Understanding The Economic Research of Dr Muhammad Khalid: The economic advisor of Tun M

Understanding The Economic Research of Dr Muhammad Khalid: The economic advisor of Tun M

Talented economists are hard to come by. This is due to the nature of the discipline itself.

Economics is not a subject that can be understood from figures and numbers only. It is also a field of studies that requires utmost moral courage.

Does one want to see “wealth” from the stand point of the rich and powerful only ? Not all economists will answer in the affirmative. They will probably say No too.

But by focusing on the power of the market, when the market can, and do, fail, many economists are indeed favouring the rich and powerful only.

Dr Muhammad Khalid, in his book ,The Color of Inequality,” which in his Malay version he called “Di Antara Dua Darjat,” he valiantly tried to dedicate himself to solving the issue of how the income gap in Malaysia has remained so persistent despite more than six decades of annual growth.

One of the puzzles to which he put to himself was this: why is food aplenty but not affordable to many in Malaysia, especially those classified as B40 ?

To be sure, it is a valid question too. Indeed, between 1990-2018, why is Malaysia still unable to enjoy any income growth or upward social mobility ? 1990-2018 saw one global financial crisis in 2007-2008, but the crisis did not hit Malaysia badly. Yet why wasn’t the income gap narrowed ?

In fact, while the Gross Domestic Product (GDP) in Malaysia has grown from RM 51 billion in 1957 to more than RM 1 trillion in 2012, why are the rich getting wealthier but the poor becoming poorer ? This is serious precisely because in twenty years time, the general population of Malaysia will begin to age.

As things are, income inequality is almost identical over the last thirty years alone. This is the key tenet of Dr Muhammad Khalid’s book.

Between 1990-2018, in other words, almost no Malaysians has gained much except the very rich. Something is seriously wrong.

Prime Minister Tun Dr Mahathir Mohammad has averred to the failure of the National Economic Policy (NEP). Among the reasons he cited were poor work ethics.

A preference for easy, rather than difficult work, that requires the mastery of knowledge and technology.

Dr Muhammad Khalid, who is the new economic advisor of Tun Dr Mahathir, did not focus on work ethics in his book completed in 2013. Nor did he touch much on the transition or the failure to transition to a knowledge economy.

Dr Muhammad Khalid to his credit focus on the poor. Why aren’t people getting enough food on the table ? Indeed, without nutritious food, the mental development of the people, across the board, would be stunted.

But he noted an uptick in other failures in income too. One of them is the lack of inter marriages across different races.

Dr Muhammad Khalid, is his book, “estimated that there were only 150,000 inter marriages in Malaysia, a small figure in a population of 28 million” (page 174).

Wealth, or, the lack of it, does tend to have the same clustering effects in one group and one race (page 174).

The key issue that Dr Muhammad Khalid did not delve at length was the extent to which the Malaysian state or Putrajaya can compel the Government Linked Investment Companies (GLICs) and the 900 government linked companies (GLCS) linked to GLICS to renumerate the workers well.

Perhaps, to put a cap on the salary differentials between the top and the workers at the bottom of GLICS and GLCs. Dr Muhammad Khalid argued the Malaysian employers in general was too stingy. And that was one of the reasons why workers at the lower rungs remain unable to earn more.

Another key problem facing Malaysians is the inability to withstand any potential loss of income through occasional unemployment of up to three months. Again this is a serious issue as lack of savings suggest structural imbalances in the economy.

There was a small break through in 2012, though, according to Dr Muhammad Khalid’s book. Malaysian incomes did grow by a few decimal points. But the situation soon lapsed to the old pattern—-of now income growth.

Indeed, if 2012 showed a break through, there was no telling if the annual improvement in income then was due to fiscal spending to ward off the effects of the 2007-2008 global financial crisis.

Dr Muhammad Khalid’s reliance on the Household Income Survey—- considered the most reliable data set by the Department of Statistics in Malaysia, while not totally convincing, especially when paired with the numbers or assertions culled from Pemandu, a performance delivery unit funded by the government—-can still be useful though. How is this the case ?

To begin with, it suggests that the actual picture of the Malaysian economy could indeed be worse. Much worse than what Dr Muhammad Khalid actually described.

Income drawn from the manufacturing sector, for example, has been declining; a factor which may be due to the use of cheap foreign labor, whose size, could be as large as 7-8 million workers alone, thus, depressing the cycle of Malaysian wages further.

Indeed, Dr Muhammad Khalid correctly noted that “90 per cent of each ethnic group (in Malaysia) does not have any liquid savings, and would not be able to survive more than few months in case they lose their source of income or employment” (page 192).

This is not a very pleasant picture even if it is color blind (cuts across all races and groups in the country). Why ? The danger lies in the ticking time bomb that cuts across all races and groups.

When income chasm widens, people do tend to blame each other for their problems, which in turn accentuate, social, political, religious and racial tensions.

While democracy can ameliorate the tensions, it cannot overcome them completely. What democracy cannot structurally and systematically solve, groups of all religious and ideological fancies might want to plug the policy gaps. When they do, inter and intra ideological/religious pressures can only be more acute, as the politics would be dragged to the left or right totally, and exclusively.

The blame game has led to Brexit, the rise of Donald Trump, and the emergence of the far right in Europe, indeed, the crackdown on the Muslim Brotherhood, which is more of a social movement than a political party originally.

When political parties, refuse to have elections, or, postpone them indefinitely, they become blind sided by what the people want, which in turn, ushered their own demise, as had happened to UMNO and Barisan National.

Dr Muhammad Khalid’s book did not foresee the end of UMNO and Barisan, but he clearly warned that persistent income gap was a serious social-economic and political phenomenon right from the introduction of his book.

 

In this sense, Malaysian economy is in a bad shape. Very bad. Malaysia has had an income gap that is similar to where Malaysia was when it first started in 1957 as an independent country.

 

Knowingly or unknowingly, as the book was completed well before May 9th 2018, where a kleptocracy was defeated, the above was one of the key take aways of Dr Muhammad Khalid’s simple but sophisticated book. That bad economy will skew a political party’s fate, even if it well larded with cash, corruptions and connections.

Read in a different vein, the book was almost an ode or obituary of UMNO and Barisan National, though helped by the hindsight, once again, of May 9 2018.

However, it is also a sad indictment of how Malaysian politicians, corporate leaders, and various captains of industries, have steered the mighty Malaysian ship aground. Most corporate companies simply refused to pay their workers well (page 187), and will not change their policy habit as yet. When they don’t, and only less than 9 per cent of the workers are unionized, the bargaining leverage of the workers are overwhelmingly diminished, leaving them to the mercy of their corporate masters.

If this book is anything go by, the whole of Malaysia, in other words, is sputtering to a stop——this despite a gross domestic product (GDP) that kept growing. With a national debt of RM 1.09 trillion, Malaysia is caught in the vise-like condition of a Middle Income Trap (MIT).

The infamous trickling down economics, for the lack of better expression, is not only non-existent. Rather, it appears to be cascading upward to the rich instead. Dr Muhammad Khalid averred to the issue of the Occupy Wall Street Movement. Where the 99 per cent of the people tried, seemingly in vain, to challenge the grip of the one per cent.

Come what may, wide spread dis-empowerment is a phenomenon that should not be happening if the state and the market—–as is the case of Malaysia—-have vouched to work in tandem to help the poor; as reflected in the National Economic Plan (NEP) and other derivatives of it (page 10).

In other words, while “Malaysia” as a whole had became rich, Malaysians in general were separated more and more by income differentials, a myriad of income determinants and gangly systems of income distributions (page 189-192), all of which have conspired to deliver the lethal brew of massive dis-empowerment of the middle and working class.

As Dr Muhammad Khalid puts it: “(As of 2012), the top 20 per cent held more than 52.1 per cent of all wealth while the bottom 40 per cent held less than 8 per cent. The distribution of liquid assets was very extreme, the top 20 per cent had 95 per cent of all financial wealth, while the bottom 80 per cent had only 5 per cent” (page 191-192).

This process of emasculation should not be happening. Especially not after sixty one years of Merdeka. A year after independence, for example, there were only 3000 Malay tax payers out of an overall total of 33,000 income tax payers in 1958 (pg 5).

A decade later, of the 1488 students in University of Malaya (UM) who graduated with a Bachelor of Science degree from University of Malaya, only 69 were Malays. UM was the only university in Malaysia then.

In engineering, 408 received a bachelor’s degree, while the Malays were just four, Dr Muhamad Khalid added.

“During the same period,” quoting from a source by Thomas Sowell on affirmative action, a top African American scholar at Hoover Institution in Stanford University, “only 12 Malays graduated from the medical faculty, representing less than ten per cent of the total medical faculty graduates” (page 6).

But as noted earlier, while the number of Malay graduates, technocrats and universities between 1970-2018 haven sprung up, the picture between the “rich” and “poor,” continues to stay the same, if not widened.

Statistics from the Employee Provident Fund (EPF) show that 92 per cent of the people are earning less than RM 6000 a month; four our of ten Malaysians have no pensions at all; close to 40 per cent earn less than RM 3000 per month; 25 per cent of Malaysians have no properties to their names at all; money saved for Hajj, in the case of the Muslims, are spent entirely on Hajj, leaving their children with nothing to draw on. All these are reflected in Dr Muhammad Khalid’s book. He should be applauded for raising them too; although they are now the red-flags of a Malaysian economy.

 

Be that as it may, one does not have to be totally hopeless. This is important too. The Occupy Wall Street Movement has since spawned what is known as a honeycomb; gig; platform; or sharing economy. This is one of the ironies of the global financial crisis.

If more people put their minds together, bottom up solutions—-as manifested by Uber, Grab, Air B n B, and other forms of electronic business to business commerce—can and do take place. Are Malaysians ready beyond the template of the Digital Free Trade Zone (DFTZ) offered by Ali Baba ?

Or, would the proverbial cheese of Malaysians once again be consumed whole sale by other emigrants from China, India and the rest of the world ?

Come what may, Malaysians and Malaysia have to work together, and understand the structural and systemic reforms that are needed beyond the mere creation of few digital unicorns.

They need to empower themselves through education, especially online education, even if this involves disciplining themselves to start taking self enrichment courses at EdX.edu, or Ivy League Central, all of which are new learning management systems (LMS). If they need more inspiration, Dr Muhammad Khalid’s book is the place to start.