New Economic Model: Impressive but deeply flawed

Reign in the Hyenas! Invite in the Sabre-Toothed Tigers! The NEM policies are actually recycled neo-liberal IMF/World Bank prescriptions, warns Jeyakumar Devaraj.

 

The Prime Minister and the National Economic Advisory Council (NEAC) should be congratulated for coming up with the New Economic Model Policy, which was unveiled by the PM on 30 March 2010 at the Invest Malaysia 2010 conference. As a policy statement outlining the road-map to expand the Malaysian Economy over the next 10 years and beyond, the NEM Policy statement is commendable: it is comprehensive, covers the entire spectrum of Malaysia’s political and economic system and is internally consistent. It is an appropriate and entirely reasonable policy response to the problems faced by the Malaysian economy – if one is constrained to remain within the free-market paradigm. If one wishes to fault it from within this paradigm, one could argue that many of its policy thrusts have been lifted from the Pakatan Rakyat’s (PR) prescription for reform of the Malaysian politico-economic system.

Particularly praiseworthy is the uncharacteristic honesty about the current situation of the Malaysian economy. Let me quote from the Executive Summary

•    The gap between the rich and poor is widening. The bottom 40 per cent of households earned less than RM1,500 per month in 2008 (Pg 6).
•    Rent seeking, patronage and opaque government procurement have raised the cost of doing business and has engendered corruption (Pg 7).
•    Malaysia’s economic engine is slowing. Since 1998, growth has been lower than in other crisis-affected countries (Pg 5).
•    Much of the aid hasn’t reached the poorest of the Bumiputras.
•    There has been a loss of skilled labour because of discriminatory policies.

All these problems have been highlighted by the PR for several years. The BN government’s response until now has been one of denial. But here, in this policy statement we see a breath of fresh air. At least the reality has set in – spades are being called spades – to an extent.

We also have to acknowledge that the Prime Minister has taken a bold stand in signalling to the small but very influential stratum of Bumiputra “entreupreners” who have been enriching themselves through rent-seeking behavior and opaque tendering processes, that these practices are inimical to the further development of the Malaysian economy, and therefore need to stop. These “rent seekers” make up a disproportionately large portion of the Umno leadership at the divisional level. It remains to be seen if the PM can contain the wrath of this small but influential group of Umno politician-businessmen, whose unease is already spilling out in movements such as Perkasa.

Recycling neo-liberal prescriptions

However for all its breadth and “comprehensiveness”, the New Economic Model is a deeply flawed policy. It is essentially the re-cycling of policy prescriptions from the neoliberal school. Some of the major policy prescriptions outlined in the Executive Summary include  –

•    The private sector (which produces for profit) is to be the main driver of the economy. (Pg 14)
•    To attain this the government will attempt to attract in more Foreign Direct Investors.
•    Direct state participation in the economy is to be reduced. Divest GLCs in industries where the private sector is operating efficiently.
•    Functions better provided by the private sector (including, I suppose, tertiary education, health care, housing and public transport!) should not be duplicated by public institutions.
•    Distortions in the domestic pricing system – brought about by subsidies and price controls – must be removed.
•    The tax structure is to be revamped by widening the tax base with a Goods and Services Tax so that personal and corporate tax can be reduced (P24 of the Executive Summary).

All these policies are being presented as if they are something novel and innovative when they  actually have been the standard advice of the International Monetary Fund (IMF) and World Bank for developing countries: Liberalise! Make your economy more conducive for investors – for Global Capital! Create conditions for the capitalists to make good profits! Trust that the Free Market will bring development to all strata of society including the poorest 40 per cent.

This just hasn’t happened in other countries. The neo-liberal approach (and that is the correct term for what the NEAC has proposed) has led to increasing Gini coefficients (a measure of income inequality) and a deterioration of the conditions for the poorer half of society in all the countries that implemented these policies.

Sloganeering by itself doesn’t create an equitable society!

Sure, the Prime Minister has talked about being “inclusive” and that there will be a comprehensive safety net for the poorer 40 per cent of the population.  The slogan of “sustainability” has been roped in to allay the fears of those concerned about the environment. But slogans or mere statements of claim do not shape social reality. Policies do – and the policy mix proposed is unashamedly pro-business.

Malaysians must recall the time when a previous prime minister unveiled his Vision 2020 program about 15 years ago. Building a “Caring Society” was one of the main objectives of that Vision. Then he went on to undermine health care, open tertiary education to the private sector and privatise utilities such as water and electricity. The “caring” and “communal” aspects of Malaysian Society were undermined. Now we live in a society where our streets are not safe, gang violence is commonplace, delinquency in schools has soared and child abuse has become rampant. Clearly we are moving away from the goal of creating a Caring Society! Nice-sounding phrases are not enough if they are used to camouflage policies that are pro-business and pro-profit.

Yes, Malaysia needs change. A small layer of people (and it is a multi-ethnic group) have used the policy of affirmative action for the Bumiputra to enrich themselves through rent seeking, over-priced contracts and naked corruption. The majority of the Bumiputra have only received a minor portion of the economic assistance that they were supposed to have received, and a large number of them are still mired in poverty – the rates are much higher for the East Malaysians and Orang Asli. All this has to change. But not along the lines proposed by the Prime Minister and the NEAC. Their prescription of – Reign in the Hyenas and invite in the Sabre Toothed Tigers – will spell disaster for the poorer half of our society.

The larger picture        

Concerned Malaysians need to take cognisance of the following facts:
•    The global capitalist economy is ailing. The drive for profits by cutting production costs has reduced wages all over the world. As a result there is insufficient demand to fuel an economy predicated on the profit motive. The world economy is in for a long period of stagnation.
•    We are reaching the limits of our environment. Oil is going to run out in the next 30 years. There is a high possibility that global warming is going to lead to ecological disaster and disruption of human society on a scale never seen before. We need to reduce our carbon footprint, and urgently. Wasteful consumption has to stop – but such consumption is profitable to the businesses!
•    Modern, industrialised economies can be built without entrepreneurs. The USSR is an example of that. Yes, it was a dictatorship with a terrible human rights record. But the fact remains that a backward European country could develop into the second super-power within a span of 40 years without the help of capitalists i.e. capitalists are not essential for the development of an advanced industrial economy.

The question we need to ask ourselves is – can we devise a truly democratic political system to administer an economy where production is not for profits but is centred on human need

Towards a NEW paradigm

We need to explore these alternatives. All the great religious leaders could not have got it wrong when they advocated a more humane and caring society. We need to think out of the box. We need to look at the experiments taking place in Latin America where democratically elected governments in Venezuela and Bolivia, which keep touching base with the voters through referendums periodically, are trying to re-distribute the wealth of the country. In the process they have unlocked the power of poor communities to help themselves and build a better, more caring society.

We need to work towards an alternative world order, starting with a community of nations that believe that:
•    people come before profits;
•    trade should be for the mutual benefit of the peoples of both nations and not to maximise the profits of the largest corporations;
•    knowledge is the collective property of all mankind and should not be hoarded by corporations and used to generate profits.

We can’t leave the planning for the future to the Prime Minister and to the NEAC. They are clearly still stuck inside the old and tired neo-liberal box. Ordinary Malaysian need to start engaging in determining the future of our society. It is too important an issue to leave to politicians. The PM has said that the government will get feedback from society. Perhaps that is a good forum to start the process of dialogue about what sort of society we wish to build for future generations.

Dr Jeyakumar Devaraj, an Aliran member, is the Member of Parliament for Sungai Siput.

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