Sunday 14 Jul 2024
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This article first appeared in Forum, The Edge Malaysia Weekly on June 10, 2024 - June 16, 2024

The first part of this article ­(“Reform fiscal base and labour sector to build long-term economic strength”, The Edge, Issue 1526, June 3) highlighted the importance of fiscal space and labour market reform as key elements to build Malaysia’s capacity for long-term economic growth. But these two elements are not sufficient by themselves. Using our natural resources as a buffer, we must urgently enhance our green infrastructure, improve social well-being and strengthen our institutions to nurture sustainable economic development.

Climate change and green agenda

Addressing climate change is the biggest mission of our time. This existential challenge should permeate every single policy proposal and shape the nation’s economic growth plan. Other countries and trade blocs are moving ahead with far-reaching climate regulations. As a net exporter country, failure to respond to these regulations would impact our competitiveness overseas.

Conversely, to orient our economic growth accordingly, we need policies, resources and incentives to provide the infrastructure, capital and mechanics for entire industries to transform together. While large corporations and government-linked companies are moving along, small and medium enterprises (SMEs) are at risk of being left behind. They have to contend with a lack of knowledge and a lack of funds for the adoption of green technology and processes. The increasing burden of international reporting standards and requirements puts a further strain on SMEs. The government has an important role to play in finding ways to harmonise the various regulatory requirements, to simplify the adoption process for small businesses. Moreover, providing the right incentives and practical assistance through training are indispensable.

On a broader scale, the state should proactively invest in infrastructure and policies to improve Malaysia’s capacity to cope with climate change. Investments in green infrastructure through energy transition programmes, decarbonisation innovations or the development of an ecosystem for electric vehicle manufacturing not only play a major role in the nation’s climate change mitigation and adaptation efforts, but also jumpstart new sustainable economic development and encourage the creation of higher paying jobs in green industries.

Such investments should not be seen as lofty resolutions for a far away future. The effects of climate change are already upon us, and the only realistic response in the short term is to adapt. This requires urgently investing in flood mitigation solutions and disaster response plans, while putting climate adaptation and resilience front and centre in urban development. Encouraging low-carbon, climate-friendly energy alternatives such as solar panels and green transport systems also must be actioned today.

Social well-being

Individual and social well-being are the cornerstone of a well-functioning society. There is little point in discussing turbocharging the economy without ensuring a society that is inclusive and supportive. The key to increasing individual well-­being is to lessen the feelings of economic precariousness and increase predictability in people’s lives. Two main topics must be addressed: wage growth — to be addressed as part of labour market reform — and increasing the provision of public services that help with reducing the cost of living.

The pandemic and subsequent rising cost of living have thrown many back into poverty and increased economic insecurity. At the end of 2022, 51.5% of Employees Provident Fund (EPF) members under 55 years old (6.6 million people) had less than RM10,000 in their savings. The introduction of EPF Account 3 as a way to access funds during emergencies has triggered spirited debate, yet the larger question that remains is how to reduce economic insecurity for many and increase overall household income even before considering retirement.

Adversity, whether in the form of illness or job loss, can befall anyone. But as a society, we must ensure that no one falls through the cracks and stays mired in poverty. A comprehensive social security system would prevent the vulnerability, social exclusion and inequality that are often the result of adversity today and would contribute to overall poverty reduction. The welfare measures that are in place today should be expanded in coverage and impact to build strong social protections for vulnerable and low-income households. Existing policies must be constantly reviewed to include appropriate targeted assistance, for example, for gig workers, single mothers and other vulnerable groups.

One of the key factors affecting disposable household income is the cost of housing. Our housing provision must be sufficient, humane and dignified to shelter all. For far too long, the nation has been obsessed with house ownership to the extent that it has placed undue pressure on the financial capability of ordinary Malaysians. Housing financialisation, or the increased dominance of the financial markets in the housing sector, is getting more pronounced. This extends even to public housing where schemes to own flats under the People’s Housing Programme are frequently seen as attractive investments, even though this often turns out not to be the case.

Owing to various complex factors such as insufficient funds, dilapidated facilities or poor management, more often than not homeowners are saddled with an even bigger financial burden and a depreciating “asset”. A financially sustainable rental model or the introduction of build-to-rent options through public-private partnerships led by the government can be alternative avenues for many to have a shelter.

Governance

Radical reforms require careful planning and strong political will. But equally important is good governance. Amid encouraging feedback from investors, we need to double down on improving the efficiency of our public service delivery and, of course, use public money in the smartest way at the same time. Malaysia can certainly improve the effectiveness of governance on multiple fronts, from how cross-ministry programmes are coordinated to how public resources are being funded, monitored and spent. Tracking these deliverables and outputs ensures accountability from all parties involved in public spending and will serve to reduce wastage and leakage.

For the future direction of the economy, the mission-oriented approaches introduced in the New Industrial Master Plan 2030 (NIMP 2030) offer a holistic way to tackle large complex challenges, providing strategic direction to both the public and private sectors. The right missions act as triggers for innovation with spillover effects for the overall economy. We already see shifting market interest and targeted private investments towards certain missions identified in the NIMP 2030, most notably encouraging industries like semiconductor to innovate and move up the value chain.

Naysayers notwithstanding, Malaysia’s second take-off is already underway. But to fully ride the momentum, reforms are urgently needed. With opportunities knocking at the door, the question becomes whether Malaysia will move fast enough to seize them.


Tan E Hun is executive director of Research for Social Advancement (Refsa), a think tank promoting social advancement in Malaysia

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