10^th Malaysia Plan: Are We Going Forwards or Backwards?

Friday 18^th June 2010

Organized by Huazhong, 20-Year Plan of Action Committee

Three speakers, Mr. Khaw Veon Szu of SEDAR Institute, Dr Lim Teck Ghee of Centre for Policies Initiatives and Prof. Dr. Terence Gomez of University of Malaya presented their views on whether the 10^th Malaysia Plan (“10MP”) was leading Malaysia forwards or backwards. The panel was chaired by Dr Toh Kin Woon.

First speaker, Mr. Khaw Veon Szu started off his presentation by giving a bird’s eye view of 10MP in the context of the overall Prime Minister Najib’s 1 Malaysia house which consists of Government Transformation Plan (GTP-NKRAs) and Economic Transformation Plan (ETP -NEM). He pointed out that the NEM painted an accurate picture about the state of the Malaysian economy by identifying the three critical problems, i.e.  The abuse of affirmative action, the rampant rent-seeking activities (corruption), and the brain drain.  However, he was disappointed that the 10MP has not really prescribed the right solutions to tackle those three problems identified.

Mr. Khaw focused his analysis to four issues. First, the targeted average growth rate of 6% p.a.  He pointed out that the ‘magical’ word of the 10MP was 6% growth; magical because it was an unrealistically high target as the 9MP was already far behind its targets. The key drivers behind the 6% growth target were private sector-led, foreign direct investment and human capital.

Of the RM115bn target of private investment, Mr. Khaw noted that RM62.7bn, more than half, was to come from private – public partnerships (PPP) which meant that the government’s contribution to the 6% growth target would be significant, thereby contradicting the 10MP’s proposition that the economy would be private sector-led. He questioned the role of GLCs as well as the non-transparency process involved in implantation. The considerable PPP proposals also raised concern that it was leading Malaysia backwards to the massive privatization projects of the Mahathir era where bailouts were needed eventually. Mr. Khaw alarmed the forum that only this time we did not have the oil money for anymore bailouts. The PPP schemes also furnished evidence of contradiction to the NEM’s call for no tolerance for patronage or rent seeking, best proposals and value for money and open tenders.

Mr. Khaw then looked at the fiscal deficit, noting that the target of reducing the debt to 2.8% in 2015 was ambitious. He pointed out that the only way to reduce the debt was to reduce expenditure AND increase revenue, neither of which was very prominent in the 10MP. To cut expenditure it was necessary to reduce subsidies, which the government had only committed to reducing it by RM2.5bn, focus on value for money in government spending and cut wastage and leakages. He also stressed the need to streamline or “right-size” the civil service of which there is 1.2million civil servants vis-à-vis 1milion tax payers.

Mr. Khaw then analyzed the government’s commitment to inclusiveness. He observed that the government had made a pledge to elevate the livelihoods of the bottom 40% which included Orang Asli and other minority ethnic groups. However, the reintroduction of the Bumiputera 30% target contradicted the NEM’s call for everything based on merit, competition and need. Thus, the question: how inclusive 10MP can be with this exclusive 30% Bumi target. Again, the quota did not distinguish between rich and poor bumiputera, making it likely that the connected & privileged few instead of the poor bumiputeras would benefit from any affirmative action policies.

Mr. Khaw concluded by saying that only time would tell whether the 10MP was taking Malaysia forwards or backwards. After all, the people would be the best judge and the verdict would come from the results of the 2012/2013 general elections.

Second speaker Dr Lim Teck Ghee painted a more discouraging picture of the 10MP concluding that it would lead to greater inequality with the poor gaining the least beneficiaries from the plan while the political and business elite would continue to be better off.

He began by analyzing Malaysia’s problems finding that the recent financial crisis or the rise of China etc could not be blamed for our problems, but that our problems came from within. He agreed with Mr. Khaw that the NEM was accurate on its examination of Malaysia’s problems but that the government had since distanced itself from it claiming it was the work and position of outside consultants. He pointed out that even UMNO Youth Chief Khairy Jamaluddin had earlier said that ‘the 10MP bumiputera target does not really make sense any more and that it was just there to comfort some people’.

The main problem of Malaysia he declared was the corrupt ‘distributional coalitions’ that are political, bureaucratic, military and even religious which was pointed out by the NEM but not addressed by the 10MP. He used the DPM and cattle trade as evidence of corruption where failed projects had allowed billions to go down the drain.

His verdict was that the 10MP was built on unsustainable targets and failed strategies. It was written with the next election in mind and was based on wishful targets. He predicted that it would need a wholesale revision during the midterm review.

As a result of the 10MP he felt that income disparities would widen, the political and business elite would be able to accumulate greater wealth by increasing subsidies for the rich through PPP, mega projects and bumiputera policies. He felt that the bottom 40% will be worse off and there will be more social injustice.

He concluded that the main parties responsible for the situation Malaysia is in, are UMNO/BN as well as policy makers and implementers in the civil service. Assisting parties were the business elites, professionals and the intelligentsia such as the media and academia.

Third speaker Prof. Dr. Terence Gomez claimed that the 10MP was a continuation of the NEP which is a mistake as affirmative action in the market does not work. He began by agreeing that the NEM, as well as the GTP, were truthful accounts of the state of Malaysia’s economy today and also that the 10MP was not in line with them.

To assess the 10MP, Prof. Gomez said it was important to look at Malaysia’s historical background. He found us to be at a similar crossroads as we were in the 1970s when a new economic model was needed. In 1971 the New Economic Policy was declared. In 2010 the New Economic Model was proposed. He alleged that the 10MP was a continuation of the NEP.

Prof. Gomez then showed how the NEP had continued to affect later policies even after it had finished. In 1981, Prime Minister Mahathir started to push for heavy industrialization and privatization, focusing them on the bumiputera, otherwise such policies would contradict the NEP’s emphasis on more state intervention. In 1990 the NEP stopped but affirmative action continued to permeate later policies.

Prof. Gomez claimed that the 10MP is a continuation of the NEP as the key players in the economy under the 10MP will still be the GLCs. The proposed market friendly affirmative action policy is contradictory. It is an oxymoron. Market friendly means non discriminatory, affirmative action means discriminatory. The only difference is that the 10MP doesn’t use the words affirmative action.

He then went on to show how the 10MP was a repetition of old policies. For example the 10MP says, about privatization, that it will support the champions; those that are most productive. This, Prof. Gomez said, implies the champions are the current bumiputera GLCs and therefore it is a continuation of past affirmative action policies.

Prof. Gomez then went on to say that PM Najib has a dilemma as the government needs private sector led growth but the private sector is unconfident in investing due to state expropriation which means their wealth can be taken away from them, giving them less incentive to invest. This is because of the state expropriation by Dr. Mahathir in 1997 where in response to the Asian Crisis, Dr. Mahathir expropriated wealth from the private sector to the state by consolidating the banks. The private investment target will have to come from the Government, but this will mean the deficit will go on widening.

PM Najib also has a problem in that the bumiputera are still poor despite affirmative action. Not one Malay firm is in the top ten firms in Malaysia. They are mainly GLCs, with some Chinese firms and one Indian firm. He went on to ask, ‘Why the poorest regions in Malaysia are called the bumi heartland? What does that say about affirmative action?’ Affirmative action in South Africa and Fiji, which had copied Malaysia, had not worked either. Affirmative action in the market does not work he stressed.

‘The 10MP says that it will limit patronage, improve transparency, but where is the proof?’, asked Prof. Gomez. The proof is in institutional reforms, where power is taken from the government. But this is not in the 10MP. The only monitoring body in the 10MP is the bumiputera development council where the head is Prime Minister Najib. This is not an independent body.

By implementing affirmative action policies, Dr. Mahathir wanted to follow South Korea where they had channeled funds to family businesses. The difference was that in South Korea, they had the know-how. In Malaysia, the bumiputera businesses did not have the know-how. The bumiputera in Malaysia have not been opened to competition. Fierce competition is why the Chinese have been so successful economically. On resigning, Dr. Mahathir said ‘I should have exposed the Bumiputeras to competition’.

Prof. Gomez continued that in the NEP the emphasis was on education. Education is where affirmative action should be used. But the evidence in Malaysia is to the contrary. Malaysia doesn’t have good institutions for education.

Prof. Gomez, however, said that the most important lesson that can be learnt from the NEP is that affirmative action has a time limit.

Prof. Gomez surmised that Malaysia needs a new economic model as the NEM had no new ideas in it. His conclusion was that ‘we are treading on a path we have gone before’. He did state, however, that not all was bad as Malaysia did have some strength, in particular the highly competent middle class that is well educated and able to invest.

Prof. Gomez’s finishing words were ‘Why will the 10MP not work? Affirmative action in the market economy.’ The 10MP is taking Malaysia backwards.  

The forum finished up with some questions asked by the audience.

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