How to build economic resilience (part 1)

Lim Chee Han

Ecological damage done in the name of economic development today will have a huge impact in terms of climate change and natural disasters. – The Malaysian Insight file pic, July 11, 2022.

CONTEMPORARY politics has a tendency to be short-termist and populist, often aimed at gaining power in the next general election.

However, many fundamental policy concerns cannot have a quick fix without understanding the complexity of the issues. Patchwork, disjointed and inconsistent policies could have unintended consequences and create new issues.

Voters should challenge the political parties to come up with long-term policies focusing on the future.

One cannot blame the people, who have lost faith in politics, or not turning up to vote. 

Few political parties offer sound solutions to build economic resilience for generations to come. 

Economic resilience should mean sustainable development of the economy and future generations who are productive, adaptive, reasonably self-reliant and satisfied, while economic resources remain abundant and are well managed.

We have to recognise that the resources on this planet are finite. Continued emphasis on GDP growth is simply unsustainable.

Oil and gas and timber mining are some governments’ favourite means of revenue generation. 

Besides, GDP also conceals the equity issue of economic benefits distributed to all layers of society (i.e. wealth inequality), and the negative externalities some projects would bring.

If we are serious about building economic resilience, we need a non-extractive economic model.

Tim Jackson’s “Prosperity without growth” that was published 13 years ago is still relevant to advise the governments today about sustainable development.

However, there are still some useful components in the GDP from the three measurement approaches:

i) Value-added economic activities

ii) Compensation of employees (the labour income component)

iii) Consumption and investment

To build economic resilience, the government has to determine and ensure:

i) Labour force and participation rate, reasonable rates of productivity;

ii) Retain best human resources and talents; and

iii) Proper and prudent investment from public and private sectors, including how to manage resources.

What are the basic assumptions and challenges from the current standpoints?

i) Changing demography

Falling birth and fertility rates mean the country is becoming an ageing one. This will have a big impact on the labour force and social care.

By 2040, the number of people aged 65 and above will triple compared to in 2010; the median age will increase 14.5% to 38.3; and the dependency ratio to 49.5 per 100 working population, which means almost two working adults will have one dependent (child or senior citizen) to care for.

By then we could face the problems Japan faces today: an ageing society means a need for more resources for healthcare and social welfare as well as urban design.

The burden of the shrinking working population is higher, given the dependency ratio. Without prudent planning to adapt to the new realities, there won’t be a happy and harmonious society.

ii) Abundance of our natural resources would be depleted at today’s rate of extraction.

Simply put, what will we leave for future generations if we kill most of the geese that lay the eggs today?

Some said it is a “resource curse” for Malaysia but it doesn’t have to be that way. Look at how Norway manages its resources and invests for the future. Even the UAE has diversified its economy.

More often than not, when governments talk about balancing economic development needs and environmental protection, they tend to overlook the importance of the latter for the people and do not consider the externalities, such as health and social costs.

If developers’ interest are placed ahead of public interest, it will produce many bad plans that reduce economic resilience and liveability.

Is it a wonder that urbanisation is gaining pace in Malaysia and people are migrating to Klang Valley and major cities in search of a living?

Even our abundance of natural resources and biodiversity is no no match for greed in the extractive economy model.

Ecological damage done in the name of economic development today will have a huge impact in terms of climate change and natural disasters.

Deforestation to make way for durian plantation has been blamed for causing the recent floods in Baling. 

Land reclamation and highway construction in Penang and Selangor would have equity issues too; the so-called gain in economic benefits is at the expense of fishermen, farmers and local residents.

What is economic resilience to the local communities if it means losing their livelihoods, health, and safety?

iii) Continuous brain-drain of best local talents, inability to to attract global talents
If the current state of politics and socio-economics persists, young and future generations of Malaysians could lose faith in the country and leave for greener pastures.

Career seekers are facing unequal opportunities and a non-supportive environment. In the era of global movement of talent and capital, patriotism or loyalty to one’s country holds little currency and takes a backseat to aspirations for a better life and personal fulfilment.

Why are there unequal opportunities? To answer that, we have to go back to the policies driven by the politics of race and religion.

Just look at the academics in the public education institutions; can we blame people for leaving when their career ceilings are determined by their skin colour and political leanings?

Some opportunities simply do not exist here due to the limited or insufficient number of skilled workers in Malaysia. The situation does not encourage high value-added and innovative economic activities in Malaysia.

If we do not address the issues of social equity and fairness at the overarching policy level; if we do not stem the trends of the declining standards or failure in education systems at producing skilled and creative talents; if we do not take care of our environment and the country a better place to live – without the fear of natural disaster backlashes, with good public infrastructure such as public transport and housing support; how do we expect to hold on to our talents and expect them to contribute to our economy?

In short, losing a significant number of human talents in the form of brain-drain is no-brainer to building economic resilience in Malaysia.

In addition, the current education policies seem to focus too much on tertiary education and academic credentials, while many economic activities actually need more skilled labour.

There is a great mismatch here, as manifested in some evidence, analysis reports and articles are out that indicate that this is the situation in Malaysia now, and so for the past decade.

If our education system still does not put enough attention and emphasis on technical and soft skills training, this will continue to bite us.

In fact, this could be one principal reason why we are still reliant heavily on foreign labour.

Paradoxically, some Malaysians are willing to do the same hard labour work in Singapore, but are not happy to do this here in Malaysia. Why? The pay has been effectively suppressed by the foreign labour policy.

Also, Malaysia has one of the lowest compensation of employees’ proportion in the GDP in the region, with only 35.9% of the national GDP went to labour income in 2019, which is seriously low.

Something is wrong with the capitalist system here in Malaysia, because even Singapore can do 5% better in GDP for the workers’ share.

In my next article, I will propose policy suggestions for building economic resilience in Malaysia, and deal with the issues discussed above. – July 11, 2022.

* Lim Chee Han is a founding member of Agora Society and a policy researcher. He holds a PhD in infection biology from Hannover Medical School, Germany, and an MSc in immunology and BSc in biotechnology from Imperial College London. Health and socioeconomic policies are his concerns. He believes a nation can advance significantly if policymaking and research are taken seriously.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.

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