By Tony Pua
Published by Democratic Action Party, Kuala Lumpur (2010)
Review by Toh Kin Woon
This book by Tony Pua, an Oxford-trained economist who currently is a Member of Parliament from the Democratic Action Party (DAP), is a collection of articles that were earlier carried largely in his blog. These focus primarily on the Barisan Nasional (BN) government’s mismanagement of the Malaysian economy and the country’s public finances.
Pua cites various examples including privatisation, the Port Klang Free Zone (PKFZ), the misallocation of subsidies, the misuse of petrodollars, the gap between policy intent and outcomes as seen in the New Economic Policy and its later variants, and the declining standard of education, among others. Spanning over 20 chapters, this book is well written in a language that is almost bereft of economic jargon and can hence be easily understood by the layman. There is persuasiveness in his arguments, largely because these have been based on sound economic principles and good ethics. Pua has gone to great lengths to show how mismanagement caused by the lack of transparency, competence and accountability in the award of contracts, both for building social capital and in public procurements, have led to high opportunity costs.
Fact not fiction
Unlike many other similar books, where allegations of corrupt and scandalous behaviour have remained largely unsubstantiated, Pua’s narratives on the many scandals have been backed and substantiated by facts and figures. This is one of the strengths of the book. In it, readers can find a wealth of data on the many scandals that have beset a range of policy measures and social capital formation such as the North-South Expressway, water schemes, in particular the privatisation of water supply in the state of Selangor, energy and the PKFZ. His evaluation on the economic performance of the federal government has similarly been backed and substantiated by good data.
Concern for equity
Pua has also devoted space to the key issue of equity, as indicated by the pattern of income and wealth distribution. When I was doing my Master of Arts degree many years ago, one of the critical questions often raised in discourses on development of developing countries was, “Development for whom?” Yet, this is seldom raised these days.
Recent statistics have suggested that Malaysia has one of the most unequal patterns of income distribution in the Asia-Pacific. This is further corroborated by the fact that income growth has been strong for the top 20% of income groups, while households in the bottom 40% have experienced the slowest growth in average income since 1990.
More policy prescriptions on equity needed
However, even Pua’s book is short on policy suggestions to build a more egalitarian Malaysian society, though strong on measures to stem incompetence, rent-seeking, patronage and corruption, to strengthen the framework for more efficiency. I would love to see this rectified, perhaps in his future narratives.
Admittedly, developing a more equal, cooperative and socially just society is not going to be easy. A capitalist-free market structure and an increasingly integrated and highly competitive globalised world economy, of which heavily trade-dependent Malaysia is an integral part, have engendered barriers to equity. This has been further exacerbated by the onslaught of the most influential economic ideology of all times – neo-liberalism.
Many policy thinkers and planners in our own country have not been spared this influence, as manifested in the many policy measures already or intended to be launched such as widespread privatisation, even of social goods with huge externalities, the removal of subsidies for the poor and a regressive fiscal system.
No to GST
The federal government has repeatedly announced that the goods and services tax (GST) will be introduced once BN is returned to power in the country’s next general election. The tax would have been introduced, but for the strong opposition of the people, especially the poor and middle class, led by the Pakatan Rakyat (Pakatan). Pua has very clearly and ably enunciated this very position of opposing the imposition of the GST in his book, a position which I fully support.
His reasons for opposing are sound and egalitarian. The GST is a regressive tax. When levied on the Malaysian public, it will burden the poor proportionately more than the rich. Currently, many of these poor do not pay any direct income taxes. Indeed, as many as 85% of the working population in Malaysia do not pay any income taxes! Introducing the GST now will no doubt broaden the tax base but also add on to the burden borne by the poor, further widening the gap between rich and poor. Pua’s argument that we do not need to introduce any new taxes or increase existing rates to reduce, if not eliminate the budget deficit, which continues to yawn ever wider, is absolutely correct. Eliminating wasteful expenditure, practicing open competitive tenders, doing away with corruption and re-prioritising expenditures should bring down the deficit, and hence the public sector borrowing requirement.
If any new taxes should be introduced in the future (I am not suggesting that they are now needed), these should be based on the ability to pay, as well as on unproductive sources of wealth and incomes, such as inheritance and capital or speculative gains. I do not see why the direct income tax structure cannot be made even more progressive by increasing the marginal rates of income tax, which currently are low.
Continued subsidies for the poor
On the issue of subsidies, I maintain that those for the poor and needy need to be retained, while those for the rich and powerful, such as the highway toll concessionaires and the independent power producers (IPPs) can and should be abolished. Under current circumstances, however, the concessionaires, IPPs and other cronies who have direct access to state power will continue to enjoy the subsidies, while the poor will be vulnerable to a significant drawdown, if not total withdrawal, of such state support.
This reveals the true and class nature of the state controlled by the BN elites in a capitalist social formation such as Malaysia. The ruling elites are biased in favour of the class of rentiers, cronies and some capitalists when it comes to allocating surpluses in a situation of fiscal crisis. The class bias of the state in favour of the capitalist class is true, however, in all capitalist societies. One has only to look at how the new ruling UK elites in control of state power have slashed public spending. The same goes for the policy prescriptions of international financial institutions such as the World Bank and the International Monetary Fund (IMF) for countries facing fiscal crises. The poor working people are always the targets, while the big finance capital will be rescued.
Strengthening the trade unions
There are clearly many problems affecting the working class in Malaysia and Pua has mentioned some of them in his book. The failure of growth in nominal wages to catch up with inflation has led to a decline in real wages in the urban centres. This wage suppression is done deliberately through capital coercing the state (the government) to allow a more elastic supply of labour through tapping the foreign markets. As a result, many in the working class have difficulty coping with the stresses of urban living – rising costs, poor public transportation and increasing difficulty in accessing medical equipment needed for certain treatments even at public hospitals.
A major cause of the less than desirable state of the working class in our country is due to a weak trade union movement. The rate of unionisation is very low, with union members making up less than 10% of the total workforce, in contrast to close to 70% in Sweden at the height of social democracy there. Workers thus lack organised strength to press their demands on the government and capital for more economic benefits and political rights. The relatively weak position of the unions is partly the outcome of policies such as the legal prohibition on the formation of national trade unions in certain industries, allowing only the formation of in-house unions; and bringing in more foreign workers who are not allowed to join unions and privatisation.
The federal government is pro-capital in its management of industrial relations between capital and labour. This can be seen in the easier access of the representatives of capital to the offices of the wielders of state power. Workers face great constraints, which are often imposed by the state, in organising mass action to press their claims, even when these are legitimate. State institutions like the police will be mobilised to suppress even peaceful protests over unfair dismissals, wage rises, bonuses and the like. Given the weakness of the trade union movement in Malaysia, I am not surprised if wage increases are not even in tandem with increases in productivity.
Productivity rises don’t automatically translate into wage increases, as there is no mechanism in place to ensure this translation. Owners of capital may appropriate some or even all of these increases, leading to rising shares of profits to national incomes.
Education as a vehicle for upward social advancement
When discussing education, there are several dimensions to examine; one is education as a vehicle for nurturing human capital, another is education as a vehicle for social justice. As to the first perspective, to which Pua’s book devoted some attention, there is no doubt that Malaysia has suffered precipitous declines in education standards. Arresting this decline is vital if we are to enhance our overall capacity to compete, especially in new growth industries such as biotechnology, green technology, renewable energy, pharmaceuticals, low volume but high value-added electronics, animation, and etc., all of which require a huge pool of knowledge and highly skilled workers.
For this, it is claimed that meritocracy ought to be emphasised. I personally agree that there is much merit in this, as race-based recruitment of students and staff, as well as the latter’s promotion, particularly at tertiary level, has no doubt adversely affected standards. Worse still, the practice of setting up institutions at both high school and tertiary levels exclusively for Bumiputera students only stifles competition and promotes complacency that in turn leads to under- realisation of these students’ potential, as pointed out by Pua. Promoting competition through creating multi-ethnic environments will help overcome this unhealthy development and enhance academic quality.
However, while the stress on meritocracy may yield the desirable efficiency outcome, it may have deleterious consequences for equality, especially if education is to be used as a vehicle for effecting inter-generational upward social mobility. It has been proven that there is a close correlation between academic performance and socio-economic status. Those who perform better academically normally hail from better homes. This is true across all ethnic groups. Early preparation for learning in the formal school system, a favourable learning environment at home, greater access to performance enhancement resources such as private tuition, reference texts, examination guide books and now the internet that are usually available to students from better socio-economic backgrounds, account for their generally superior performance.
There are, of course, many students from poor homes who have achieved outstanding results, gained admissions into public universities and upon graduation, moved up the social ladder. These are, however, exceptions to the rule. If good academic performance is attained largely by students from better homes and if admission into universities is based on merit, then education becomes clearly a tool for the transfer of socio-economic status across generations, rather than as a vehicle for effecting inter-generational upward social mobility. An educational system based on meritocracy may promote excellence and greater efficiency, but it may not necessarily be an effective tool for the attainment of an equitable distribution of life chances across class divides. My contention is that meritocracy cannot be relied upon by the poor as a tool for upward social mobility within a socio-economic structure that is inherently unequal.
The socio-economic structure in Malaysia, based essentially on the market mechanism, still has elements of inequity. While we recognise that enhancing efficiency and striving for excellence are absolutely essential in an increasingly competitive environment, we cannot, however, ignore the desire for greater social equity and better life chances for the poor as well. A system of admissions into public universities that promotes academic excellence, while correcting for the bias against students from poorer socio-economic backgrounds, ought to be designed. Unmitigated focus on merit to the neglect of a more equitable distribution of tertiary educational opportunities may bring about undesired consequences for social justice.
Overall, I believe that Pua’s book is an important addition to the literature on the political economy of development in Malaysia. It is particularly useful as a reference on how state power has been misused by the federal government’s elites to nurture a class of rentiers or to further enrich an existing group that has close ties to these elites. The consequences of such corrupt practices have been well documented and substantiated by facts and figures.
Toh Kin Woon is a senior research fellow at the Penang Institute.