Ivanpal Grewal

Lawyer & political activist

 

In 1992, a young governor from the southern state of Arkansas, United States decided to challenge a sitting president who had only just emerged victorious from a war against a bullying dictator in the Middle East. The young governor was the telegenic and personable Bill Clinton while the sitting president was the stoic and avuncular George H.W. Bush.

As many predicted that Clinton would be decimated by Bush, Clinton immediately spotted Bush’s weakness which was the sagging US economy that was suffering from serious head winds after the Reagan boom of the 1980s.

With this in mind Clinton coined the phrase, “it is the economy, stupid.” Clinton went on to beat Bush in the 1992 US Presidential Election and comfortably won re-election in 1996 in large part because he focused on the economy, wages and the cost of living.

Fast forward to 2015 and Malaysia is facing serious economic challenges with the declining ringgit against major currencies, tepid business sentiment and the falling price of oil which is an important income earner for the government despite successful efforts in the past five years to reduce Malaysia’s dependence on revenue from oil and gas. These economic challenges are exacerbated by the rising political temperature and this is unhealthy for Malaysia.

In the aftermath of the 13th May 1969 riots, Malaysia’s leaders and policy makers decided to transform not only the structure and functions of the economy but also the prevalent social order of that time by the use of creative and innovative methods and techniques. The result was that in a short span of 30 years, Malaysia today has a burgeoning middle class and has witnessed steady economic growth.

Economic functions are no longer associated with any ethnic group and household income grew tremendously between 1970 and 2012. Accordingly to the Economic Planning Unit’s Household and Income Poverty statistics, Bumiputera average household income grew from RM 172 in 1970 to RM 4,457 in 2012, while Chinese and India household income grew from RM 394 to RM 6,366 and RM 304 to RM 5,233 respectively in the same period as well.

However, in the 1990s in order to keep wages low and ensure a decent standard of living an elaborate system of subsidies was implemented to ensure that Malaysia remains a competitive destination for foreign investment.

The growth of China, India and other emerging economies and their avaricious appetite for commodities and food pushed the prices of oil, gas and food items higher. The allocation for subsidies in Malaysia has increased 14 times from RM1.65bil in 2002 to RM23.5bil in 2013, solely to maintain low fuel prices. In 2014, the Government spent over RM40bil (close to 20% of the National Budget) on subsidies of fuel, food and other essential items.

In 2014, government implemented a series of subsidy reforms which included the complete removal of subsidies for food and fuel and also introduced the Good and Services Tax (GST) to ensure that the government’s finances are on a sustainable trajectory to ensure long term economic, political and social stability.

However, a nagging concern remains the slow growth in wages especially for those who belong to the bottom 40% of households known as the B40. The 11th Malaysia plan specifically tackles this concern and the target that has been set is to double the incomes of the B40 households between 2016 and 2020. This remains a tall order but I am certain with the full cooperation of the public and private sectors it is achievable.

There has not been enough focus on the concept of wealth sharing. Recently, the Securities and Exchange Commission (SEC) in the US approved the ‘CEO pay ratio rule’ and companies must start disclosing the pay gap between their top boss and rank-and-file employees. I believe Bursa Malaysia and the Securities Commission must implement a similar rule in Malaysia because despite large profits that are generated by private firms in Malaysia wage growth in the private sector is still less than satisfactory and most increases are only barely above the level of inflation.

Many Malaysians look to the government to solve the problem of low wages but in true fact Malaysia is a market-economy and the government only employs 8% of the working population while 92% is part of the private sector. Furthermore, the entry level pay for a graduate position in government is actually higher than the private sector and this is a telling sign that there has not been much of an effort on the side of businesses to actually address this wage problem besides shifting blame to the government for failing to control prices.

I hasten to add once again that we are a market based economy and prices of most good and commodities are determined by demand and supply as we seek to become a developed economy we must accept the reality that we will have a more matured market with less government interference. Hence, the way forward is to increase wages and not keep prices artificially low.

The National Wage Council should also look into this conundrum and not merely focus on minimum wage but also focus on a live-able wage which is more important as we seek to achieve high-income nation status in the year 2020. There is a pressing need to ensure a fair distribution of wealth that is predicated on equity and productivity. I must also state a caveat that any increase in wages must be directly linked to an increase in productivity and the level of productivity of any employee must be evaluated in an unbiased manner.

A concerted effort is needed and there must be close cooperation between the public and private sector to ensure that wealth is created but also the wealth created is shared in a fair and equitable manner. In the end, good economics is always good politics and to echo Bill Clinton, it is the economy stupid.

Originally published on The Star on Wednesday August 19, 2015 MYT 3:53:00 PM

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