Let me first congratulate Khazanah Research Institute (KRI) for its recent study on the various dimensions of socioeconomic inequality at the household level in Malaysia. The study has revisited an issue that remains relevant in all communities, be they in developed or in emerging economies.
Where the situation of inequality is serious and pervasive, the problem can threaten the fabric of our society and democracy.
Indeed, the study has refreshed us with new perspectives of economic and social inequality, thus updating earlier researches by Snodgrass, Sudir Anand, the late Ishak Shaari, Ismail Salleh and Zainal Aznam.
The subject remains pertinent in our multiracial society, and with the formation of Malaysia, takes an added dimension, that of inequality, because Sabah and Sarawak still lag behind their counterparts in the peninsula.
Even in the peninsula, Terengganu, Kelantan and Pahang, the heart of the Bumiputera land, still linger behind the economic progress of the west coast states of Selangor, Johor and Malacca. Even Perak, once a rich mining region, has not done much either.
That said, it must be stated also that most measurements of inequality used by KRI, such as the Gini coefficient, have shown reductions in inequality, including sensitive interethnic imbalances.
We could have done better, though. However, the few economic crises, such as recession, that we experienced and the lack of concern for spatial inequality during the 1982-2004 era, have delayed a speedier improvement in this area of inequality.
Malaysia’s approach in balancing between concern for output increases, as measured by the gross domestic product, and the need to address social and economic inequality, prove that the twin goals of reducing inequality and achieving rapid economic growth are not necessarily a zero-sum game.
The measures to reduce inequality and poverty through enhancement of education and skill formation, through productivity improvements, and employment creation, can, indeed, support economic growth and economic restructuring too, if we in-build strong economic needs test (such as cost-benefit analysis, cost effectiveness and open competition) in the policy formulation and programme design stages.
However, the lessons that we may learn over the years is the slowness of our planning framework and the apparatus that we established to adjust to market changes fast enough, thereby allowing instruments, such as subsidies and price support, to stay longer than necessary. This led to pressure in the fiscal front, thus impacting our overall efficiency.
When the current administration makes adjustments to reflect the realities of the market and international price developments, oil in particular, the political ramification is obvious. These adjustments have to be made anyway, notwithstanding how unpopular they may be.
Having shown our successes in reducing absolute and relative imbalances in our society, the study should move forward, with identification of new strategies relevant to our immediate future and the emerging global environment.
KRI should lead the way in assisting our state planning and implementation apparatus with focused strategies to further reduce inequality. These measures should be done with the strong elements of competition, concern for genuine entrepreneurship, real social costs and return, and good market-based principles. Where we differ on these grounds, we know fully well as to why we do or do not.
The reason being we do not want taxpayers to have to bear the social costs of wrong public decisions or transfer the costs and burden of finance to future generations.
Essentially, some elements of welfare economics have to be factored in project planning, including in project costing and financing, and management.
With the study published, it is now the task of senior public sector officials to articulate these concerns and build capacity among public officials to understand the issues, their persistence and complexity, and, more importantly, to promote programmes and projects that will propel our economy to greater heights, based on more competitive, more efficient and more market-friendly instruments, yet contribute to further reduction in our inequality.
In this regard, the government’s long-term transformation plan to achieve high income nation status while freeing society from poverty and inequality, demands a greater understanding of the issue of social inclusion, a phrase that is almost consistent with what the late Tun Abdul Razak Hussein conceived of poverty eradication that must be achieved “irrespective of race” and “restructuring of society” that must be done without creating any sense of deprivation among anyone.
This is the development philosophy of Malaysia, which has given meaning to our economic growth and development. This philosophy remains relevant, but it has to be understood within the context of deploying greater private sector role.
Tan Sri Dr. Sulaiman Mahbob is chairman of the Malaysian Institute of Economic Research