Najib Razak

One of Prime Minister Najib Razak’s key missions is for Malaysia to become a high income economy by 2020. Ambitious as he is, he wants Malaysia to achieve high income, inclusiveness and sustainability.

The first goal is clearly defined and easily achievable if it is restricted to the numerical target of US$15,000. Najib wants more than that. He wants an economy that has the characteristics of an advanced developed nation. Specifically, the transformation aims to achieve a large services sector, higher domestic demand and greater productivity levels.

On the inclusiveness front, Najib has emphatically mentioned that the growth in Malaysia will be such that it will enable all Malaysian to share in the benefits. The lowest sections of the economy will be specially targeted so as to improve their income levels.

As for sustainability, Najib envisages a growth model that is fiscally and environmentally sustainable. Malaysia’s fiscal profligacy hitherto warrants more attention. The concern over the environment is commendable.

Najib’s diagnosis of the problems that Malaysia should focus on is accurate. Malaysia is caught in a middle-income trap, its fiscal position cannot go on the way it has in the past. Malaysia may lose out against the intense global competition that engulfs it. The decision to embark on a major transformation programme, i.e. the Economic Transformation Programme (ETP), is a reasonable one in the face of the challenges that Najib has rightly identified.

The errors do not lie in the diagnosis. They lie elsewhere.

First, to pursue the path to developed economy status is good, but a more carefully though-out plan is necessary. That is, perhaps, lacking in Malaysia’s case. There are developed economies of various colours and stripes. The United States is a developed nation where the market reigns supreme. In Europe, welfare and distributional concerns weigh heavily, as in the Scandinavian countries. The burden of the cost of education and healthcare does not fall heavy on households in these countries. In Taiwan, the government intervenes actively to ensure that affordable healthcare is available to all. What is the Malaysian model going to be? There are no clear answers on this.

Second, the ETP clearly states that the high-income objective is not merely a quantitative target. And that is correct; it should not be. One associates a high level of well-being with developed countries. Well-being, again, needs to be clearly defined. With higher incomes, people expect more gender sensitivity at the workplace, good child care facilities, nice parks, cultural activities, access to sports facilities, protection for the aged and the like. But aside from broad statements it is not at all clear if these are concerns that will be entertained, and if so how they will be factored into policy action.

Third, the ETP includes an inclusive society as one of the three pillars of the New Economic Model (NEM). This means that all sections of society, regardless of religion and ethnicity should feel that they are valued and that they have an important role to play in the economic and cultural growth of the nation. The current state of ferment on religious and ethnic issues simply cannot be a part of the NEM. The progress report on this cannot be said to be satisfactory with the kind of debates that are going on. Undeniably, it will take considerable care to ensure that the majority are pleased without threatening the minority.

Fourth, the role of the public sector remains unclear within the ETP. While the NEM is based on the active participation of the private sector, as it stands the government-linked companies (GLCs) play a dominant role in key industries. GLCs are a euphemism for state-owned enterprises (SOEs) and the days when SOEs can continue supporting ailing industries are numbered. SOEs cannot crowding out private investment.

Most important of all, the institutional foundations of the economy have to be reconsidered. Issues such as good governance, transparency, competition and accountability are very much a part of mainstream policy these days. Trade policy centres around questions such as these, though the exact form in which they are invoked may vary in, say, trade agreements.

Najib should be credited with honestly pinpointing the trouble spots. The road ahead has been vaguely charted. Murky visions are, often, not the best ways of conceptualising and communicating plans. At any rate the implementation of the ETP is likely going to be very challenging let alone addressing the question of institutional reform.

Nevertheless, having committed himself to a brave agenda, Najib is going to be judged by the high standards he has implicitly set for himself.