'Learn from history to break out of middle income trap'
Hazlan Zakaria • 2011-07-31 10:17:34 +0000
The failure to learn from history's school of economic hard knocks is the biggest hurdle for Malaysia in its journey toward a high-income country.
This was the warnining issued by assistant secretary-general for economic development in the United Nations' Department of Economic and Social Affairs, Jomo K Sundaram.
"It is important to learn from our failures and successes. If we don't know about our history, how can we go on?" he argued.
Jomo was speaking today in Kuala Lumpur at the 5th Annual Malaysian Student Leaders Summit, part of a panel of speakers on the topic of how Malaysia can achieve its high income economy aims.
He was referring to Malaysia's experience through the economic downturns of the early 80s and mid 90s. Something he said could have been averted if our government was more astute.
Be that as it may, the UN official saw the lessons of yore as valuable signposts in our journey to a high income nation, but worried that the government is yet again turning a blind eye to the same pitfalls and problems.
Most prominently, Jomo (left) lamented that despite warning signs from past difficulties, Malaysia's economy continue to be "unnecessarily FDI oriented".
"In most countries domestic investment leads and FDIs follow. But here FDIs lead but domestic investment follow," the economic expert point out.
Such a policy, he said, debilitates the government as it then in turn becomes beholden to foreign investors who expects incentives and other sweeteners.
We can posit from Jomo's argument that Malaysia will be held hostage by foreign investors who may pull out if things are not to their liking.
'Over reliance on finance sector'
Another anomaly in Malaysian economy, Jomo continue to point out, is the reliance on the financial services sector which may be problematic.
He cautioned that the finance sector while instrumental in moving around millions of ringgit does not really create any value added to the economy in reality.
"Similarly in other countries investment leads and finance follows. But here finance leads and investment follows."
The former Universiti Malaya lecturer added that the financial industry's influence is so big that it even led to the liberalisation of the stock market.
The focus on the twin money spinners of the stock market and finance led to the devaluation of real growth engines like the industrial sector.
Indeed Jomo shared statistics which showed that Malaysia has been in the process of de-industrialisation that saw the sector shrinking in the last decade.
He warned that this may be a bad move and may lead to problems.
"Rather than recognise where the growth is coming from, there was too much focus on the stock market," said the UN official.
'Finance minister of the year'
Jomo explained, the situation was made worse with the emergence of the business media and receiving its accolades, at the expense of implementing well-considered financial policies.
"How do you become the finance minister of the year? Well you do all you can to please the stock market.
This act more often than not led to inappropriate incentives and caused problems.
Problems that led to the stock market collapse of 1993 and 1997 - the result of an overheated investment environment as government allowed the bubble to grow too fast and then was helpless as it burst.
The collapse further leading to "disastrous consequences", such as the bailouts of BN-linked companies that caused taxpayers millions.
However, not all our past experience was negatives ones, Jomo argued, pointing to the cogent industrial policy of previous administrations that led to the rapid growth in the late 80s and early 90s.
He posited that a strong and government-led industrial policy may be our saviour in meeting the growth we need to achieve high income, giving as example, state intervention in palm oil which opened new doors and generated a boom in Malaysian business.
This despite the anti-palm oil lobby at the time causing major problems to market access in traditinal palm oil consumer nations like Europe and the US.
He gave credit in large part to the centralised governemnt effort to our palm oil success, as individually the palm oil producers would not have been able to clinch the deals and come up with plans that was put in place such as the barter deals with new markets like India and China.
However he cautioned that most regulations and laws that form the backbone of Malaysian policies currently are either "inappropriate", "selectively enforced" or not enforced at all.
Jomo advised a redressing of our problematic regulations and laws as well as the fomulation of a government policy to find, support and develop new and promising sectors as our future engine of growth.
Achieving a high income economy is the holy grail of Premier Najib Abdul Razak's New Economic Model and Economic Transformation Programme. A journey which the government say we are well on the way of, though critics and economists like Jomo may hold a differing opinion.
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