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We appear to be stuck in the middle income trap. On one hand we are unable to compete with low cost countries such as China, India and Vietnam but on the other hand we are unable to move up the value chain to a high income knowledge based economy due to lack of skilled workers. We are unable to attract skilled foreigners to our shores while skilled Malaysians are leaving in droves. ANALYSIS What has happened to the Malaysian economy? We were once one of the most promising emerging economies in South East Asia and blessed with bountiful natural resources including oil and timber. In the 1970s Malaysia was on par with other developing countries such as Singapore, South Korea, Taiwan and Hong Kong but these countries have progressed far ahead of us.

Their per capita incomes and currency values are a few multiples of ours. For example Singapore and S. Korea’s per capita incomes are US$35,400 and US$16,700 respectively while Malaysia is lagging badly at a mere US$8000. S. Korea has also exceeded us in technological products and has many global brands while all we have is Proton which cannot compete outside its domestic protected market

We appear to be stuck in the middle income trap. On one hand we are unable to compete with low cost countries such as China, India and Vietnam but on the other hand we are unable to move up the value chain to a high income knowledge based economy due to lack of skilled workers. We are unable to attract skilled foreigners to our shores while skilled Malaysians are leaving in droves. Meanwhile we are importing masses of low skilled foreigners which depress our wages. As a result our wages have remained stagnant for the past 15 years while the cost of living has escalated. The net result is that the standard of living of ordinary Malaysians is regressing due to depreciation of real income while our income gap is the widest in Asia.

The economy of a country cannot be treated in isolation to its social, human and political factors. It is closely interrelated to education, meritocracy, corruption, natural resources, productivity, creativity, democracy and rule of law among others. A strong and robust economy is the net result of good governance, good policies and proper use of resources and is reflected in the happiness and wellbeing of its citizens. In this article I shall try to explain how Malaysia has stumbled and sowed the seeds of its economic decline.

If any single factor can be blamed for the poor health of the Malaysian economy it is racial policies. Meritocracy is the natural selection of the economy; it ensures that the best and brightest people and companies rise to the top just as natural selection in the ecosystem ensures that the strongest and fittest organisms survive and propagate for the wellbeing of the species. If race has replaced meritocracy as the qualifying factor it means that we are not making full use of our human and natural resources with detrimental effect on our competitiveness.

Even worse, racial policies as embodied in the NEP has encouraged rent seeking and created a culture of bumiputraism where rewards are expected by a privileged group without the requisite effort. It has also led to patronage in the form of negotiated and bloated contracts such as those given to IPPs and toll concessionaires which distort economic efficiency with consequent higher cost to consumers.

Exclusion of other races from government tender and procurement means that the government does not get the best price or the best vendors. The preferential treatment and government assistance given to bumiputra contractors, suppliers and entrepreneurs shield them from real market forces which would have made them stronger and more competitive.

The special economic privileges espoused by bumiputraism require the productivity of other races to sustain. The government cannot give something for free to anybody without taking it from someone else who must give it up for free. Essentially this means a lower overall productivity and an injured entrepreneur spirit among the minority races.

Unfortunately Malaysia’s racial policies cover more than just economic privileges, it also intrude into education, employment, sports, licensing, government linked investment funds, buying houses, petrol station dealerships and new share applications and indeed into every facet of human endeavour. It is sad to say that racial policies are woven into the very fabric of Malaysian society.

The Chinese have fared better under Malaysia’s racial policies due to various factors such as their emphasis on education, their clans, the large domestic Chinese economy and their entrepreneur spirit but the Indians have become an underclass. However if any community is held back from achieving its full potential the whole country suffers.

The difference in economic opportunities and the lack of meritocracy lead naturally to a brain drain as the best and brightest Malaysians disadvantaged by race take their talents overseas. In a globalized world the educated and the skilled are extremely portable as there is a huge competition for skilled labour. Although there are pull factors enticing them away the push factors originating domestically is no less compelling.

Education is the future of the county but unfortunately education in Malaysia has not been spared the deleterious effect of racial policies. As racial policies essentially mean that meritocracy takes a backseat to ethnic origin this is extremely injurious to education.

Students face race based policies after Form 5 when Malays are streamed to matriculation with a token 10% for other races while non-Malays either opt for Form 6 which is longer and harder route to university or private colleges which require considerable financial outlay. Those who go to matriculation save one academic year compared to those who go to Form 6.

Even more unfair is that the grades acquired in matriculation are taken as equivalent to the grades acquired in STPM (Form 6) for the purpose of university entry although they are in no way comparable. Matriculation students sit for segmented internal exams and a large portion of the final marks may come from projects done throughout the year while STPM students sit for a difficult final public exam which are marked externally.

After Form 6 non-Malay good achievers are confronted with unfriendly racial quotas at the gates of tertiary institutions. If they are accepted into public universities they are likely to be shunted into less popular courses with little commercial value such as fisheries, forestry and philosophy. This is despite many universities, colleges and technical schools reserved for one race only which is found in no other country in the world.

Pre-tertiary students in private colleges will continue their studies in local private institutions or overseas which again entail heavy financial commitment. Scholarships for non-bumiputras are hard to come by and every year we hear of heart-breaking stories of top students who fail to secure scholarships.
The upshot is that non-bumiputra parents have to spend a lot of money to educate their children to tertiary level. Those students who do not have well-off parents and not lucky enough to gain a place in public universities or win a scholarship are forced into the job market.

It is clear that standards in public universities have fallen drastically due to the lack of meritocracy in intake of students. This is compounded by race based preference in the employment and promotion of academic staff. Standards have also been marked down to make it easier for bumiputra students to graduate. Our universities have long dropped out of the ranking of the 200 best universities in the world. They are churning out low quality unemployable graduates who do not know how to speak proper English to join the bloated civil service or the ranks of the unemployed.

The result of our two tiered education policy is to contribute to the brain drain of young non-Malays incensed by the racial inequality in education opportunities. They head for the exit as soon as they have acquired their tertiary education while those who remain behind are a fertile breeding ground for opposition supporters. Parents have also been known to migrate in order to obtain affordable tertiary education for their children.

Read more at: http://malaysia-chronicle.blogspot.com/2010/06/malaysias-economy-great-decline.html

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