RECENTLY, Khazanah Malaysia held a day conference on Economic Inequality and its global perspective. This exercise is highly commendable because it revisited a topic close to many Malaysian hearts, especially those concerned about Malaysian social development and its imbalances, much of which is the legacy of colonial rule.
The seminar had attracted the attention of a few hundred participants and the function became even more meaningful with the presence of Sultan of Perak Sultan Nazrin Muizzuddin Shah.
Compared with many nations, Malaysia had attended to this concern in a rather serious manner so as to avoid unwarranted further social consequences. The New Economic Policy (NEP), covering the period 1971 to 1990, squarely faced the issue of interethnic inequalities and some significant reductions in inequality are quite obvious, especially in the area of occupational attainment. On the ownership and entrepreneurial fronts, much remains to be done.
Post-NEP policies continued with the same concern, albeit with different focus and attention. It is hoped that the subject continues to attract attention by all, especially among our social leaders and officials, given that equitable sharing of the benefits of economic growth is one objective that is enshrined in the Rukun Negara.
Inequality, as we know, has many facets and is a persistent problem unless the public policies to address it are consistently pursued in line with the changing times and challenges.
As an example, when Tun Dr Mahathir Mohamad pursued major projects in the Klang Valley, regional inequality became more persistent, such that when Tun Abdullah Ahmad Badawi took over power, the latter pursued regional corridor development to re-emphasise the need to attend to spatial inequality before it becomes entrenched.
This led to the formation of the Iskandar Regional Corridor, Northern Economic Corridor and Sarawak Corridor of Renewable Energy, the latter to take advantage of special impetus at local or regional level and with growth-emanating potential.
While Iskandar took advantages of its proximity to Singapore to harness its own growth potential, the northern corridor took advantage of Penang — and the industrial and educational facilities there — to stimulate economic growth, and the eastern corridor tries to capitalise on oil and gas, as well as tourism.
On record, it must be said that using traditional measures of inequality, such as Gini Coefficient (GC) and income ratios, inequality did decline throughout 1971 to 1990 and 2009 to 2014. Performance during the latter period is quite impressive with mean household income for the lowest 40 per cent of households (B40) rising from RM1,440 to RM2,537, a jump of 76 per cent, while the GC declined markedly from 0.441 to 0.401 (as quoted in the 11th Malaysia Plan, 2016-2020).
The Khazanah seminar also discussed the global perspective. It is reported that global inequality could have diminished somewhat with rapid growth in income in China, India and other regions, such as Asean, South Korea and Africa. Inequality could have become worse elsewhere, in Europe and the United States, where economic growth has been stagnant or muted, respectively.
Writing in 2013, Thomas Piketty, after studying the role of capital and growth, mentioned that inequality will continue to widen if the return to capital continues to outstrip economic growth. In other words, if the summation of interests, dividend and profit far exceeds rate of economic growth, inequality will increase. Hence, in countries where the share of wages in national income is small, inequality in that country will persist and widen.
Joseph Stiglitz, who wrote the Great Divide in 2015, mentioned in several places that liberalisation of financial services also contributed to increasing inequality in the context of American society. Such liberalisation needs to be accompanied by other intervention measures, too.
In 2015, Khazanah had undertaken an analysis of inequality using household income data and complemented with statistics on wealth, expenditure, education and employment.
The findings illustrate that the issue is prevalent, and economic planners and policymakers need to address the matter comprehensively in the years to come, the initial phase of Transformasi Nasional 2050.
Why does inequality continue to prevail in Malaysia? The answer is that our equity-related policies aim to assist the have-nots through efforts to raise their human capital, productivity and quality of life. The government’s thrust to advance the stake of the B40 group and the direct financial assistance to the low income groups (BRIM) are recent examples of this intervention.
We have not, as a matter of public policy, constrained and restrained the rich and the “haves” from improving themselves in any field of their endeavour or reducing their income by having very progressive income tax rates and establishing capital gains tax.
Perhaps, in moving forward, more efforts to improve the access to affordable homes, a higher share of wages in total income, more conducive efforts to support self-employment and entrepreneurial opportunities, and the lowering of the cost of living may assist the real incomes of B40.
Let this concern on economic inequality continue to be deliberated in the country, and let it acquire a special place in our economic and social planning calculus given the context of our multiracial population and other social divide.
Let me congratulate again Khazanah Malaysia for organising the seminar and I hope the interest on analysing inequality in the country remains unabated.
The writer is chairman of the Malaysian Institute of Economic Research