Trump’s Most Worrisome Legacy

April 13, 2019

Apr 9, 2019

The US president’s attacks on America’s truth-seeking institutions jeopardize its continued prosperity and very ability to function as a democracy. As corporate giants capture the institutions that are supposed to protect ordinary citizens, a dystopia once imagined only by science fiction writers is emerging before our eyes.

NEW YORK – Kirstjen Nielsen’s forced resignation as US Secretary of Homeland Security is no reason to celebrate. Yes, she presided over the forced separation of families at the US border, notoriously housing young children in wire cages. But Nielsen’s departure is not likely to bring any improvement, as President Donald Trump wants to replace her with someone who will carry out his anti-immigrant policies even more ruthlessly.

Trump’s immigration policies are appalling in almost every aspect. And yet they may not be the worst feature of his administration. Indeed, identifying its foulest aspects has become a popular American parlor game. Yes, he has called immigrants criminals, rapists, and animals. But what about his deep misogyny or his boundless vulgarity and cruelty? Or his winking support of white supremacists? Or his withdrawal from the Paris climate accord, the Iran nuclear deal, and the Intermediate-Range Nuclear Forces Treaty? And, of course, there is his war on the environment, on health care, and on the rules-based international system.

This morbid game never ends, of course, because new contenders for the title emerge almost daily. Trump is a disrupting personality, and after he’s gone, we may well reflect on how such a deranged and morally challenged person could have been elected president of the world’s most powerful country in the first place.

But what concerns me most is Trump’s disruption of the institutions that are necessary for the functioning of society. Trump’s “MAGA” (Make America Great Again) agenda is, of course, not about restoring the moral leadership of the United States. It embodies and celebrates unbridled selfishness and self-absorption. MAGA is about economics. But that forces us to ask: what is the basis of America’s wealth?

Adam Smith tried to provide an answer in his classic 1776 book The Wealth of Nations. For centuries, Smith noted, standards of living had been stagnant; then, toward the end of the eighteenth century, incomes start to soar. WhySmith himself was a leading light of the great intellectual movement known as the Scottish Enlightenment. The questioning of established authority that followed the earlier Reformation in Europe forced society to ask: How do we know the truth? How can we learn about the world around us? And how can and should we organize our society?From the search for answers to these questions arose a new epistemology, based on the empiricism and skepticism of science, which came to prevail over the forces of religion, tradition, and superstition. Over time, universities and other research institutions were established to help us judge truth and discover the nature of our world. Much of what we take for granted today – from electricity, transistors, and computers to lasers, modern medicine, and smartphones – is the result of this new disposition, undergirded by basic scientific research (most of it financed by government).

The absence of royal or ecclesiastical authority to dictate how society should be organized to ensure that things worked out well, or as well as they could, meant that society had to figure it out for itself. But devising the institutions that would ensure society’s wellbeing was a more complicated matter than discovering the truths of nature. In general, one couldn’t conduct controlled experiments.

A close study of past experience could, however, be informative. One had to rely on reasoning and discourse – recognizing that no individual had a monopoly on our understandings of social organization. Out of this process emerged an appreciation that governance institutions based on the rule of law, due process, and checks and balances, and supported by foundational values like individual liberty and justice for all, are more likely to produce good and fair decisions. These institutions may not be perfect, but they have been designed so that it is more likely that flaws will be uncovered and eventually corrected.

That process of experimentation, learning, and adaptation, however, requires a commitment to ascertaining the truth. Americans owe much of their economic success to a rich set of truth-telling, truth-discovering, and truth-verifying institutions. Central among them are freedom of expression and independent media. Like all people, journalists are fallible; but, as part of a robust system of checks and balances on those in positions of power, they have traditionally provided an essential public good.Since Smith’s day, it has been shown that a nation’s wealth depends on the creativity and productivity of its people, which can be advanced only by embracing the spirit of scientific discovery and technological innovation. And it depends on steady improvements in social, political, and economic organization, discovered through reasoned public discourse.

The attack by Trump and his administration on every one of the pillars of American society – and his especially aggressive vilification of the country’s truth-seeking institutions – jeopardizes its continued prosperity and very ability to function as a democracy. Nor do there appear to be checks on corporate giants’ efforts to capture the institutions – the courts, legislatures, regulatory agencies, and major media outlets – that are supposed to prevent them from exploiting workers and consumers. A dystopia previously imagined only by science fiction writers is emerging before our eyes. It should give us chills to think of who “wins” in this world, and who or what we might become, just in the struggle to survive.

 

Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute. His latest book, People, Power, and Profits: Progressive Capitalism for an Age of Discontent, will be published in April.

Liberalisation and empowerment the path to Malaysian prosperity

March 25, 2010

25 March 2019

Author: Editorial Board, ANU

Hard road to Malaysian prosperity

It’s nearly a year since the Malaysian people overwhelmingly cast aside the domineering, divisive and corruption-riddled government of Najib Razak for an alternative led by Mohamad Mahathir that promised renewed focus on the people’s interests. The new Pakatan Harapan government undertook to restore good governance, raise the bar for ministers and civil servants, recover embezzled funds and deliver them back to Malaysians as cost of living relief.

Translating rhetoric into action has thus far proven an uphill battle for an inexperienced government accustomed to life in opposition. It’s struggling to turn the vision into concrete reforms, as it tries to navigate a hostile upper house and entrenched vested interests. Progress has been confined to a handful of easy wins and the multiplication of committees to continue decades-old debates about well-understood policy failings. Malaysians are becoming restless for the government to deliver on the promise of a ‘New Malaysia’ that secures livings standards regardless of ethnicity.

Efforts to deconcentrate centralised power structures and break up state monopolies are central to reinvigorating the economy. This will enable more effective governance and help tackle endemic corruption. Malaysia’s Federal Government commands over 88 per cent of total government revenue and expenditure (the share is closer to 50 per cent in federations like Australia and the United States), leaving almost 170 states and local authorities with limited resources to address local needs. Imperious policymaking from the administrative capital of Putrajaya coupled with non-elected local governments bedevil the effective delivery of local services including law enforcement, education and healthcare.

This week’s lead article by Wing Thye Woo argues that ‘[g]rowth requires state governments that are empowered to plan and implement their own development strategies’. This would require a significant shift from the highly political allocation of development finance that penalised opposition-led states under the former government.

Government-linked corporations (GLCs) dominate the Malaysian economy and that needs to change. GLCs command a majority share of market capitalisation and key sectors of the economy including natural resources, utilities, construction and finance. Policies that reinforce GLC dominance stifle innovative and dynamic small and medium enterprises and competitiveness.

As Woo says, ‘GLCs may perform well in theory, but they don’t in practice — officials inevitably use them for political patronage and personal corruption. GLCs are political creatures, not economic instruments … Downsizing the state-related sector through privatisation is necessary for economic efficiency, political accountability and income equality’.

The government has acknowledged the problem but has been tentative in its approach to this critical reform. Its first substantive policy announcements and budget provided a major setback, reinforcing the role of GLCs in ethnic Malay development strategies and increasing government dependence on GLC dividends. It’s unclear whether the government now has the clout and political fortitude to pursue a privatisation and competition agenda.

Decentralisation is more than just government ownership and power-sharing; it encompasses a shift in the mentality of government from one underpinned by heavy-handed direction to one of empowerment. This requires the creation of institutional and regulatory environments that empower people to shape the policies that affect them, private business and entrepreneurship to fuel the engine room of economic growth, and all levels of government to deliver an enabling environment in which private actors flourish.

Empowerment means replacing ethnic discrimination with inclusive approaches to policy making, lifting up all low-income households. It means constructing a tax and transfer system that reduces rather than perpetuates inequality and cost of living pressures, positively reshaping the social contract between taxpayers and government. And it requires liberating the education system from the mechanistic, dictatorial, one-size-fits-all approach that has prioritised a one-eyed conception of nation-building over the development of inquisitive and adaptable minds.

Effective governance starts with a recognition that meaningful reforms may not please everyone but if done well can benefit all. It requires the strength of conviction to stay the course in the face of interest group pressures, avoiding discouraging U-turns like abandoning intentions to sign the United Nations International Convention on the Elimination of All Forms of Racial Discrimination. It entails more than a solitary sugar tax to raise funds for development and social welfare when the tax revenue share of GDP is a third of the OECD average. And it requires delivering substantive reforms to education in the light (or in spite) of next month’s special task force report.

The government’s recent by-election defeat in Semenyih provides a wake-up call that its support among middle-class Malaysians depends on improving its performance not on disparaging its predecessor. That means harnessing the electorate’s heightened expectations towards charting a more prosperous course for the economy, governance and for the Malaysian people.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

 

Decentralisation the best bet for Malaysia’s growth

24 March 2019

Author: by Dr. Wing Thye Woo, Sunway University

Malaysia’s burgeoning middle class has high expectations for future economic development. But the nation won’t escape the ‘middle-income trap’ and won’t have socially-inclusive growth under current government policies. A range of reforms that deliver decentralised decision-making is needed to build the knowledge-led economy to propel Malaysia to the next level of development.

Malaysia’s current policy framework has its roots in the 1970 New Economic Policy (NEP) and its socio-political counterpart ‘Ketuanan Melayu’ (Supremacy of Malays). NEP has succeeded in building a large Malay middle class that is informed, skilled and confident about its identity. But it’s also well aware that these two policies rooted in the past are not capable of transforming Malaysia into a developed nation.

To meet these aspirations, reform is urgently needed in three key economic areas. Each area requires a common reform component: the careful entrenchment of decentralised decision-making.

First, the state’s administrative structure inhibits innovative policymaking and prevents effective oversight. The federal government is much larger and more cumbersome than state governments and has disproportionate power.

Contrasting budgets and spending power reveal the imbalance between federal and state governments. The federal government has legal authority to impose income and sales taxes. But state governments must rely on land-related transactions and fees on small-ticket items like hawker licenses for independent revenue. The provision of most public services is done through branches of federal ministries operating at the state level.

State expenditure is determined by fiscal allocations from the federal government to state governments, and the amounts allocated depend on political considerations. Under the former Barisan Nasional (BN) government, opposition-controlled states received budgetary allocations that were proportionately much smaller than BN-controlled states. State governments are banned from borrowing to finance development projects, and that means they are unable to raise revenue to build the infrastructure needed to clear production bottlenecks in local industries.

Growth requires state governments that are empowered to plan and implement their own development strategies. Effective decentralisation requires each state government to have its own civil service. States will also need much larger shares of tax revenue, based on factors like developmental stage and tax revenue contribution. They should also be allowed to borrow to finance local infrastructure projects — with the commitment that there will be no federal bailouts — and be invested with significant responsibilities that are currently held by federal ministries.

The second key task is reforming government-linked corporations (GLCs). GLCs are crowding out the private sector, reducing economic dynamism. They also enable corruption that increases income inequality.

GLCs may perform well in theory, but they don’t in practice — officials inevitably use them for political patronage and personal corruption. GLCs are political creatures, not economic instruments.

Competition between GLCs and private firms is intrinsically unfair and harmful for overall growth. No matter how inefficient GLCs are, they can always count on government bailouts. They undermine economic dynamism by buying up their more efficient private competitors. Worse still, they prevent the development of a dynamic Malay business community by pulling capable Malays entrepreneurs away from starting private businesses and into cosy, life-long GLC jobs.

Downsizing the state-related sector through privatisation is necessary for economic efficiency, political accountability and income equality. The only two considerations in choosing buyers should be the size of the bid and the promotion of industry competition. A well-prepared and transparent privatisation process is more important than a speedy one.

The third key economic reform task is diversifying and expanding the banking system. The financial sector’s monopoly structure damages economic performance and worsens income inequality by suppressing the operations of small and medium-sized enterprises (SMEs).

The 1997 Asian financial crisis convinced the Malaysian government that the banking system would be less prone to crisis if regulators could more easily monitor them. The result was the forced consolidation of smaller banks into 10 big banks in 2000.

This action made state investment companies the controlling shareholders in most commercial banks, effectively creating a state-owned banking monopoly. These banks are slow in adopting better payment practices and providing new financial products, shoddy in their treatment of small retail customers, and biased in lending towards GLCs. The small number of banks and the extent of state control in the largest banks are to blame.

One serious defect of the bank consolidation was that Malaysian SMEs began experiencing difficulties in getting capital from the large banks, replicating the international experience that SME financing comes mostly from small and medium-sized banks. In response, the Malaysian government established the state-owned SME Bank in 2005. But the SME Bank is not meeting the sector’s capital needs. It also has the highest non-performing loan ratio in the banking industry. The slow growth of the SME sector means new Malay bus­­­inesses are not emerging and the distribution of income is worsening.

Reforming the banking sector will mean allowing private small and medium-sized banks to exist again, reducing the government’s bank share holdings, and removing restrictions on foreign banks and their activities.

The NEP is essentially ‘Ketuanan Centralisation’ (Supremacy of Centralisation) in the economic sphere, manifesting as ‘Ketuanan Federal Government’ in governance, ‘Ketuanan GLC’ in production, and ‘Ketuanan Monopoly Bank’ in finance.

NEP cannot mobilise the entire brain-power of Malaysia for knowledge-creation because it prevents entrenchment of excellence in socio-economic institutions, and induces brain drain and capital flight. For Malaysia to escape the middle-income trap, ‘Ketuanan Centralisation’ must be purged from the public policy framework to make way for knowledge-led growth.

Wing Thye Woo is President of the Jeffrey Cheah Institute on Southeast Asia and Director of the Jeffrey Sachs Center on Sustainable Development at Sunway University and Professor of Economics at the University of California at Davis; he holds adjunct academic positions at Fudan University and Chinese Academy of Social Sciences.

 

 

Daim’s appraisal of our academics

March 23 ,2019

 March 22, 2019 7:26 AM

by Tajuddin  Rasdi

https://www.freemalaysiatoday.com/

Daim Zainuddin recently made two important points in his speech at Universiti Teknologi Malaysia in Skudai.

Firstly, he said the Malays are being fed a narrative bordering on the idea that their race and Islam are both under threat, and that more affirmative policies will be needed in the new Pakatan Harapan government in the coming years and decades.

Secondly, and this is the main point of my article, he said Malay academics appear to be doing nothing at all but are letting this narrative play out to the opportunism of certain political parties and selfish NGOs.

I have been writing to the media for 20 years, saying absolutely the same thing, but it has earned me a negative perception from the Malay establishment especially in the public universities and even the previous higher education ministry.

Daim’s statement came as a sweet surprise to me as he was never one of my favourite politicians.

I know him as a savvy businessman who grew up within the Malay patronage system. As the economic and corporate worlds are outside of my understanding, I have shied away from trying to know anything about the man himself.

But a few days ago, I was surprised to find him articulating a historical, religious and political construct of what I consider a “Malaysia-Malay construct” as opposed to what I term a “Melayu-Malaysia” one.

A Malaysia-Malay construct is simply a Malay who understands his or her own heritage and faith within a Malaysian constitutional, multi-religious and multi-ethnic acceptance of co-existence, while a Melayu-Malaysia construct is a Malay who is just a Malay, then, now and forever, living in a land geopolitically defined as “Malaysia”. No compromise, no apologies.

The Melayu-Malaysia expects others to change for the sake of his race and faith, without the need to understand, tolerate or even acknowledge the importance of the existence of others as partners in nation-building.

The academics of this country have become purely self-serving and disinterested in nation-building.

The story of a disinterested academia began in the 1980s.

The Universities and University Colleges Act, or UUCA, was instituted to kill off or control student political activities and also that of the academics.

Under UUCA, no academic can speak or write to the media or the public without getting permission from the authorities. That basically sums it up.

A few academics were charged under the act, one of them the late Fadzil Noor who was the PAS president and an academic at a public university.

The involvement of the academia in nation-building basically died. With this law, the culture of academia turned inwards to a concentration on teaching until the idea of “world class” and being “internationally recognised” in rankings came into being in the late 1990s.

With this new mantra, academics are said to be successful if they publish in “high impact” or Scopus journals and receive million ringgit grants.

It would also sweeten the deal if an MoU were signed with European or American or Western universities deemed to be “world class” and “international”. Whether such ties would produce a culture of research and inquiry was disregarded as long as universities “dapat nama”, and a minister was there to observe the deals being signed. That’s it.

After the turn of the 21st century, public universities went full blast on rankings by journals with overseas publications. Locally published books, encyclopaedias and journals were regarded as third rate.

In the old days, books and media writings commanded a high percentage and weightage but now there is hardly a column to put them in on an evaluation or KPI form.

Once, I had to put my books, articles and 200 encyclopaedia entries in a column marked “other publications”.

I used to read Aliran, whose writers are academics from universities in the north. I found their writings to be fresh, bold and highly academic.

After 10 years, I noticed their designation was still “associate professor” and wondered when these people would be called “professor”.

I soon found out that they had migrated to the National University of Singapore. There is no future in Malaysia for “public intellectuals”.

I was lucky enough to be appointed a full professor before all the crazy journal hype began to take place in universities. I managed to squeeze by with my books, papers and other writings after attending the professor interview twice.

As my writings increasingly touched on society and the nation, my appointments at committees on the national level became fewer and fewer.

I no longer got invitations to public talks from universities, because I was told that I am “controversial” in the corridors of the chancellery.

So the only appointment letters from public universities that came to me were to be an examiner for PhD candidates and evaluator of professorships and associate professorships in architecture.

The coup de grace came after I went on optional retirement, leaving after 27 years of teaching and writing at a public university, exiting the campus alone and uncelebrated.

My application as contract professor to two public universities was rejected on grounds of me being “controversial”.

I have mentioned that the key to our future is the reeducation process of the Malay mind by Malay academics who understand that Islam is strong only if you read and understand, and not sit in front of the TV or the mosque podium listening to an ustaz giving his half-baked ideas of religion and society.

The fate of our country hinges on academics changing the narratives of what is important for Malaysians in the coming decades and centuries, to be in line with the goals of sustainable development outlined by the United Nations.

We won’t go very far listening to Friday sermons condemning progressive thinkers or LGBT that may have caused Allah to turn the hot weather on us.

Forget about STEM education if academics do not speak about it.

We are facing a Malay-Muslim society that has grown up with the Islamic resurgence of the 1980s with most Malays conscious about the afterlife and religious values for their children and society.

The International Islamic University Malaysia as well as Istac and Ikim were supposed to guide the Malays into a new era of modern and democratic understanding of Islam vis-a-vis nation-building and coexistence.

But where were these academics when two muftis encouraged the use of “kafir” on non-Muslim citizens, or when calls for “jihad” against the enemies of Islam came from the national mosque?

Daim’s speech must give pause to all the vice-chancellors of public universities to rethink their KPI for academics.

We need more public intellectuals to reform and rewrite the narratives of the nation, to bring social and religious harmony and sustainable wealth to the country.

We don’t need “high impact” journals to measure our success.

Just ask the man on the street whether he should vaccinate his children or whether the world is flat or defending minority groups would start a tsunami somewhere.

The views expressed are those of the author and do not necessarily reflect those of FMT.

 

Mourning the Passing of Economist Alan Kruger

March 20, 2019

Normally this newsletter would be concerned with events in the wider world. But right now I just have to write about the shocking death — reportedly by suicide — of my former Princeton colleague, the economist Alan Krueger, at the age of 58.

I thought I knew Alan reasonably well and never saw a hint that something like this might be coming. But people’s lives often feel very different from the inside than they look on the outside.

What I can talk about is Alan’s work and why it mattered so much to other economists, myself very much included. For his research arguably did more to change how we view the economy than that of any other modern economist.

Alan’s most influential, paradigm-shifting work was his 1992 study with David Card on the effects of minimum-wage increases.

Before Card and Krueger, most economists just assumed that raising the minimum wage leads to lower employment. But Card and Krueger realized that this was a proposition you can test. Their initial study compared employment in New Jersey and Pennsylvania before and after New Jersey raised its minimum wage. And they found no adverse effect on employment — if anything, a small rise in New Jersey relative to its neighbor.

His study opened a new frontier in economic research. Economics is always bedeviled by the lack of controlled experiments; there are so many things going on in the economy that it’s hard to tell what’s causing what. But unilateral state wage hikes amount to natural experiments that tell you far more than standard economic methods.

Furthermore, this was a method that could be replicated many times, and has been over the years, right up to the recent round of minimum wage increases in a number of cities. And the preponderance of the results have confirmed Card and Krueger’s initial finding: raising minimum wages has far less negative impact on jobs than standard economics would have predicted.

This has implications that go far beyond minimum wages themselves. What Card, Krueger and the research that follows tell us is that labor markets are a lot more complicated than we thought, that market power matters a lot and that there may be much more room for public policy to raise wages in general than Econ 101 would have it.

This paper alone would secure Alan Krueger’s reputation as one of the greatest labor economists ever. But he did far more, on everything from growth and the environment to the effects of computers on wages — and he was a public servant too. He will be sorely missed.

 

 

Does GDP truly reflect a nation’s progress?

 

March 18,2019

Opinion  |

by Lim Su Lin

Published: 17 Mar 2019, 6:37 am  |  Modified: 17 Mar 2019, 6:37 am

 

COMMENT | In the eyes of the world today, Malaysia is seen as a relatively affluent upper-middle income nation.

According to World Bank projections, we are expected to reach the high-income threshold sometime between 2020 and 2024.

Our economy has transformed impressively since post-Independence. From a primary resource-based, agriculture-dominant settings, Malaysia experienced industrial ‘boom and growth’ in the 1970s.

The heyday lasted roughly 30 years, followed by a gradual tapering of export-oriented industrialisation, and the tandem rise of the services sector, at the turn of the century.

Today, Malaysia’s economy continues to transform and advance, in the wake of digitalisation and accelerated technology adoption rates.

One of the ways that economists, politicians and top-level decision-makers measure our country’s progress is by referring to key national economic indicators, such as Gross Domestic Product (GDP).

Seen through the lens of GDP, Malaysia’s development story in the past decade has been one of steady progress, and encouraging year-on-year growth, as seen in the chart below.

While these are indeed comforting figures, has this economic progress also brought about improvements in other dimensions of our society? To what extent does GDP tell us the full story of socio-economic development?

A limited proxy of human well-being

To answer this question, we first need to ask ourselves if GDP is an accurate proxy for human well-being and quality of life. The brief answer to that is, not really.

GDP is typically measured by adding the following:

• a nation’s personal consumption expenditure (households’ payments for goods and services);
• government expenditures (public spending on the provision of goods and services, infrastructure, debt payments, etc.);
• net exports (the value of a country’s exports minus the value of imports); and
• net capital formation (the increase in value of a nation’s total stock of monetised capital goods).

In other words, it is a very specific tool designed for the particular purpose of measuring the flow of goods and services produced within the market, and which are publicly traded for money.

The US Bureau of Economic Analysis describes the purpose of measuring GDP as being to answer questions such as:

• how fast is the economy growing;
• what is the pattern of spending on goods and services;
• what percent of increase in production is due to inflation; and
• how much of income produced is being used for consumption, as opposed to investment or savings.

Today, many – though not all – governments continue to treat GDP not only as a measure of national economic activity, but also as if it were the default indicator of how well its people are faring.

However, this is a short-sighted view.

On the one hand, it might be true that increased economic activity spurs creation of more jobs, providing income for people to access basic necessities such as food, clothing and housing, and, over time, opportunities to accumulate capital and so enjoy more material comforts.

However, it is also important to recognise that human welfare is not exclusively based on material well-being.

Past a certain level, well-being and happiness is also determined by other social and environmental factors and activities, such as volunteer work, social capital formation within families, the costs of crime and depletion of natural resources.

These are all important indicators of economic welfare, societal well-being and quality of life, yet are entirely excluded from GDP measurements.

GDP conceals inequality

Another major weakness of using GDP as a measure of progress is that it measures how much economic activity there is, but not necessarily who might be benefitting from this economic activity.

The graph above depicts national trends in Malaysian household incomes, ranging over roughly the past two decades, sourced from the Department of Statistics (The figures shown are absolute, i.e. before adjusting for inflation.)

From 1997 to 2016, the figures show that top 20 percent earners (T20) saw their average household incomes rise from about RM8,000 to RM17,000, while income for the middle 40 percent (M40) increased at a slower pace, only from around RM3,000 to RM7,000.

What should be of greatest concern is that, compared to both these groups, the bottom 40 percent (B40) households experienced extremely lagging income growth, increasing from RM1,000 to a mere RM3,000 over two decades.

Comparing income differences at both start and end points, T20 and M40 households were initially separated by an absolute earnings gap of RM6,000 in 1997, increasing to RM11,000 in 2016.

Meanwhile, the original gap between T20 and B40 was RM8,000, and this stretched to RM15,000 in 2016.

In other words, the absolute earnings gap between the top 20 percent earners, versus the middle and bottom 40 percent households, have almost doubled in the past two decades.

The staggering, and ever-increasing, gap between richer and poorer households tells us this: although rising GDP figures may tell a shining story of economic growth and progress, not everyone is benefitting from this growth.

Closer to reality is that scores of individuals and families have been left behind in the development story. These are Malaysians, who still lack the economic wherewithal to meet their basic living needs, let alone enjoy a good quality of life.

Disguised poverty

Talking about inequality brings us to confront poverty, another major issue that has largely been disguised in national indicators and statistics.

The graph above shows official poverty counts sourced from the Department of Statistics, and trends in the reduction of poverty over the years.

One glance at these figures, and it would seem as if there is almost no poverty left in Malaysia!

According to the data, the official poverty rate has fallen from nearly 50 percent in 1970 to just 0.4 percent in 2016 (the latest year available). This supposedly amounts to one of the lowest poverty rates in the region.

Yet, relative poverty (defined as earning less than 60 percent of the median income) has risen by more than 50 percent, to three million households since 1995, based on a 2018 Khazanah Research Institute report on the state of Malaysian households.

According to the same report, 40 percent of 7.5 million households nationwide are still considered relatively poor, pointing to a starkly different reality from the rosy picture of virtual poverty eradication depicted in official figures.

Poverty line set too low

One important reason for this discrepancy lies in the limitations of the Poverty Line Index (PLI), the official indicator used to measure poverty in Malaysia.

In simple terms, PLI is an income-based index which calculates the minimum monthly income requirements of households to fulfil basic survival needs, such as food, clothing, shelter and transport.

These calculations are used to determine a cut-off threshold for poverty.

The problem with measuring poverty using this ‘cost of basic needs’ approach is that it sets the bar at an extremely low threshold, and computes income needed to fulfil only the barest minimum of necessities, instead of realistically representing the standards of what an average family would need to survive.

Currently, Malaysia’s national PLI is set at RM920 per household per month, or a little over RM7 per person per day, at average household size.

Considering the high level of living costs, not to mention the diversity of needs and demographics of households across states and regions, RM920 clearly is far from what most Malaysian families would realistically need to thrive and live decently, let alone survive.

In the government’s Household Income Surveys, PLI is further broken down into regional categories: for Peninsular Malaysia, the cut off is RM 960, whereas for Sabah, it is RM 1,180 and Sarawak, RM 1,020. But even this threshold is too low.

In comparison, Japan defines poverty as being the income of a household at or below half of the median household income. This method of estimating poverty “relatively” is the same as that used in the UK and most other OECD (Organisation for Economic Co-operation and Development) nations.

Though still not a perfect definition, it is a far more meaningful interpretation compared to an absolute poverty line that is severely out of touch with current needs.

Key takeaways

To sum up, it is important to question indicators and “grand” statistics that are commonly bandied in Malaysia’s economic debates, and understand what they truly represent.

With the GDP example, it is important to remember that economic indicators may measure the size of a country’s economic activity, but not necessarily capture the true state of economic welfare, or society’s quality of life.

On the other hand, certain other indicators, like poverty rates and the PLI, might be better “barometers” of societal wellbeing.

Yet, as argued above, the current dimensions of measuring poverty in Malaysia do not translate to a meaningful index. Rather, what it does is hide the true extent of poverty in our country.

Often times, the power of simple, easy-to-grasp figures can mask the presence of critical issues that are setbacks to human-centred development and well-being: chronic income inequality among different households for instance, or lingering impoverished and vulnerable communities.

These matters require critical attention from the authorities and those involved in steering policy decisions.

There needs to be more criticism of how certain measures and indicators have been popularised as proxies for national progress, and collective effort to develop better measures, hand-in-hand with a strong and sustained reform process.

If we can collectively accept that the overall goal of an economy is to sustainably improve human well-being and quality of life, then we will not be satisfied with maintaining the status quo.

Instead, we will make it a priority to unmask the realities that have been shoved under the carpet, and push for necessary changes, so that there will be more equally balanced development, and a better future for all citizens of this country.

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LIM SU LIN is a policy analyst with the Penang Institute. A History graduate from Cambridge University, her research interests lie primarily in promoting good mental health as a criterion for public policy, and to carry out research into the social, economic and cultural factors that help to enhance mental well-being and support recovery from mental distress.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

The Case for a Bold Economics

March 12,2019

Mar 11, 2019 

by Dani Rodrik

Although economists are well positioned to imagine new institutional arrangements, their habit of thinking at the margin and sticking close to the evidence at hand encourages an aversion to radical change. But, when presented with new challenges, economists must envision new solutions – as a new group is determined to do.

https://www.project-syndicate.org/commentary/bold-evidence-based-economics-by-dani-rodrik-2019-03

 

CAMBRIDGE – At the end of 1933, John Maynard Keynes sent a remarkable public letter to US President Franklin Delano Roosevelt. FDR had taken office earlier that year, in the midst of an economic slump that had pushed a quarter of the labor force into unemployment. He had launched his ambitious New Deal policies, including public works programs, farm subsidies, financial regulation, and labor reforms. He had also taken the US off the gold standard to give domestic monetary policy freer rein.

Keynes approved of the general direction of these policies, but also had some sharp criticism. He worried that FDR complicated the economic recovery effort by broadening his policy agenda unnecessarily. FDR was doing too little to increase aggregate demand and too much to change the rules of the economy. Keynes took particular aim at the National Industrial Recovery Act, which, among other things, greatly expanded labor rights and fostered independent unions. He fretted that the NIRA would sap business confidence and weigh on the federal bureaucracy, without making a direct contribution to recovery. He wondered whether some of the advice FDR was getting “is not crack-brained and queer.”

Keynes did not think much of FDR’s economics, but at least he was a sympathetic critic. Because much of the New Deal ran against the prevailing economic orthodoxy, FDR’s policies had little support from leading economists of the day. For example, as Sebastián Edwards explains in his fascinating recent book American Default, the predominant view among economists was that breaking the dollar’s link with gold would create havoc and uncertainty. The only bona fide economist in FDR’s “brain trust” was Rexford Tugwell, a little-known 41-year old Columbia professor who did not even teach graduate students.

Will economists prove more helpful today, at a time when the challenges we face are nearly as pressing as those during the Great Depression? Unemployment may not be a severe problem in most advanced countries currently, but large segments of the labor force seem cut off from economic progress. Record levels of inequality and poor earnings prospects for younger, less educated workers are eroding the foundations of liberal democracies. The rules that underpin globalization are badly in need of reform. And climate change continues to pose an existential threat.

These problems demand bold responses. Yet, for the most part, mainstream economists seem preoccupied with marginal fixes – a tax-code tweak here, a carbon tax there, perhaps a sprinkling of wage subsidies – that leave untouched the structures of power underwriting the rules of the economic game.

Economists can rise to the challenge by adopting a broader vision. Last month, I joined a group of prominent economists to launch an initiative that we have called “Economics for Inclusive Prosperity” (EfIP). From labor markets and finance to innovation policies and electoral rules, the goal is to advance ambitious policy ideas that pay much closer attention to inequality and exclusion – and to the power imbalances that produce them.

As Suresh Naidu, Gabriel Zucman, and I explain in our “manifesto,” neither sound economics nor convincing evidence support many of the dominant policy ideas of the last few decades. What has come to be called “neoliberalism” is in many ways a derogation of mainstream economics. And contemporary economic research, appropriately deployed, is in fact fully conducive to new ideas for creating a fairer society. Economics can be an ally of inclusive prosperity. But it is up to us economists to convince our audience of the merits of these claims.

Our network is made up of academic economists who believe new ideas can be developed without abandoning scientific rigor. The catchphrase of our day is “evidence-based policy.” Accordingly, our policy briefs are based on empirical analysis, using tools of mainstream economics. But, for us, an “evidence-based” approach is not one that reinforces a conservative bias in favor of policies at the margins of existing institutional arrangements; it is one that encourages experimentation. After all, how can we develop new evidence without trying something new?

Markets rely on a wide range of institutions to create, regulate, and stabilize them. These institutions do not come with predetermined forms. Property and contracts – the most elementary institutions required to make markets work – are legal constructs that can be designed in any number of ways. As we grapple with new realities created by technological innovation and climate change, questions about the allocation of property rights among different claimants become crucial. Economics does not provide definite answers here, but it supplies the tools needed to identify the relevant tradeoffs.

A common theme running through our initial set of policy proposals is the power asymmetries that shape the functioning of the contemporary global economy. Many economists dismiss the role of such asymmetries because there is little scope for power under conditions of perfect competition and perfect information. But in the real world that we examine, power asymmetries abound.

Who has the upper hand in bargaining for wages and employment benefits? Who dominates markets and who must submit to market forces? Who can move across borders and who is stuck at home? Who can evade taxation and who cannot? Who gets to set the agenda of trade negotiations and who is excluded? Who can vote and who is effectively disenfranchised? We argue that addressing such asymmetries makes sense not only from a distributional standpoint, but also for improving overall economic performance. Economists have a powerful theoretical apparatus that allows them to think about such matters.

Although economists are well positioned to develop institutional arrangements that go beyond what already exists, their habit of thinking at the margin and sticking close to the evidence at hand encourages an aversion to radical change. But, when presented with new challenges, economists must envision new solutions. Imagination is crucial. Not everything we try will succeed; but if we do not rediscover the value of FDR’s credo – “bold, persistent experimentation” – we will certainly fail.

Dani Rodrik

Dani Rodrik is Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government. He is the author of The Globalization Paradox: Democracy and the Future of the World Economy, Economics Rules: The Rights and Wrongs of the Dismal Science, and, most recently, Straight Talk on Trade: Ideas for a Sane World Economy.

 

• Godfree Roberts  Mar 11, 2019

  The author is implicitly calling for government planning–or at least for coordination–which is unlikely to happen in the near future, so powerful is the grip of neoliberal fundamentalism on our economic departments.

  But that’s only one obstacle. The other is national disunity: Western polities are fractured along moral lines, which makes planning and coordination almost impossible for, as Keynes himself observed, “Planning should take place in a community in which as many people as possible, both leaders and followers, wholly share your own moral position. Moderate planning will be safe if those carrying it out are rightly orientated in their minds and hearts to the moral issue”.

  China is morally united around its 2021 goal of a society in which everyone will have a home, a job, plenty of food, education, safe streets, health and old age care.  500,000,000 urban Chinese will have more net worth and disposable income than the average American, their mothers and infants will be less likely to die in childbirth, their children will graduate from high school three years ahead of–and outlive–American kids.

  By then, we should note, there will be more drug addicts, suicides and executions, more homeless, poor, hungry and imprisoned people in America than in China.

  That’s what moral unity can accomplish.

   

• Faruk Timuroglu  Mar 11, 2019

  These brave and renowned economists Dani Rodrik, Suresh Naidu and Gabriel Zucman are taking side with inclusive prosperity rather than with whom has the upper hand but power isn’t on their side. To achieve their goal they need an FDR , perhaps!

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• krempep @yahoo.com  Mar 11, 2019

  There is a premise that all information is available equally to allow markets to function most efficiently. ‘Who has the upper hand in bargaining for wages and employment benefits? Who dominates markets and who must submit to market forces? ‘ This further assumes that those with the information are educated enough to apply it. Doesn’t this seem a bit naive to reality? It is the inequality that markets use to their advantage.