AUG 28 — In the recent few months, the government has indicated that it is currently working on developing a new economic model for Malaysia. Statements from the Prime Minister, the Second Finance Minister, and the Minister in the PM’s Department in charge of the Economic Planning Unit indicate that such work is seen as important for the continued sustainability of Malaysia’s growth path, especially as we head into the final decade of Vision 2020.
While there have been few details released by the government so far, we can certainly begin to discern the basic contours of such a new model — an increased emphasis on services; renewed focus on value added activities, leveraging on Malaysia’s existing strengths; continued development of new growth sectors such as Islamic finance and creative industries; and sustained nurturing of technology and innovation to support knowledge-based economic growth.
The realisation that the Malaysian economic model requires a broad-based restructuring is certainly not new. At the turn of the century, there was much talk on the need to foster greater innovation and creativity: a Knowledge Economy Master Plan was drawn up, seminars were held, and reams of Powerpoint slides were churned out in developing the idea of a k-economy approach to fit Malaysia’s needs.
And yet Malaysian policymakers seemed to be leading a charmed life, as respectable GDP growth, trillion-ringgit trade and burgeoning foreign reserves masked some deep dislocations in the tried-and-tested economic model that had produced an enviable track record of economic growth and prosperity.
The onset of the worst global economic crisis since the Great Depression of the 1930s finally forced the discussion of Malaysia’s economic sustainability onto the public forum. Phrases such as “middle-income trap” and “economic model” began to enter the lexicon of policymakers as discussions began to turn to the changed geo-economic landscape that may greet us once the ramifications of the current economic crisis are fully unfold. The essential question remains: how can Malaysia take advantage of a rapidly changing global economy?
This was something that Prime Minister Datuk Seri Najib Razak must have kept in mind, when he recently announced a number of liberalisation measures for the economy. These included liberalisation of Bumiputera ownership rules for 27 sub-sectors of the service sector, the relaxation of FIC rules and doing away with the rule of 30 per cent Bumiputera ownership for listed companies; and the introduction of Ekuinas as a government-linked private equity company with a unique mandate for Bumiputera economic development.
I would argue, however, that such liberalisation moves are only the tip of the entire Malaysian economic rationalisation iceberg. In particular, I would argue that a new economic model for Malaysia must encompass — over and above the requisite initiatives for sustainable growth and added value — a number of important elements of systemic restructuring.
Firstly, a new economic model for Malaysia must encompass the restructuring of our basic economic arrangements to eliminate wasteful resource allocation and remove roadblocks inhibiting market efficiency. This would include the urgent need to unwind subsidies and lopsided government-to-business arrangements which has skewed economic incentives for businesses and consumers, and sometimes even resulted in the unfair displacement of economic value from public coffers into private hands.
Chief among these would be fuel price subsidies, which places a heavy burden on the government budget and encourages consumers to continue to guzzle fuel at the expense of the environment. The sale of gas at heavily subsidised prices to businesses and power producers also needs to be looked into, especially when the latter parties already enjoy preferential treatment through inequitable power purchasing agreements. We also need to radically review the country’s tax base, and put an end to the current precariousness of having petroleum-linked income amount to almost half of government revenues.
Secondly, any effort to reshape the Malaysian economic model cannot ignore the desperate need for renewal in our socio-economic arrangements, particularly in the implementation of affirmative action to help support disadvantaged groups. While the NEP approach was certainly relevant for the 1970s — when widespread horizontal inequalities across the socio-economic sphere meant that the distribution of income and wealth were largely made along racial lines, to toxic effect — we find today that socio-economic deprivation today can no longer be fairly described as being the sole monopoly of any one community. Increasingly, we will have no choice but to move towards an affirmative action regime that is based on need; the sequencing of such a shift will of course require the exercise of political nuance and extensive engagement with all affected communities. At the same time, such efforts must also ensure that existing constitutional arrangements with regard to the rights of native sons continue to be respected and adhered to.
Thirdly, a new economic model for Malaysia must explicitly address the rebuilding of the nation's basic foundations for growth. Our schools need to be radically reformed to meet the needs of the 21st century, with greater focus on creativity and critical thinking. Our universities need to be given full autonomy to select their own students, and decide their own policies, if they are to truly achieve world-class stature. We must raise our investments in research and development — be it through public universities or corporate research programmes — to create a vibrant base of basic and applied research for innovation and growth. We also need to commit ourselves to extending broadband Internet access to every corner of the country, and hence promote greater connectivity and value creation. We must have the courage to embrace openness and transparency; it is the only sustainable path towards creating a creative and innovative society that can realise Malaysia's ambitions to become a services-driven economy.
As we continue to search for signs of recovery amidst the unfolding of a global economic crisis, it is instructive for us to remember the oft-repeated mantra that “a crisis is a terrible thing to waste”.
We need to use this precious window of opportunity — this burning platform that urges us to consider the radical and discard outdated policies and behaviours — to renegotiate key principles and boundary lines that form the superstructure of our economic value creation and socio-economic arrangements. We must be bold in pursuing rationalisation and positive change.
For almost four decades, Malaysia has reaped the benefits of Tun Razak's far-sighted efforts to reshape Malaysia's economic and political landscape. While subsequent leaders have made their own mark on Malaysian governance, the model that we inherit today remains largely based on the legacy of Razak. Hence we still mention the NEP, even as subsequent policies such as the National Development Policy and National Vision Policy have ostensibly replaced the NEP.
Today, the old economic model is fraying. We need, and must, change. If we have the courage to do this, then we will not only be fine-tuning an economic model for short-term growth, but also creating a New Economic Model that will promote superior economic growth and efficiency, while at the same time fostering a socially just and equitable society that will nurture a truly 1 Malaysia.
Ziad Razak was formerly a Special Officer to the Fifth Prime Minister of Malaysia, from 2007 to 2009. He has since returned to the private sector. The views expressed here are his own, and do not reflect his professional or voluntary affiliations. He can be contacted at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
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That doesn't mean wholesale deconstruction of the current model but more flexibility must be given to key areas to lead growth.