Malaysian economic model needs substantive social market economy reforms

AFTER almost 6 decades of nationhood- as of July 2021- any objective evaluation of Malaysia cannot deny that for a small, open, plural nation- overall, we have done relatively well. However, as the saying goes, the biggest room in the world is the room for improvement. We should never become complacent nor should we take our relatively good record for granted.

There are clear indications that we are not doing as well as we used to. Our growth has gone down from the 8% + rates during the 10 years prior to the 1998 Asian Financial Crisis to about 4%+ in the last 10 years. Our ‘equity’ goal has also been affected, with poverty and inequality requiring attention again, especially over the last 2-3 years. Vision 2020 wanted us to achieve ‘developed status, according to our own mould’. It had a ‘high-income’ target that required us to grow at between 6% to 7% per annum from 1991-2020, a target not achieved for more than 20 years. Since the mid 1980s, Malaysia has been part of the ‘global supply chain’. We have been part of the global financialised capitalist system. This system, built on ethically questionable foundations of selfish interests that focuses on 'I' rather than 'We', has created havoc and seen crisis after crisis over the last three decades. What may have worked in the late 1980s and 1990s, has clearly not been able to deliver the goals of Vision 2020.

Tweaking or fiddling with our current model may not be sufficient to take us forward, post 2020, made worse by the COVID 19 pandemic. More importantly, our target cannot be just to ‘get back on the old track’. What we need is to actually chart out a new path, one that can take us forward to a better path than before. For this, Malaysia needs to undertake some Social Market Economy or SocME reforms.

What is the Social Market Economy (SocME) and Is it Suitable for Malaysia?

Literature written on the SocME point to some specific characteristics- Firstly, a social market economy is a market economy based on social principles. It combines the principle of a free market with that of ‘social balancing’.

Hence- it is an attempt to combine or even integrate elements of liberty with social justice, two values that are often seen as conflicting values. The SocME is a framework that has successfully resolved this apparent conflict by viewing freedom and justice as incorporating security and human dignity. However, this integration requires effort to build and nurture. This will require the role of society/community as well as the state.

The SocME is neither a ‘laissez faire’ market, leaving everything to the mercy of selfish individual interests; neither is it a socialist or command economy. Private property is acknowledged, economic freedom and competition are stressed but at the same time, there is a comprehensive system of social security services that take care of members of the society, especially the vulnerable.

All Asian communities in Malaysia share these good values found in the SocME. The idea of the social individual is very prevalent in Asia where concern for the ‘group’ is given prominence. Human dignity and respect for elders, kindness to the less privileged and concern for justice are shared by all religious and cultural traditions in Malaysia. We can adopt SocME refroms, but we should adapt the model. If possible we should also innovate and integrate the SocME in our Malaysian context. However, the fundamental principles are compatible with our values and culture.

Instead of the ‘self-centered selfish maximiser’ of the current global model, SocME talks about the social-individual. The individual human being is treated with dignity and is given due recognition but she must also realise that she is part of society. Hence, all economic decisions are made to achieve not only individual gain, but must also think of others, of society- hence- must also have social impact. This fundamental shift in the way we look at the individual has tremendous implications for how we allocate resources, what and how we produce, what and how we consume, our labour relations etc.

I think all communities in Malaysia- Asian communities- are no strangers to this idea of human dignity. Speaking as someone who teaches are researches in Islamic economics, this idea of man as khalifah or vicegerent, that human beings are created as the best creation; that there is this karamat al-insan- the dignified position of human beings- is very natural. Similarly, I am sure other Asian religions and philosophies- the human being is certainly a social individual.

Selected SocME Examples in Malaysia- Budget 2022

Health

One of the features on the SocME is an emphasis on ‘social expenditure’. Our Malaysian budgets have spent too much on the economics sector over the years. SocME reforms should give due attention to ‘social budgets’ i.e. allocation to health, education and welfare.

In Malaysia, compared to the large public spending on education, our health sector spending over the last 25 years or so has been about 3%-4% of our GDP. This has left our health system vulnerable to pressure. Even before the COVID-19 pandemic, we could see the queues and long waits in our public health system. We have a private health system that can provide services to those who can afford it, but many cannot. Compared to countries like Korea or even Sri Lanka (two countries that were at the same economic level as Malaysia in 1957), we spend less public money as a % of our GDP on health. We should double our health sector spending.

We also spend very little on any kind of social insurance scheme. A 2019 report stated that 38% of health expenditure on treatment etc…comes for Out of Pocket (OOP) expenditure. Only 1% is covered by our social insurance scheme. Whereas countries like Germany and Japan – countries where people are generally well off- can have a social insurance scheme take care of 80-90% of peoples’ medical bills.

COVID-19 Stimulus Packages

During this last 1 year, the government has d various stimulus packages worth hundreds of billions of RM. Among these include cash transfers to individual households, wage subsidies to employers, funding to micro and small enterprises. The policies announced in the recent PEMULIH has received mixed reviews. While the PM says that no-one will be left behind, some feel that the amounts are rather inadequate. These are surely trying times- numerous reports show that HH incomes have fallen significantly, wages have declined; huge number of business enterprises have closed down or will close down soon. 100s of thousands of people will lose their jobs by September/October. Many have already, or are underemployed. The Govt is constrained if they continue to be part of a global financialised capitalist system, where rating agencies play ‘God’!

The SocME model may look at things differently. Based on the principles of social individual, solidarity and subsidiarity, one ethical source of funds would be to tax those who have made windfall profits over the last 12 months. This is just ‘fair taxation’ that is ethically correct. What about those businesses, especially the micro and small businesses that have, or are about to go bust? Another ‘Government programme’? Please no! If we provided RM20,000 to about 1 million micro and small enterprises, this would total up to RM20 billion. Rather than the state directly funding this expenditure, why not let the community get involved? SRI Sukuk or Social Impact Bonds could be issued and ‘offered’ to corporations as well as to those in the T2 or even T5 category. Coaxing and persuading them would be a wonderful way to show the principles of subsidiarity and solidarity in action! One section of the community helps another section of the community to do business and the government facilitates or even backs these sukuk.

However, it is imperative that all these funding must be effective and efficient. Transparency and Good governance is central to the SocME model. For example, we have to put an end to direct negotiated tenders and to cleanse our GLC boards from active politicians- even if they have the qualifications!

Tweaking or fiddling with our old model will not work. Our current pandemic gives us the opportunity to make bold changes. A genuine Malaysian agenda that embodies SocME reforms is not only an intellectual exercise, rather it can be a policy framework that works for post 2020 Malaysia. In the spirit of the 2020 Tokyo Olympics……GanbatteMalaysia!