Is our current model of economic
development sustainable in the long-run, wonders Anil Netto. What will happen when our oil
wells dry up? What has been the environmental cost? These are issues
that our political parties – both the BN and the Opposition – must
One of the reasons for holding the
elections well before the current five-year term of Parliament ends in
May 2009 is, I believe, the gloomy outlook for the global economy which
could spill over into the economies of this region. It is no secret
that the US economy is in deep trouble. The latest outlook is a severe
recession that could last at least a year or longer. Worse, it points
to a global economic slowdown especially in Europe.
The root of the problem can be traced to the 1980s, when US financial markets were “deregulated”. This deregulation allowed greed to flourish and compensated for the slow growth in consumer demand and profits in the real economy. Financial institutions introduced all sorts of new and little understood financial instruments such as derivatives to provide easy credit, stimulate demand, and make a quick buck. The gap between the financial markets and the real economy widened.
Easy, cheap credit spawned a housing bubble, which has finally burst, resulting in a housing recession. House-owners, many of whom should not have qualified to receive adjustable interest mortages in the first place, are defaulting on their (sub-prime) mortgage payments. Financial institutions that profited from the flood of cheap credit and then repackaged mortgages into exotic financial instruments – and bond insurers are now in dire straights. They are looking for bailouts from public funds. US consumer confidence has slumped and retail sales are falling. Credit has tightened. The dollar is sliding on the weight of US$9 trillion in debt. There is now a severe systemic financial crisis in the United States. It is the first major crisis of corporate globalisation along with its ideology of financial liberalisation and deregulation. The risk of a financial meltdown is now rising.
The financial turbulence has not had much impact on East Asia, including Malaysia, so far. We are fairly insulated as we are not yet fully integrated into the global financial system. Moreover, we have been blessed with natural resources such as petroleum while commodity prices are high. In fact, Malaysia posted its 10th consecutive year of trade surplus last year: RM101 billion, the second highest ever recorded. Our other major export destinations include Singapore, Japan and China. Mainstream analysts say we are sufficiently “decoupled” from the United States and that we can rely on our exports to these other markets and high commodity prices to take up the slack in US demand.
But as the global recession spreads, that could change. Already, there was a 14.5 per cent drop in exports to the United States last year, which usually absorbs a fifth of Malaysian exports. China, whose huge external reserves are keeping the US financial system afloat, is heavily dependent on exports to the United States to keep its own industrial base chugging along (even though, like India, it has a significant domestic market as well). As economist Walden Bello notes, “talk about a process of “decoupling” of regional economies, especially the Asian economic region, from the United States has been without substance”. He notes that many East and Southeast Asian economies have been pulled along by the “Chinese locomotive”. But China largely imports intermediate goods for manufacturing and in turn exports finished goods to the United States and the EU. If consumer demand in the United States and the EU falters, that could lead to a chain reaction: exports to China from the Asian tigers could slow down as well.
Meanwhile, if the Malaysian economy is growing, if commodity prices are soaring, if the trade surplus is soaring, why are so many ordinary urban Malaysians struggling to make ends meet? Why are food prices rising? Why is the gap between the rich and the poor so wide? Is the BN’s model of economic development and growth itself widening the gap?
We should examine what impact the BN’s adoption of neoliberal policies and the corporatisation of agriculture has had. These policies include tax cuts for the rich, cuts in government social spending (to compensate for the tax cuts), privatisation to cronies, and promoting labour “flexibility” (a euphemism for undermining labour rights). Isn’t it true that such policies have concentrated wealth in the hands of a few while widening the gap between the rich and the poor?
Should we proceed with further financial liberalisation (with the US-Malaysia FTA, negotiations for which are still under way in secret) given the obvious mess created by such “deregulation” or lack of independent regulatory supervision.
Are regional economic corridors – the result of top-down economic planning by government-linked companies who are also thinking of their own interests – the way to go? Will the fruit of the economic growth from these corridors end up with the huge corporations leaving the crumbs for the people? Shouldn’t we be considering alternative, broad-based economic policies that would really improve the lot of the poor from the bottom-up.
For a start, we must introduce a minimum wage that would stimulate domestic demand, reduce poverty and keep the local economy purring. We must protect labour – Malaysian and migrant workers – from being exploited by capital. We must train, upgrade and empower our workers. We must invest in public health care, education and affordable housing.
Finally, is our current model of economic development sustainable in the long-run? What will happen when our oil wells dry up? What has been the environmental cost? These are issues that our political parties – both the BN and the Opposition – must address.
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