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From Recovery to Reform: Where Do We Go From Here?

By Tan E Hun

As we enter into the month of March, Malaysia seems to be finding a rhythm again in carrying on amidst the COVID-19 pandemic. Our economy has gradually reopened since the end of last year, schools have resumed, businesses/factories allowed to operate, festivities celebrated and people are going about their daily lives in accordance with the SOPs.

It seems things are off to a hopeful start. The many policy actions in 2021 – mainly short-term responses aimed to prevent the immediate disintegration of the nation’s social and economic fabric – seem to have produced a positive impact on some level. We are arguably better prepared to deal with the arrival of the Omicron wave, with 97.9% of the adult population having received their first two doses of the vaccine and children as young as 5 getting theirs. Labour market conditions have been improving, with increasing employment levels and decreasing unemployment rate. Malaysia’s GDP forecast for 2022 is promising, (projected at 5.8% by the World Bank), supported by strong recovery expectations through domestic demand, acceleration of production activities and growth in external conditions.  Talks of reopening our borders in the second quarter of the year sends positive notes on boosting our economic activities. Yet, amidst the optimism about our recovery progress, where do we look to for continued, sustainable economic growth? 

Malaysia will need to step up in 2022. As the year progresses, mere recoveries will not be enough for us to have a shot at transforming into a high-income nation, fulfilling what was ambitiously set out in the 12th Malaysia Plan or becoming a carbon-neutral nation by 2050.

Globally, a myriad of events has surfaced. New waves and variants of COVID-19 infections, supply chain problems, geopolitical uncertainty, lower growth and higher inflation may continue to hold back any meaningful growth in many countries. Malaysia will not be spared. Nationally, the pandemic has threatened to undo years of economic growth, human development and employment prospects for the people. We are faced with rising inequality, households sliding back into poverty, and an imminent crisis in our social protection network, with only 3% of Malaysians able to afford to retire. The widening digital gap has impacted businesses to adapt to the new normal, while many of our children are deprived of academic learning due to the lack of basic online learning tools and disrupted education system brought about by the pandemic. 

No doubt, achieving sustainable economic growth and inclusive social mobility is complicated by the emergence of the “polycrisis” of our times. For Malaysia, over the past two years it was a combination of a health crisis (the pandemic), a political crisis (the Sheraton coup and its aftermath), economic disruption and as we saw recently, natural disasters. The complexity and frequency of such crises looks likely to only increase, arguably in frequency and in proportion. 

Therefore, the persisting looming question to be addressed here is – how to better prepare ourselves past addressing merely the short-term shocks of the pandemic, but instead, chart a longer policy course that builds our economic growth trajectory. In other words, assuming we are (more or less) on the road to recovery, where will our (sustainable) growth come from? 

Dealing with the societal challenges mentioned above will require significant reforms, institutional adaptation and bold actions from all key stakeholders. To ensure an economy that works for all, and a society that is for all, we must aim for higher, cleaner economic growth, but at the same time build a more economically secure workforce and a stronger and more supportive community. To get there, we must challenge the old dogmas that hold us back. 

Achieving higher, cleaner economic growth

We can and must act now to map out an economic future for Malaysia based on inclusive, sustainable economic growth and development. One of the more obvious tools to address this is a renewed industrial policy that takes into account economic security needs from a national perspective. 

In Malaysia, our reliance on primary industries and a cheap labour model does not provide much competitiveness at a global level anymore. The focus should now firmly set at kickstarting new sectors, with high scope for growth and for productivity improvement. To do so, a broader industrial strategy that builds on the concept of missions provides an interesting framework. 

Missions give us a common greater public goal to address societal challenges not in a piecemeal manner, but through large scale collaborations between public and private sector via development of innovative solutions. As missions do not dictate what needs to be done but merely create the conditions for finding workable solutions, it allows innovation, research and new frontier technology to happen through various sectors, thereby creating multiplier or spill over effects across various industries and that will move us closer to addressing the challenges on hand. 

There are plenty of missions that as a society we need to address, from climate change to poverty to flood management. In a post-COVID Malaysia, this could mean among others:

  • Strengthening our healthcare system: how do we create an ecosystem that is better prepared for future pandemics, how do we leverage Malaysia’s existing market as the biggest medical glove producer?
  • Tackling climate change and reducing our carbon footprint: how do we accelerate our established solar panel industry, are there innovative ways to transit away from reliance on oil? 
  • Achieving food security:how do we modernise our agriculture and fisheries sector while shifting away from commodity-based farming?
  • Ensuring decent shelter for all: can we create innovative social housing projects and sustainable living space solutions?
  • Reducing the digital gap:are there new innovations to increase digital inclusivity for businesses and for education? 

Herein lies the greatest challenge. Such endeavours will require reforming the role of the government. The unprecedented monetary and fiscal support mobilised during the pandemic has reset our appreciation of what the government could afford. With its unparalleled resources, no other entity has the scale, impact and legitimacy required to lead, steer and enact the change that is needed.

How the government can sustain such spending is a separate topic for another day. But huge commitments such as “patient financing” – finance that doesn’t expect a short-term return and understands the outcome of a mission is uncertain – is crucial to build the right capacity to increase our ability to experiment, and learn from the results. Further, this means that the government must also increase its own abilities, so that they can productively and efficiently collaborate with and work on the delivery together with the private sector.

In short, to restart our economic growth, we have to first fundamentally rethink the government, the role it plays in setting off catalytic reactions, and thereby transforming into a capable, active player to stimulate improvements across the economy. 

Building an economically secure workforce

Our economy should make society more inclusive and liveable. Essentially, it should work for the many and not the few. In order to benefit the broadest segment of the population, aiming for high growth should also go hand-in-hand with higher wages, in other words economic policy should aim to create good jobs that are not just well-paid, but are also meaningful and fulfilling for the workers. 

As much as the recent numbers show a decrease in unemployment, in reality there hasn’t been a full recovery in the labour and employment markets. The displaced workforce was most apparent in occupations requiring face-to-face interactions and in certain industries such as tourism and aviation. The reemployment of these workers will be ongoing, but the key question here is how do we ensure new employment opportunities are sustainable and future proof. The emergence of the gig economy has pushed more workers into more vulnerable and lower-earning roles that are susceptible to volatile changes both in employment status and remuneration received. And if we have another round of economic disruption due to new variants, that will derail any sense of recovery.

We need a comprehensive national job growth plan that is aligned with our industrial policies and overall economic direction to provide opportunities for people to join the labour force again. Initiatives such as “JaminKerja” announced in Budget 2022 are encouraging, but there are three crucial questions that such programmes need to address: (i) what kind of jobs are being generated, (ii) do they pay enough to live on, and (iii) are they resilient to the future demands required in the economy. 

To promote better quality jobs, we should create an ecosystem that encourages career mobility but more importantly basic economic stability. In other words, we must enhance our education and training systems to help our workforce to adapt to changing skill needs, but at the same time, improve job quality that addresses fundamental issues such as decent pay, acceptable working hours and a safe working environment. All the above is not elusive. The recent announcement of higher wages and clear career pathways for waste management workers in Singapore shows good jobs are not just for the elite few, if thought is put into structuring a workable model.    

Many policymakers, economists and academicians have spoken about the need to increase the productivity of our workforce. The importance of promoting investment in automation has been frequently discussed. But it is also time to address the overreliance on foreign workers in many sectors of our economy. One can argue that, for years, the availability of cheap labour has been a key factor in reducing incentives for companies to invest in automation that would increase productivity, and by extension to also pay higher wages and shifting workers to more productive roles (e.g. supervising machines in a production line rather than the ones assembling products, which in many instances can be automated).  

This is not to say that we should ban foreign workers entirely or discontinue our foreign worker policy. We should instead set up a comprehensive, holistic roadmap which effectively ensures that the policy works to our economy’s long-term advantages. In other words, while promoting a healthy economic growth trajectory, we must also address the low wage growth that our workforce is subjected to partly due to the abundance of cheap foreign labour. Policy tools deployed must eventually aim at equalising the cost of foreign and Malaysian workers without increasing the unit cost of the product or service being produced. At the same time, policies that generously incentivise automation and training will help companies rely less on low-cost labour while maintaining their competitiveness.      

Establishing a stronger and more supportive community

To re-energise our economic growth sustainably, we must not forget about the social contract that underlies economic development. Over the last two years, the halt in economic activity has exposed the precarity of a large section of the population, and the inadequacy of the programmes and tools currently available to support them. This economic insecurity at the individual level needs to be acknowledged through a comprehensive, fit-for-purpose social safety net that addresses the inequalities that arise due to unforeseen events or any transitions, and ensures “no one is left behind”. 

The flaws of our social protection system are now more apparent than ever. We have an increasing pension gap where more and more will retire into poverty at an alarming rate. The recent calls to allow for more EPF withdrawals show the dismal scenario we are faced with as those affected by the recent flooding are in desperate need for cash to rebuild their homes. Yet, the majority of the EPF members do not even have much left in their accounts.

A comprehensive review of our social safety net is required. This includes critically reviewing and adapting the cash aid programmes to meet the needs of the recipients, enlarging coverage of unemployment schemes to cover different segments of the population and relooking at implementation of fair tax burdens.  Fundamentally, moving our workforce away from lower-paying forms of employment creates a sustainable scenario where one is able to not just, at the very least, set aside some amount for retirement, but that the amount will be sufficient for them to retire. To put it simply, people need to be paid more. 

If 2020 and 2021 were about executing short term recovery measures to avoid total collapse of our economy, saving lives and sustaining people’s livelihoods, 2022 should be about consensus building, seeking new frameworks and deploying our policy tools differently that will set us up long term to deal with the lessons learned from the pandemic, and the challenges our society faces going forward.

 

-Published in The Edge Markets on 26 February 2022.