Pondering Malaysia’s Socio-economic Pessimism

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The world Malaysia exists in today is unlike the one it was founded in. Yet, a common understanding of how the country has been reacting to changes over the decades is missing.

Hari Raya Aidilfitri is supposed to be a joyous celebration, a return to family and one’s roots. This year however, it was strangely sombre. Karim Raslan, commentator and columnist, for example, noted a puzzling “optimism deficit” among his peers, saying that “I am sure numbers can be pulled out that will show that things are better than they seem. But things don’t FEEL better and at the end of the day, that counts.”

The numbers are positive. Malaysians are better off than their predecessors. Last year, Khazanah Research Institute put out the first nationwide longitudinal study on socio-economic mobility which posited that in the last 30 years, Malaysians were upwardly mobile, even outperforming developed countries in certain metrics. Poverty rates, according to official statistics, are remarkably low. Although annual growth rates have been slowing, the overall economy has been growing on a linear scale almost every year.

KL in the 1970s.

How do we reconcile these larger movements with sentiments on the ground? The negative sentiments do not stem only from the rising cost of living; it reflects a deficit in optimism. Political independence entailed the possibility of economic self-determination. However, freedom to choose the strategies of development also meant the responsibility of the distribution of economic wealth.

Malaysia’s first prime minister, Tunku Abdul Rahman, had an economic policy of laissez faire liberalism. It was a period of a relatively hands-off approach which continued a number of similar colonial economic directions: strict monetary and fiscal orthodoxy, minimal economic intervention, parity with the British pound and further intensive natural resource extraction. Perhaps this was the most convenient strategy for the conservative elite – but this seemed to be at the long-term expense of their supporters.

Foreign ownership of businesses remained in the majority, with local Chinese ownership being the next largest. Malaysia’s early steps towards industrialisation were skewed: a few large companies dominated by foreign capital produced the most output (Hirschman, 1971); and de Micheux notes the industrial sector then only remained a small minority employer – only 10% of the working population, which meant that not everyone had the sense of mobility. By 1969, inequality was actually worse than a decade earlier (de Micheaux, 81).

It is no wonder that dissent began to ferment in the 1960s. There was a growing wave of student protests under the newly founded University of Malaya’s Student Union. In one of their landmark protests they voiced out displeasure at the eviction of farmers at Teluk Gong, increasing pressure on the government to act.

That is not to say there weren’t policies catering to rural agrarian Malays: the First Malaysian Plan (1966-1970) did have many policies that did, such as improving rural access to healthcare, the establishment of the Federal Industrial Development Authority (Fida) and the beginnings of oil palm cultivation. However, it was too little too late; despite their good intentions, it wasn’t dramatic enough for people to immediately see that change.

These social anxieties finally came to a head in the May 13 riots in 1969, which allowed for the government to declare a state of emergency.

The Golden 90s

The Second Malaysian Plan and the New Economic Programme (NEP) – which in class terms, can be described to be seeking aggressive development for hitherto agrarian Malays – came into being. The convergence of international factors and local politics gave rise to the euphoria that was the 1990s, and the harsh fall that came afterwards.

The NEP recipe is relatively well known. It is a unique blend of state-directed strategic investment through sovereign wealth funds, plugging Malaysia into the global economy by developing an export-oriented light manufacturing strategy, coupled with a focus on developing the Malay community. Majlis Amanah Rakyat (Mara) and the Urban Development Authority (Uda) were set up as agencies to create a “genuine class of Bumiputera traders”.1 Petronas was set up to exploit petroleum wealth and feed it into state coffers. And in the 1990s, a generation of Malay capitalists was created through the privatisation of government services.

The government hired an increasing number of bureaucrats – which hit an approximate 800,000 by 1996.2 A torrent of international money looking to invest in new markets gave financial opportunities to those who could receive it: the urban middle class. Even EPF dividends stayed at 7% and above per annum between 1976 and 1996. GDP growth between the late 1980s and 1997 grew at an average annual rate of 8.7%. (AR Embong 38)

For all its foibles, Malaysia’s state capitalism worked. If we can take car ownership as a proxy measurement, only 14% households owned cars in 1970. By 1990 this figure doubled to 33%. Another estimate of the size of Malaysian classes by occupation concluded that the peasantry shrunk from 35.8% (1980) to 30% (1990), while the working class remained stable at 27-29% throughout the 1980s and comprised 36% of the workforce (2.2 million) in 1988. The middle class grew to 45.2% of the working population by 1998, joined by growing numbers of Bumiputera.3

An affluent Malay middle class emerged in the 2000s.

Market scene in Tanah Merah, Kelantan. Bumiputera employment is overrepresented in declining economic sectors.

In the same light, the professional, technical, administrative and managerial class, which stood at 11.2% in 1990, grew to 13% in 1995; while the lower-middle class increased from 27.1% in 1990 to 27.6% in 1995, and to 28.3% in 2000. In this sense, the middle class was firmly the largest section of the population in 2000 at 45.8%. Conversely, agricultural workers had declined to 16.4% by 2000.4

A final reason that contributed to the euphoria of the 1990s was foreign labour. While not usually understood as a class, beginning in the 1980s they began taking up working-class jobs, typically in construction, plantations or in domestic services. While typically foreign workers tend to undercut the wages of locals, it also meant that fewer Malaysians were occupied in these types of jobs, and did not have to voice their displeasure at low-income levels or unreasonable working conditions. After all, foreign workers typically have no political rights in their host country to express these problems.

By the end of the 1980s a vast number of foreign workers, documented and undocumented, were working in Malaysia. Usually they hailed from Indonesia and Thailand, if not also from the Philippines. Ops Nyah, an undocumented-immigrant registration exercise in June 1992, registered over 442,000 illegal workers in Malaysia; the police estimated another 200,000 more at large.5

All these culminated in the “high optimism” for Malay-Muslims in the 1990s. This in turn explains the cultural dovetail of the nostalgia for kampung life: the young successful urban upstart driving his new Proton Saga back to visit his parents in the kampung where he grew up. “Malaysia Boleh” became our national slogan. Wawasan 2020 spelled out the dream that Malaysia would become a high-income nation by 2020. It was as though there was nothing that the country couldn’t do.

Local Chinese ownership of businesses were second largest post-Merdeka.

The Gap Grows Wider

In 2000 the services industry in Malaysia broke the 50% GDP mark. Manufacturing and agriculture, the drivers of the post- Independence era, started to take a backseat. The peninsula had increasingly urbanised, and poverty, according to official definitions, had been reduced to below the 5% mark.

But beyond these aggregate statistics, an affluent Malay middle class now had to be dealt with politically. For one thing, there is now the problem of intra-ethnic inequality, which is not necessarily urban-rural income disparity – which also exists. And on top of that, the NEP, while successful in reducing the gap between Malay and Chinese, has not created parity in economic outcomes between them as a whole.

This is the argument that Muhammed Abdul Khalid takes in his book, The Colour of Inequality: Ethnicity, Class, Income and Wealth in Malaysia. He reports that Bumiputera employment is overrepresented in declining economic sectors, while the Chinese are overrepresented in the higher-income service sector.6 Going by indicators of wealth composition, the Chinese and Indians still have higher average ownership of financial and property assets than Bumiputeras.7

Economists Lee Hwok-Aun and Muhammad Abdul Khalid examined other indicators to give a more detailed picture of inequality, such as:

Source: Economic Planning Unit

• The Gini coefficient of EPF savings (which showed a rising trend from 2004 onwards, except in 2011, when they fell slightly)
• The average annual growth of public service employment by category (support staff, which form 70-85% of public services, had an average annual growth of 1.4% compared to management which formed 14-29%, which grew at an average rate of 23%)
• Unit trust funds (Amanah Saham Bumiputera Unit Holdings’ Gini coefficient rose in 2014)
• Residential properties sold per year between 1996 and 2011, a rising trend for its Gini coefficient beginning from 2001 to 2011.

Effectively, the Gini coefficients hide a nuanced and deeper picture of what is going on. Lee and Muhammad Abdul Khalid found that “inequality is growing in earnings, in both private and public sectors, and is increasingly concentrated at the topmost strata. In wealth ownership, the data available for our analysis indicate clear rising inequality in property ownership”.8

At the same time, Malaysian graduates face employment problems.9 With the liberalisation of education and the breakneck speed of the expansion of tertiary education institutions, we have more graduates – some victims of institutions of dubious quality, others who are just structurally unemployed. While education is a good predictor of class transition, it is by no means the ultimate way to reduce or resolve systemic inequality; it is instead about the standard of living of those who opt out of or are not suited for tertiary education.

While the most direct way of doing this is a minimum wage policy, its implementation may not have a broad effect in alleviating inequality. Because of how low it is, as one academic points out, the primary recipients will be low-wage Indian workers “because about two-thirds of Indians are employed in the formal sectors”, while the size of informal workers among Chinese and Malay workers is much larger.10

We also continue to rely on foreign workers, whose numbers have grown. The Malaysian Labour Force Survey Report 2014 reports approximately one million Malaysians working in elementary occupations such as cleaners, helpers, labourers, service workers and refuse workers. However, 800,000 legal foreign workers compete for the same jobs as well. In total, 2.1 million legal plus 4.6 million illegal foreign workers exist in all sectors of the country.11

Felda New Zealand in Pahang. Felda was set up to resettle poor and landless Malay farmers in 1956.

By the end of the 1980s a vast number of foreign workers were working in Malaysia.

Escaping the Middle-income Trap

Why then did the state not carry through with the final goal of racial economic parity? After all, the burden that it took for itself was to finally become a high-income nation.

For one thing, it has to balance between two contradictory needs of capitalism and social goals. In order to escape the middle-income trap, a country has to optimise for capitalism – make the same do more; seek greater total factor productivity and greater economies of scale, greater integration; and with capital gained in the previous phase, shift abroad for “strategic investments”. However, with the same fundamental model, the same fundamental problems are retained.

The currently embattled Felda Global Ventures embodies this problem. The Federal Land Development Authority (Felda) had a noble original goal: it was set up to resettle poor and landless Malay farmers in 1956. Its impact cannot be denied: 120,000 families across 852,566 hectares of land have benefitted from its schemes, consequently raising their real incomes.

However, Felda transformed into a plantation company, and was subsequently publicly listed as Felda Global Ventures, a global corporation investing in plantations abroad. (Once domestic resources are exhausted, further optimisation can only be found through the economies of scale of integration abroad.)

Man playing checkers. According to a study, inequality is growing in earnings, in both private and public sectors, and is increasingly concentrated at the topmost strata.

And more troubling developments have been found. Dr Edmund Terence Gomez’s book, Minister of Finance Incorporated: Ownership and Control of Corporate Malaysia, exposes a new trend in corporate ownership: the Ministry Of Finance now controls over 68,000 companies in Malaysia through seven government-linked investment companies. This indicates a move away from the development of a capitalist class towards greater centralisation in the state (as well as opening it up further to abuse).12

Coupled with the tendency that Malaysian companies tend to have a lower wages-to-profit ratio (30:70 compared to typical developed states’ 40:60 ratio), companies could definitely pay labour better.

Finally, there is no clear and definitive evaluation of the New Economic Model so far, hinting towards a common comprehensive understanding of where we are at the moment as a result of the New Economic Model. How have the Strategic Reform Initiatives, Government Transformation Programme and Economic Transformation Programme borne fruit where equality is concerned?

Reorienting Social Classes

To be fair, the economy is not terrible in the long run. While growth rates today are modest compared to the breakneck days of the 1990s, absolute growth itself is chugging along at a steady pace. The real question is how will that growth be further distributed? Will people across classes be mobilised to change the way the system works to be more equitable and sustainable as in the post-Independence days?

Perhaps one innovation we should consider is Erik Olin Wright’s theories on the “new middle class”. For him, the middle class itself is embroiled in a dilemma: it serves both capitalist interests in managing the working class, but also earns a wage like the working class. If the middle class(es) is in a conflicted position, then different segments can vacillate between unchecked capitalism and inequality, and reform.

Taking cue from Dr Syed Farid Alatas, sociologist at the National University of Singapore, one way to work through inequality is to reconsider the identity and religious discourse within the Malay-Muslim sphere. The relationship between capitalism and the modern Malay identity is not critically interrogated of the worst excesses of the former, even today. At the most recent Umno general assembly, a pamphlet promoted the ideal Malay person, “Firdaus 2050”. He is a global businessman par excellence, ticking all the boxes for being a pious Muslim and for hyper-globality. This is a hallmark of hyper-individualism: it is taken for granted that success for the individual is success for the whole.

Karim Raslan’s optimism deficit is not merely an economic issue. However, economics is the starting point for that deficit. It begs an aggressively infectious vision about how we can collectively manage our economics within and without. We can only hope that one can be found that is rooted in egalitarianism and equality in all dimensions: race, religion, gender – a dream we all can dream together.

Ho Yi Jian was with the International Institute for Strategic Studies (Asia) before pursuing a masters in International Relations in Australia. He is currently a freelancing writer and researcher in KL.

1 (Gale 1981:202-203) srv007
2 Citation Ho Khai Leong, p 201 in ‘Malaysia’s Civil Service Reform: Mahathir’s Legacies and Abdullah’s Challenges’, in Malaysia: Recent Trends and Challenges, edited by Saw Swee-Hock, K Kesavapany.
3 Jomo, K.S. A Question of Class: Capital, the State, and Uneven Development in Malaya. East Asian Social Science Monographs. Singapore: Oxford University Press. 1986.
4 Embong, Abdul Rahman. “Malaysian Middle Class: A Study of the ‘New’ Middle Class in the Klang Valley, Malaysia.” Proceedings I – Conference on Social Stratification and Mobility: Newly Industrializing Economics Compared. 1998.
5 Tey, Nai Peng. “Issue Paper from Malaysia.” Migration Issues in the Asia Pacific, Asia-Pacific Migration Research Network, working paper no. 1, 1997, pp. 103–4. 1998.
6 Muhammed Abdul Khalid. The Colour of Inequality: Ethnicity, Class, Income and Wealth in Malaysia. MPH Group Publishing, 2014, p 114.
7 Ibid, p 121.
8 Paper presented at the Development Research Group (DECRG) Kuala Lumpur Seminar Series, 13 October 2016, Sasana Kijang, Kuala Lumpur.
9http://www.themalaymailonline.com/malaysia/article/nearly-55000-graduates-unemployed-six-months-aftercompleting-studies?utm_source=dlvr.it&utm_medium=facebook#5AMqbrzMPx89of7H.97
10 http://www.sciencedirect.com/science/article/pii/ S02649993163001047
11 http://www.mtuc.org.my/the-fallacy-of-malaysiaseconomic- realities-and-the-foreign-workers/
12 http://www.theedgemarkets.com/article/statenation- politics-and-changing-face-corporatemalaysia



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