust suffers, while those who could, benefits. Weaker currencies, reflects some other issues facing us – such as lower productivity, poorer balance of payments (or deteriorating terms of trade), other nations improvement of economic conditions better than ours, and so on. These issues are not temporary in nature, but could reflect a much more longer term trends of our economy.
  5. Role of Government and regulations – are becoming less and less effective, and less influential. This is a fact that is not too well understood by most. Despite claims by people in power that they are “positively affecting” the economy – in truth is, they contributes little or almost nothing (on top and above), when comes to the economy. All the government could do is, “not to harm”, and that is the best they could do; and very little they could do to say “push the economy” for faster growth or development. What’s most important role the government plays is to ensure that regulations (not too much and not too little of it) are in place and functioning. Otherwise, other claims that government is the key to Malaysia’s economic growth and development – is rather too much claim for the real effects that it does.
  6. Productivity – is probably the more important issue that we should be concerned; are moving on an improving trend where our productivity (as a nation) increased or decreased. Productivity links first and foremost to improving skills – which is the basic source of increased productivity; skills of course linked mainly to education. On this score, Malaysia is on a worrying trend – despite the “quantity” of education is increased, the “quality” is not – which may causes us to have large number of low skills labor to be increased, but the high skills labor could not come up with commensurate proportion. As a case in point – high skill labors are essential for innovations – which could be reflected among others, number of patents and inventions – for which Malaysia ranks extremely low compared to other nations. And worse, among the Malay and Indian ethnic groups, this is almost negligible. This is one glaring example of the dearth of the high skill labor in Malaysia. Another issue that affected us is the “brain drain”, whereby people of high skill migrated to other countries. This trend had not been reversed even in recent years, despite various attempts were made to reverse it. On the other point related to productivity is “efficiency” – or in short, reduced wastage as well not letting “idle skilled workforce”. On these counts, we can see severe problems culminating and accumulating in various sectors and corners of the economy. In summary, I am concerned on the trends of the Malaysian economy, when comes to reduced productivity, lack of skill labors, and inefficiencies that seems to be endemic.

In summary, the problems of Malaysian economy (as other developed economies) that relates to its natural causes, could well be understood if we realized that we had moved from an “older economy” to a “newer economy”. Structurally, we have moved and changed. This move should not be blamed as it is natural. Hence current issues or daily lamentations are not to be off major concerns. However, the more worrying issue is the longer term trend of productivity, increasing inefficiencies, lack of supplies of highly skill labor, and related matters. If we want to do anything substantive (as opposed to complaints and continued lamentations), we must focus on these issues – that is to improve “our own productivity”, “improve our own skills”, “improve our competitiveness”, “increase our efficiency”, and all related matters. In this way, then we are really doing something to improve our conditions.

 

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