Get rid of market anomalies and monopolies, say economists
By Lee Wei Lian
April 19, 2011
Economists say the country’s dependence on foreign workers has hurt local wages. — Reuters file pic
KUALA LUMPUR, April 19 — Malaysia’s poor purchasing power could be boosted by reforming its markets to be more competitive and free of entrenched monopolies and market distortions, say economists.
This comes as Malaysians grow increasingly doubtful over official inflation figures and critical of the prices that they have to pay in relation to their income.
The 2010 Prices and Wages report by Swiss bank UBS AG show that residents in KL have only 33.8 per cent the purchasing power of their counterparts in New York, 42 per cent that of London, 33.7 per cent that of Sydney, 32.6 per cent that of Los Angeles and 31.6 per cent that of Zurich.
Maybank Investment Bank chief economist Suhaimi Ilias said a lack of competition in Malaysia has resulted in less pressure on prices.
“There is still a lot of inefficiency in our economy,” he said.
RAM chief economist Dr Yeah Kim Leng said the Malaysian market needs more healthy competition and less monopolistic tendencies.
“We find that Malaysian industries are highly concentrated with just a few players,” he said. “Prices are in a way inelastic and not responsive to income levels.”
Both were in agreement market distortions, which have become a prominent feature of the Malaysian economy, need to be addressed for both prices and wages to be more aligned.
One of the most heavily distorted sectors, said Yeah, is the auto industry, where Malaysians have to bear some of the highest car prices in the world, resulting in 20 per cent of the RM581 billion total household debt in the country now being held in cars, an asset that depreciates over time.
Suhaimi said the prices that Malaysians are currently paying for cars do not seem to make sense.
“I can’t understand why a motorcycle should have to cost RM6,000-7,000 and a car like the Perodua Viva should cost over RM30,000,” he said.
Yeah said there is a need to change the national automotive policy and reduce tariff barriers as it would be good for both the economy and the car industry.
“This way we can attract more players and reshape the auto industry to be regional,” he said.
Suhaimi also expressed concern that prices for some goods are being artificially suppressed and price shocks could result when the subsidies are rolled back.
“For heavily subsidised industries, competition is the answer,” he said.
He also said the country’s dependence on foreign workers had hurt local wages.
Yeah concurred and said the government should not allow wages to be artificially suppressed.
“There should not be an influx of cheap foreign labour,” he said.
He added the undervalued ringgit, which has been used in the past to make Malaysian exports artificially competitive, is another distortion which hurts purchasing power when it comes to imported goods.
The Malaysian government is planning to enforce the anti-profiteering act this year and the competition act next year which aims to prevent anti-competitive behaviour.
In the case of the latter, however, there will be allowances made for companies to apply for exemptions.
Industry observers also told local business publication The Edge Financial Daily, that it will be challenging for the Competition Commission, which will be established under the Competition Act, to take action, noting that many industries in Malaysia are dominated by big players where monopolistic or oligopolistic structures exist.
This was attributed to the government’s heavy involvement in businesses, through the privatisation of state services, awarding of licences and the presence of government-linked companies in many facets of the economy.
The government could also be loath to give up lucrative income derived from sources such as tariff barriers for imported cars.
But Dr Foong Kee Kuan, senior research fellow at the Malaysian Institute of Economic Research (MIER), reaffirmed more competition is needed to boost purchasing power.
“The government has to push it and make our industries more competitive,” he said.
By BOB HERBERT, NY Times, Published: February 11, 2011
As the throngs celebrated in Cairo, I couldn’t help wondering about what is happening to democracy here in the United States. I think it’s on the ropes. We’re in serious danger of becoming a democracy in name only.
While millions of ordinary Americans are struggling with unemployment and declining standards of living, the levers of real power have been all but completely commandeered by the financial and corporate elite. It doesn’t really matter what ordinary people want. The wealthy call the tune, and the politicians dance.
So what we get in this democracy of ours are astounding and increasingly obscene tax breaks and other windfall benefits for the wealthiest, while the bought-and-paid-for politicians hack away at essential public services and the social safety net, saying we can’t afford them. One state after another is reporting that it cannot pay its bills. Public employees across the country are walking the plank by the tens of thousands. Camden, N.J., a stricken city with a serious crime problem, laid off nearly half of its police force. Medicaid, the program that provides health benefits to the poor, is under savage assault from nearly all quarters.
The poor, who are suffering from an all-out depression, are never heard from. In terms of their clout, they might as well not exist. The Obama forces reportedly want to raise a billion dollars or more for the president’s re-election bid. Politicians in search of that kind of cash won’t be talking much about the wants and needs of the poor. They’ll be genuflecting before the very rich.
In an Op-Ed article in The Times at the end of January, Senator John Kerry said that the Egyptian people “have made clear they will settle for nothing less than greater democracy and more economic opportunities.” Americans are being asked to swallow exactly the opposite. In the mad rush to privatization over the past few decades, democracy itself was put up for sale, and the rich were the only ones who could afford it.
The corporate and financial elites threw astounding sums of money into campaign contributions and high-priced lobbyists and think tanks and media buys and anything else they could think of. They wined and dined powerful leaders of both parties. They flew them on private jets and wooed them with golf outings and lavish vacations and gave them high-paying jobs as lobbyists the moment they left the government. All that money was well spent. The investments paid off big time.
As Jacob Hacker and Paul Pierson wrote in their book, “Winner-Take-All Politics”: “Step by step and debate by debate, America’s public officials have rewritten the rules of American politics and the American economy in ways that have benefited the few at the expense of the many.”
As if the corporate stranglehold on American democracy were not tight enough, the Supreme Court strengthened it immeasurably with its Citizens United decision, which greatly enhanced the already overwhelming power of corporate money in politics. Ordinary Americans have no real access to the corridors of power, but you can bet your last Lotto ticket that your elected officials are listening when the corporate money speaks.
When the game is rigged in your favor, you win. So despite the worst economic downturn since the Depression, the big corporations are sitting on mountains of cash, the stock markets are up and all is well among the plutocrats. The endlessly egregious Koch brothers, David and Charles, are worth an estimated $35 billion. Yet they seem to feel as though society has treated them unfairly.
As Jane Mayer pointed out in her celebrated New Yorker article, “The Kochs are longtime libertarians who believe in drastically lower personal and corporate taxes, minimal social services for the needy, and much less oversight of industry — especially environmental regulation.” (A good hard look at their air-pollution record would make you sick.)
It’s a perversion of democracy, indeed, when individuals like the Kochs have so much clout while the many millions of ordinary Americans have so little. What the Kochs want is coming to pass. Extend the tax cuts for the rich? No problem. Cut services to the poor, the sick, the young and the disabled? Check. Can we get you anything else, gentlemen?
The Egyptians want to establish a viable democracy, and that’s a long, hard road. Americans are in the mind-bogglingly self-destructive process of letting a real democracy slip away.
I had lunch with the historian Howard Zinn just a few weeks before he died in January 2010. He was chagrined about the state of affairs in the U.S. but not at all daunted. “If there is going to be change,” he said, “real change, it will have to work its way from the bottom up, from the people themselves.”
I thought of that as I watched the coverage of the ecstatic celebrations in the streets of Cairo.
Our economic survival and competitiveness are at risk. We must try new ways to get new results and overcome the haunting problems of implementation with the same old people, systems and processes.
FROM his Budget speech, it is clear that our Prime Minister has a deep appreciation of the challenges faced by the nation today. He has also articulated well the actions that must be taken to overcome the challenges.
He will reinforce this soon with the announcement of a new economic model. This would be so timely – but the point I intend to make here is, this new economic model will not succeed unless it is accompanied by a new and bold implementation model.
Without a new implementation model, this new economic model idea will suffer the same tragic fate of the many “new ideas” in the past that have never made the distance, mostly because of breakdown at the implementation level.
This time, we must succeed or we will perish in the competition! The challenges we face today are more serious than we think. All the danger signs are there:
1. Private sector participation as engine of growth has dwindled to below 10% of our GDP from 30% of GDP at its highest.
2. Foreign and domestic investment has declined significantly. Outflow of capital – RM117bil for 2008 and RM54bil for the first half of 2009.
3. Here’s a wake-up call! In 1980, of the total FDI inflow into South-east Asia, 35.4% went to Malaysia – less than 1% went to Vietnam. In 2008, from the total FDI inflow into South-east Asia (US$59.9bil), the amount that went to Malaysia and Vietnam are about the same (US$8bil). Is it a foregone conclusion now that Vietnam will soon overtake Malaysia in attracting FDI?
4. Our per capita income ratio with South Korea used to be 1:1 in 1980. Now the ratio is doubled to 2:1, leaving Malaysia far behind.
5. In the 10 years post-crisis of 1997/98, per capita income of South Korea has grown by 104.3% – Malaysia only achieved an increase of 68.4%.
6. In 30 years, the Chinese economy has expanded 15.4 times – compared with Malaysia at only five times!
7. On the World Bank Index “Ease of Doing Business 2010”, Malaysia is ranked 20 out of 183 countries. Sounds okay on the surface – but if you look deeper into critical indicators such as “Dealing with Construction Permits” and “Starting a Business”, our standing is at 109 and 88 respectively out of 183. It’s not so okay.
It’s high time we fix this – it can be done! But not with the same people and same procedure and process and not with the same old implementation model!
8. On the World Bank Knowledge Economy Index (KEI), which is a measurement of our readiness to support a knowledge economy, our KEI in 1995 was 6.12. in 2008 our KEI was 6.07 – no change.
In fact, we slid! Average KEI of the top five countries is 9.41.
9. In 2008, 2.062 million unskilled foreign workers entered Malaysia. (This is the official figure, what is the unofficial?) In the last seven years, entry of unskilled foreign workers have increased by 300%, and they have formed 30% of our work force!
10. On the other hand, entry of skilled workers and professionals into the country has dwindled by nearly 60% (85,000 in 2000 to 35,000 in 2007)! At the same time, we see an alarming number of Malaysian professionals migrating to other countries.
11. Coming up to 2010, our GDP growth is estimated to be 26% below our original 2020 target – our per capita income will be 52% below this same target!
12. We have been in this middle-income group of countries for 15 years now – the risk of being trapped there is increasing. We have to double our per capita income in the next 10 years just to meet the minimum level of the high-income countries. To reach our original 2020 target, we need to treble our per capita income. A tall order!
I’m highlighting this in the sincere hope that Malaysians can see and feel the seriousness of the situation. Even more serious is how these weaknesses can reinforce each other to drag us down even further. Malaysia must wake up. The Prime Minister clearly wants to change things – he is loud and clear about how we can’t go on being just “Business As Usual” anymore. But he can’t succeed on his own – he deserves the support of every loyal Malaysian who has big dreams for this country.
Where do we go from here? Well, I believe the Prime Minister is clear about what he wants to do under his three strategies:
1. Driving the nation towards a higher income economy
2. Ensuring holistic and sustainable development
3. Focusing on the well-being of the rakyat
These are great ideas. But as we know, Malaysia is never short of ideas. Our history is littered with glaring examples where these great ideas just didn’t take off from the drawing board (K-economy idea was mooted in the 1990s). What happened?
We are great with ideas but we are just not great at implementing! Hence my very point – the new economic model will join the congested graveyard of many other great ideas – unless we come out with a new implementation model to go with it! We are not going to get new results with the same people, doing things the same old ways.
So here are my suggestions:
I’d like to focus on the Prime Minister’s strategy number 1 – driving the nation towards a high-income economy.
We are seeing encouraging results from the National Key Results Areas (NKRA) initiative, and the establishment of Pemandu to drive the six NKRAs – reducing crime, combating corruption, expanding access to quality and affordable education, raising the standard of living of low-income groups, strengthening infrastructure in rural and remote areas and improving public transport.
Clearly the six NKRAs are “people-centric”, in line with the Prime Minister’s pledge of “people first”.
Building on this initial success, I propose another initiative – similar to NKRA and Pemandu – except this initiative will focus on national economic transformation. We can call it MyTEN. MyTEN will be dedicated to this number 1 strategy – to transform Malaysia into a high-income economy.
I suggest the commissioning of a dedicated executing team to be responsible for implementing MyTEN. This team must comprise professionals and experts operating on a comprehensive plan with clear KPIs and mandated and empowered to transcend ministries’ and agencies’ “turf” and boundaries. They must have the most capable leader Malaysia can find, and be directly under the charge of the Prime Minister. They must have the clout to demolish obstacles and resistance and to make things happen.
To start with, I recommend the MyTEN team be tasked to deliver the following strategic results:
1. New sources of growth – to determine new economic areas of high potential where Malaysia can focus on and gain global dominance. Again, this has been mooted many times before, proving the point it can only happen if we have a dedicated team of professionals entrusted and empowered to execute this programme.
2. To stimulate private sector investment – foreign and domestic. Initiatives here would include priorities such as:
a) To effectively operationalise public-private sector partnership;
b) To redefine Government’s role in business and walk the talk that Government has no business to be in business; and
c) To produce a new generation of business entrepreneurs on merit and competitiveness and move Malaysia away from the “patronage and rent-seeking legacy”.
3. To accelerate Malaysia’s transformation into a knowledge economy anchored by innovation and quality human capital. This would include successfully executing sound strategies to make Malaysia a high-wage economy. An important part of this would be to turn Malaysia into a destination of choice for global talent.
Global talent is critical to our economic growth and innovation. We know our “brain-gain” and “MM2H” did not deliver the real desired results. This is another example why we need a new implementation model – this programme must be undertaken by new well-trained, well-motivated people with new mindsets, applying new systems, processes and best practices to succeed this time around.
To succeed, MyTEN must be launched as a major national agenda like the NKRA and we have to get every Malaysian, both from the public and private sector, to be on board. This must be a 1Malaysia agenda.
It is always worrying that all these high aspirations of the Prime Minister and the nation will in the end land on the desk of an officer who may not have a full appreciation as to how critical these programmes are to the survival of our country and who might not respond with the necessary sense of urgency.
Another key to the new implementation model is engaging the private sector whenever we can.
One has to be concerned with the rapidly increasing operating expenditure of the Government (from RM80bil five years ago to RM140bil now).
The Government should get an independent and objective analysis to determine government programmes that can be better done by the private sector and let them do it.
For example, I can see how we should engage the GLCs and private sector to take over many of the Agriculture Ministry’s programmes. Only they can bring the real culture of commercialisation to our farmers. It’s a matter of working out the business deals with these GLCs and private companies so they can be profitable in these privatised ventures. The Government can then save billions from doing this themselves (and mostly not as successfully).
We have success models in Sime Darby and their Northern Corridor corn project and Khazanah on their aquaculture and papaya projects. Why don’t we upscale them?
Repeat: we must try new ways to get new results. I think this is why the word “innovation” appeared everywhere in our Prime Minister’s Budget speech. The government must redefine its role, and this will require a new public sector mindset to let go to the private sector at every appropriate opportunity where there is clearly a net gain for the country.
To drive our nation’s economy, we need the most important economic force – the return of confidence!
I’m certain that what will generate this return is if there is belief that there will be real change this time – that the country is serious and has the will and ability to deal with all its challenges. I don’t think that there is any doubt about the Prime Minister’s seriousness, will and ability. But the doubt will be about the old haunting problem of implementation – that is, new ideas but done by the same old people and with their same old systems and processes, with little sense of urgency.
I know I’ll be commenting again on future government budgets… not so far away, I hope to be able to say we are now not just a nation of great ideas, but are also great implementors!
Datuk Seri Mohd Effendi Norwawi is the founder and executive chairman of Encorp Bhd; he regards his seven years in the Cabinet as national service.
Yeah concurred and said the government should not allow wages to be artificially suppressed.
