Higher wages crucial for future prosperity of Malaysia, Asean

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The government should not expect low-income families to continue accepting poverty level wages so that Malaysia can win in the race to the bottom, writes Jeyakumar Devaraj.

There was a time when Malaysia could leverage on its relatively low wages to produce cheaply for the affluent societies of Europe, America and Japan and thus promote high economic growth.

Dr Lim Chong Eu, the then Penang Chief Minister, recognised the opportunity in the early 1970s and pioneered the establishment of “free trade zones” in Penang, and Malaysia entered a period of export-led growth.

But things have changed quite a bit in the past 30 years. Malaysia is now a higher-middle-income nation aspiring to join the ranks of developed countries within the next decade.

We can no longer rely on a low-wage policy to produce cheaply for the export market.

For one, there are other countries in the region and further afield who can beat us in that low-wage game – Thailand, Vietnam, China and quite a number of African and South Asian countries whose per capita GDP levels are lower than ours.

Secondly, and more importantly, the golden goose – the affluent consumer market of the developed world which used to absorb the bulk of our cheaply produced exports – is now quite sick. It has been seriously enfeebled by the continuous off-shoring of manufacturing to developing countries over the past three decades.

What this means is that we have entered a new era where we in the Asean region cannot just focus on producing cheaply and hope that consumers in some other country will buy our products.

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We need to encourage the growth of our own consumer markets within Asean, in China, South Asia and in Africa. In this way, aggregate demand for goods and services will rise sufficiently to create investment opportunities for our businesses and employment opportunities for our youth.

And how do we make consumer markets grow? Quite simple – pay higher wages to workers, because household consumption is the largest component of aggregate demand, perhaps around 50-60% in Malaysia.

Higher basic wages to our workers – and there are some 9.5 million of them at present – would immediately boost the income of micro-businesses in our country, stall holders, pasar malam traders and small businesses in the wet markets.

About 1.5 million small and micro-business operators can be found in Malaysia at present. They too will benefit from an increase in the basic wage.

All this will in turn expand business opportunities for the bigger businesses in Malaysia and Asean.

This is precisely why it is important that we increase our minimum wage significantly and continue to do so at regular intervals. Not only is it socially just, it is also an essential step towards consolidating the nation’s economic growth.

Agreed, it is not that simple to implement massive wage increases, for we are a part of an increasingly integrated global economy. For example, hardly any tariffs are in place for the export of goods among Asean countries. So if we increase our wages too drastically, the prices of made-in-Malaysia goods would go up, and cheaper goods from our Asean neighbours might result in the closure of some local manufacturing firms and the retrenchment of our workers.

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But what is “drastic”? An immediate doubling of the minimum wage to RM2,000 per month could be considered drastic.

But an increment to RM1,170, as recommended by the National Wage Council, is quite conservative and far from drastic. Of course, businesses will cry crocodile tears and sob that they are going to go under – it is in their DNA to keep costs as low as possible and not worry at all about creating the market for their goods. But why did the Pakatan Harapan cabinet buy their story?

Moving on, acknowledging potential setbacks arising from large wage increases does not absolve our government from strategising on how to overcome these – for there are ways to do so. We have to ask our leaders in Putrajaya:

  • Do you agree with the Keynesian analysis put forth above regarding the importance of boosting domestic demand so that we can have sustained economic growth in the Asean region? Or is the PH government saying that we need to continue the low-wage policy for the “good of the nation”?
  • If you agree that boosting domestic demand is an important objective, have you studied ways of overcoming the possibility of cheaper imports drowning some of our manufacturers if our wages are raised too much?
  • Have you begun talking with other Asean countries about how we could deepen the internal Asean market without undermining one another? Have you broached the same idea to the Group of 77? If not, why not?
  • Why haven’t you, the government, included civil society in these deliberations?
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It is not unreasonable for us to ask such questions of our elected leaders – for they should strive to be one step ahead of the situation and work on a roadmap for the 21st Century. They cannot continue applying yesterday’s solutions to a situation that has changed quite dramatically.

They certainly should not ask our B40 families to continue accepting poverty level wages so that Malaysia can win in the race to the bottom that the global economic system has trapped the Asean countries in.

We need to seek a way out of this trap. And our leaders have to lead in this effort. We hope they rise to this challenge.

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Roy SharmaIT.ScheissRajan SubramaniamJames HohJess Chris Recent comment authors
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Roy Sharma

What about productivity? Will higher wages bring about efficiency and productivity? Or that is not important maybe we should focus on narrowing the gap first then worry about the rest? 🤔

IT.Scheiss

Excellent article by KS Jomo on how digital giants have come to dominate cyberspace globally.

Developing countries losing out to digital giants
https://www.thestar.com.my/business/business-news/2018/10/17/developing-countries-losing-out-to-digital-giants/

In the 1990s, globalisation’s propagandists promoted the notion that it would enable all countries to grow economically and enjoy prosperity, pro-Reformasi supporters believed that competition from the entry of foreign firms into the Malaysian market would put the UMNO-linked GLCs out of business, whilst cyberutopians claimed that the Internet would enable small businesses in a dormitory room to compete on a level playing field with corporate giants.

Today, reality bites.

Rajan Subramaniam

Funny how people operate… I seen some. Poor estate house where while they were struggling for cash, they but they have installed astro… Some had cars… Expensive wedding… Alcohol and daily a pack of cigarate… While I feel there is a need to review the current salary and foreign worker situation, but the locals needs to set their priorities right…

Cheah Chachacheah

Greater efficiency. Higher productivity will make goods cheaper. Your $ will buy more. Higher wage will push up cost of goods. Have more money but wont buy more. No use. 😲

Joshua Lim

Higher wages will just encourage increased inflation. Pls be honest with the China-effect n effect of foreign workers. Cheap imports from China had caused many local businesses to downsize or close down. Some foreign companies had even moved to other countries like China n Vietnam. Pls don’t talk abt higher wages when we are losing jobs, next, automation is going to cause more to lose jobs. It’s just going to get worse for general workers.

IT.Scheiss

Globalisation and open borders facilitates a race to the bottom as far as wages of general workers are concerned and even before automation, we already have foreign workers employed a general workers on lower pay. This is exactly what the capitalists want, whilst chanting the mantra of the need for workers to “move up the value chain” by upgrading their skills but practically, are there enough jobs up that value chain to absorb workers with higher skills?

As a result, anti-globalist, right populists have gained in the U.S. with the election of Trump, and have gained in Europe by appealing to the economic plight of general workers, whilst the left has gotten sidetracked into identity politics, such as gender-neutral bathrooms.

James Hoh

Higher wages is to closing the wide gap between rich and poor.

Jess Chris

But it is been proven that the rich get richer and the poor get poorer.

IT.Scheiss

Thanks to globalisation, open borders and minimal regulation of businesses.

James Hoh

Jess Chris, like what the US is facing. They will tax the rich.

IT.Scheiss

Unlikely to tax the rich but they are throwing up tariff barriers again, which is anathema to the tenets of, “great”, “divine”, “immutable” globalisation which swept the world especially since the World Trade Organisation began functioning in 1995 and the globalist mantra was spread through the Internet, through the media, management consultants, business consultants, academia, politicians and so forth.

The proletarian internationale is the international solidarity of proletarians in struggle against capitalism, whilst globalisation is modern imperialism foisted upon the workers of the world, pitting workers of different nations against each other but the phoenix will one day rise again from the ashes.

Amirol Mokka

Ya ma..lower or higher wages, things still keep increasing..like no difference.

IT.Scheiss

Sure, the benefits of a higher minimum wage will be temporary as the capitalists will raise prices and it will be back to square on after a while, so along with a higher minimum wage, there must also be price controls.

However, a higher minimum wage and price controls are anathema to neo-liberals on both sides of the political divide.

The ultimate solution is a socialist political and economic system in which the means of production, distribution and exchange are socially owned and where production is for social need, not private profit but given the current world political situation, achieving a socialist society is rather far off but the opportunity could come around sometime later and leftists must be ready when it comes.

IT.Scheiss

Good points Dr. Jeyakumar but will the Pakatan government, especially the big man at the top listen?

Remember when I asked you why Pakatan politicians were absent from the anti-FDA protest outside Ritz Carlton Hotel in 2012 and you replied that many Pakatan politicians are neo-liberals and ironically there’s more anti-FDA sentiment amongst UMNO politicians and members, albeit “for the wrong reasons”.

The policies which this Pakatan government has implemented so far are neo-liberal policies, constrained by the ‘rule of law’.

Are they prepared to adopt the “Saudi Solution”?

http://www.financetwitter.com/2018/10/replenish-coffers-launch-corruption-crackdown-on-all-bn-corrupt-politicians-not-new-taxes.html

IT.Scheiss

Sorry. Correction – FTA (Free Trade Agreement).