This article first appeared in Forum, The Edge Malaysia Weekly on April 29, 2024 - May 5, 2024

This is the final instalment of a four-part series on propelling the Madani economy. To summarise, fuel subsidy rationalisation is a contractionary but necessary move for Malaysia, discussed in Part I (“Taking a systems approach to fuel subsidies”, Issue 1515, March 18). In Part II (“Breaking out of the handout mentality”, Issue 1516, March 25), we point out that dependence on cheap fossil fuels and other handouts cripples us and that the Padu national socio-economic database — properly executed — can be a good tool to catalyse a shift in mindset. Parts III and IV offer solutions in the form of policy packages that can be designed to achieve three main objectives at once, which are to: (i) improve our fiscal balance; (ii) go green; and (iii) improve our socioeconomic outcomes.

In Part III (“Mission Madani: Now is not the time to work in silos”, Issue 1520, April 22), Mission Madani — which consists of the Madani-Hijau and Madani-Bersama policy proposals — is introduced. Madani-Hijau was discussed in Part III and now we turn to Madani-Bersama. It is important to note that both are not mutually exclusive but together create synergies that precipitate a whole-of-government and whole-of-society approach to achieve our goals in a more efficient manner. They are also designed to weave together the principles and thinking of the Madani framework, the New Industrial Master Plan (NIMP) 2030 as well as the National Energy Transition Roadmap.

A key deliverable of the Madani framework is for Malaysia to grow at an average of 5.5% to 6% per annum. Gross domestic product (GDP) growth consists of private consumption, investments and net exports and Malaysia’s growth is heavily dependent on the tradables sector. However, in order to achieve the target growth rates without relying overly on global trade, we should focus more on improving our own private consumption, which can only be done by building a bigger and wealthier middle class. Investments in human capital development and infrastructure to balance out regional disparities are key. Malaysia still has untapped engines of growth in its economically underdeveloped states such as Perlis, Kelantan, Kedah, Terengganu and Sabah. Measured by GDP per capita, this includes Perak, Melaka and Negeri Sembilan, whose GDP per capita is below the national average. Developing these areas could potentially give a higher multiplier effect as they play catch-up, not unlike the experience of China during the heyday of its opening up.

Not only would this help achieve the Madani goals of becoming among the top 30 largest economies in the world but also top 25 in the human capital development index. Closing the gaps in regional development through investments in infrastructure and the social well-being of marginalised communities and underdeveloped states will help improve socioeconomic outcomes and narrow the income gap. Further, these regions have the advantage of basing their development on sustainable criteria from the outset, being able to directly implement the best practices of today instead of having to undo decades of outdated urban planning and reliance on fossil fuel infrastructure. Initiatives such as efficient logistics and public transport amenities, walkable cities, access to renewable energy, climate mitigation, and integrated living spaces that promote social harmony and upward mobility can be more readily implemented on a relatively cleaner slate. In fact, we could even be ambitious enough to aim for some of these areas to become models of sustainable development.

What about economic growth? At this time, each state has its strengths that can be leveraged to unlock growth potentials, but this has not happened due to various reasons. For example, Kedah and Perlis have traditionally been the rice bowl of Malaysia and because the place of paddy in our agricultural policy has lapsed, the crop has languished. However, with the growing importance of food security today, the time is right to focus on how these northern states could enhance their productivity in rice cultivation to serve domestic needs. Even better, we should investigate the adoption of the latest technologies and methods that are more resource efficient, utilise artificial intelligence, promote the use of organic fertiliser, adopt a circular economy such as compost from by-products as well as feedstock for biofuels. There is also the cultivation of silvicultural techniques that respect and work together with our earth’s natural ecosystem and regenerative cycles. For these technologies, we need look no further than our own academic institutions where much effort has already been put into these innovations and practices. The issue of food security also concerns animal feed. We should look into ways to reduce our reliance on imported corn and soybean, even looking at alternatives that could be produced domestically, which also reduces the carbon footprint of our livestock industry.

In addition, the spillover of Penang’s manufacturing industries into Kulim and Perlis, coupled with improved economic synergies with Thailand with the planned development of border industrial parks, should catalyse some growth. This should be pursued in a strategic manner. We already know that Penang’s ports serve Southern Thailand’s industries. What else can be value-added along the route as goods move from the north downwards to our ports in Penang? What are the industries we want to promote and develop? There are well-known benefits to agglomeration and clustering. It is, therefore, vital that spatial, industrial and logistical expertise come together to plan this northern investment corridor. It is vital too for the education and resource sectors to step up to provide the lifeblood of talent for these industries. Meanwhile, the eastern states of Peninsular Malaysia should develop in tandem with the East Coast Rail Link project currently underway, playing on China’s need to hedge its supply routes.

Sabah is another gem that has been overlooked. As a state, it suffers from the resource curse of over-reliance on the bounty from its oil palm and oil and gas sectors, causing it to lag behind in its human capital, institutional and economic development. There are well-known measures to counter these gaps and they should be embarked upon in tandem with any investment and development plans to ensure that the intended impact comes to fruition. Being blessed with natural capital, Sabah has advantages that it can leverage on in the field of payment for ecosystem services, tourism, energy-efficient downstreaming of its agricultural and fisheries sector, as well as leveraging the by-products of its natural resources to develop the biofuels and biochemicals sectors. Its historical importance as a trading hub for North Kalimantan and Southern Philippines also presents many opportunities to explore, especially with the massive development going on in East Kalimantan to build Indonesia’s new capital city.

Madani-Bersama is not only a regional development play. It also concerns the issue of an underdeveloped worker middle class, which is the legacy of an outdated industrial policy that prioritises cost competition. In order to meet our Madani objective of increasing labour share of income to 45%, it is time we see ourselves and our position in the global supply chain not as low-cost competitors relying on cheap low-skilled labour, especially now that the main global concern is reliability, sustainability and security. This is where we should aspire to shine. We do not have the demographic dividends of a large pool of cheap labour and neither do we want that. We want to have a decent pool of highly productive, medium to high skilled fairly paid workers, reliable green energy supply, efficient logistics facilities, multilingual workforce (Bahasa Malaysia, English, Tamil and Mandarin are all important), strong institutions that uphold trust and the rule of law, and a stable political environment. We already tick some of these boxes to an extent. The role of the government is to enhance these conditions and even go so far as to actively develop the industries we want to play in in a big way.

As a full-time working mother of two who is also caring for my grandmother, another low-hanging fruit that is close to my heart is the provision of quality care services, which is vital if we want to achieve a female labour force participation rate of 60%, up from 51.6% currently. We can understand why so many mothers opt to be homemakers instead of taking up formal employment. Quality care is unaffordable and our families — the next generation we are bringing up or the ones who took care of us before — are too precious to be left to the wiles of the profit-focused private sector. Especially for low-income families, the provision of accessible and affordable quality childcare will automatically unlock a second income stream for the family by allowing mothers to work, not to mention reduce the stress and burden that women carry as caregivers. Seeing that our women are, on average, more highly educated compared with our men, women represent a valuable untapped resource for our economy. This pool of well-educated and skilled women who have given up their careers or are underemployed in order to be caregivers is a valuable resource for our talent-starved small and medium enterprises and industries, and can be unlocked immediately to boost our national income while simultaneously widening our tax revenue base and increasing productivity — hitting many objectives of the Madani economy and NIMP concurrently.

In addition, the development of quality childcare and educational services also goes a long way towards the nation’s human capital development. Countless studies have shown that getting the early childhood period right increases children’s chances of career success, as well as improved physical, mental and emotional health as adults. The ratio of children to teachers and caregivers, especially in the pre-school years, is a vital factor for quality of care, yet the simple economics of it means that most pre-schools in Malaysia are not able to provide adequate levels of attention and nurture. This is the same for elderly care. Due to low income affordability, private sector providers are just not able to charge fees that can sustain a good caregiver to patient/student ratio. As a result, teachers especially in preschool and caregivers become underpaid and overworked, while children from low-income households suffer the most. This striking statistic from a Think City report titled “From Public Housing to Public Homes”, which talks about families living in public housing, says it all: “As for their children, 51% between the ages of five and six years old do not attend preschool.” This means that these children already start Standard 1 at a huge learning disadvantage.

We can no longer rely only on the private sector to ensure that economic gains will be well distributed to the working class and the so-called “trickle-down effect” theory has been proven to be just that, a flawed theory. Better socioeconomic outcomes call for active policy interventions from all facets of government, from labour market reform, to education, health, housing, industry and home affairs. This forms the underlying principle for the Madani-Bersama policy package. What is needed are proper government investments, coupled with fiscal prudence and adept policymaking. The distinction between government consumption and investment is key here: Government needs to consume less but invest boldly and wisely. This will set the stage for waves of above-average private sector and foreign direct investment for years to come — dubbed “investment acceleration” episodes by the World Bank — that lead to above average GDP growth. Our Madani objectives are achievable … the path is green, powered by women and requires our lagging states to finally step up to the plate.

Lim Li Lian is an economist and deputy director of Research for Social Advancement, a progressive think tank promoting social advancement in Malaysia

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