DURING the roaring 80s and 90s when the economy was a manufacturing powerhouse, Malaysia became a nation of assemblers and this raised incomes, especially for the working class. 

Now, the Pakatan Harapan government wants to bring back that industrial golden age by getting the manufacturing sector to embrace industry 4.0 (IR 4.0) technologies such as artificial intelligence, robotics and big data. 

The reasoning is that a second wave of high-tech manufacturing will create better paying jobs, which will help working class Malaysians deal with cost of living pressures.    

But the head of a local think tank warns that the country’s history of being assemblers will hinder the administrations aim of benefitting fully from IR 4.0. 

If Malaysia continues to be a nation of assemblers, just like how it assembled semi-conductors in the past, it will remain at the lower-end of the manufacturing value chain even with IR4.0, says Ali Salman of the Institute of Democracy and Economic Affairs (Ideas).     

When the added value is small it means less profits for owners and when there are low profits, the number of high-paying jobs will be small, said Ali, who is Ideas CEO.  

Historically, assembly jobs in Malaysian factories are also low-pay, low-skill and are typically filled by foreign labour. 

This will repeat itself even with IR4.0 unless Malaysia transforms the sector from one preoccupied with assembling products to one focused on creating goods, said Ali.  

And to do that, it must get the right talent, either from the Malaysian diasporas in advanced countries, or by bringing in quality foreign talent, he said.  

It’s not just about making the right budgetary allocations to encourage IR 4.0 adoption. It’s also about getting the right talent, said Ali.  

Malaysia has always been more a country known for assembling and putting together other people’s products rather than making their own. This puts Malaysia at the low end of the value chain. 

In comparison, Asian manufacturing powerhouses such as Japan and South Korea eventually moved up the value-chain from being assemblers to being creators of brands such as Sony, Panasonic and Samsung.

High prices but low pay

Unless Malaysia moves up the manufacturing value chain and become creators, the administration’s aim of helping Malaysians deal with rising goods prices will be hampered. 

The administration’s strategy of controlling inflation by expanding the list of goods with capped prices for instance, will negatively impact the economy, he said. 

This option had been floated by Domestic Trade and Consumer Affairs Minister Saifuddin Nasution Ismail in an April interview with The Malaysian Insight. 

Saifuddin said the ministry was gathering data from supermarkets on the top 10 most bought items and was considering whether to add them to the year-round list of price controlled items that currently includes staples such as rice, sugar, flour and cooking oil.  

The problem with this strategy is that it interferes with the dynamics of supply-demand and cost-profit that are part and parcel of the economy, said Ali. 

Once there is a price control of a certain item, producers are no longer interested in investing because they think they cannot make money if the price is controlled, he said. 

Instead of price controls, the government is better off creating more high-paying jobs and allowing prices to increase so that wages increase, he said.

The reason why the majority of blue-collar jobs don’t pay enough is that they are in the low-end services sectors such as food and beverage and retail. 

“About 65% of the labour force works in SMEs (small medium enterprises) and 90% of SMEs are involved in services. And these jobs don’t pay highly.” – June 29, 2019.