Policy Matters - Getting the big picture right

AS we move into 2016, it seems important to get the "big" picture for the Malaysian economy right.
We need to clearly conceptualise where the economy is, how it stands, and where we want to see it heading, given current and long-term currents. This implies an objective evaluation of the economic indicators, but no less importantly of domestic political forces and global trends. Exercises such as this are not taken very seriously by academic economists because they are not terribly fond of thought experiments which are outside the circle of "pure" economics. But policymakers and investors have value for the "long-term", even if it means speculating on the future – and going beyond purely economic considerations.
The first step in this programme must lie in being realistic about the present state of affairs.
What worked during the Mahathirian era will patently not work now. Those were days of affluence, when bad investment decisions could be brushed aside. The price of oil was high, Malaysia was a star in the Asian firmament, and it had a major competitive advantage with its labour endowment. That was not the age of free trade agreements, China was not the factory to the world, neither was India an aspiring giant. A longer list of differences can be produced, but the sampling gives a sense of the bygone era.
Within the scope of those times, it made sense to think big, to splash on building a sense of identity, to invest heavily on infrastructure and to take a stab at establishing dominance in some area, be it ICT, biotechnology or the automotive industry.
The present is less forgiving. The current economic climate is more spartan; there are more global uncertainties; and the domestic mood less tolerant to excesses and failures.
It would be very inappropriate to tread as one did 30 years ago. Yet, there is no sign of an adequate big picture coming up, at least not one that is serviceable.
In all fairness, Prime Minister Datuk Seri Najib Abdul Razak did articulate his vision of the economy in the New Economic Model. It was a bold and candid evaluation of the ills that plague the economy. However, there was opposition to the ideas encapsulated in the document, and it suffered as a consequence of not being able to gain significant buy-in from a range of stakeholders.
In more recent years, the policy context is narrower. The range of problems has been mounting and the constraints tightening. Not only is the domestic environment more challenging, but the external scenario, too, is more punishing.
Within this background it almost seems that the big picture is being lost. Rather, it would be more accurate to say that the short-term has come to dominate policy thinking; and what constitutes the big picture today are remnants of Mahathirian grandeur, a fuzzy reflection of the Malaysia Boleh ethos.
Economic strategy in the times of Mahathir meant dreaming and doing (though not always successfully) big things (think Malaysia as a car manufacturer, an ICT hub for the world). As well as pushing ahead with huge government projects, and throwing up fiscal deficits even when there was rapid growth. (Fiscal deficits are not bad so long as they can be covered.)
There appears to be a desire to go ahead in the old way by chasing grand dreams through vehicles such as the 1MDB. That, in itself, is not a bad idea.
But the backdrop has changed: high public debt prevails, as does high household debt, a rising cost of living, rising inflation, and a plunging ringgit. The climate is now such that investors will not tolerate poor credit ratings. Add to that the urgency to function within the confines of a tight fiscal space, capital outflows, and the threat of a declining current account.
Yet, there are economists who irresponsibly claim that if the US can accumulate huge debts so can Malaysia, forgetting that the US is in a different league and set of circumstances than Malaysia.
Other economists wildly suggest that since Malaysia's debt is largely funded domestically, there is no issue. But what happens if the local lenders cannot be honoured? In such an eventuality local borrowings will turn into foreign borrowings.
Yet others have suggested that as a population grows so will its household debt. Hence, it is perfectly in the order of things for household debt to grow on and on!
It is thinking such as this that led to the 2008 meltdown in the US. But that is a different matter; one that can partly be attributed to the demise of Marx, Keynes and Minsky; but also to the greed inherent in capitalism.
It is relevant to devise a big picture that will pull Malaysia through these tough times and prepare it for the next 20 to 30 years. It must be grounded in the reality of the present moment with a view to confronting a harshly competitive future.
This big picture must seek to address prosaic issues such as providing affordable housing, a desirable quality of life, easy access to inexpensive healthcare, respectable employment, high quality education, and good public transport. At the same time Malaysia's predominance as a trading nation that attracts sterling investment must not be lost. Nor should environmental concerns or inequality be forgotten. This is only a partial listing of areas that must be kept in sight.
Admittedly, this is a tough job in tough times. But who will do it? Foreign consultants, or the World Bank?
Who will author the spirit of this big picture? Or can that, too, be outsourced?
Why is this big picture necessary? Because now – and it seems pressing at this juncture – one needs a vision to guide the management of the economy. Events that have rocked the economy indicate that smooth waters will not be the norm. This makes it essential to create a shared vision on how economic disruptions will be managed, and prosperity and happiness engendered in the following months and years. These shifts are equally likely to be internally or externally generated. For instance, who would have thought a stock market meltdown in China possible not too long back?
Renewed confidence in the economy waits to be rebuilt. The economy needs more than an empty slogan to revive the animal spirits that have receded.
Dr Shankaran Nambiar is author of the recently published book, "The Malaysian Economy: Rethinking Policies and Purposes". The views expressed in this article are his own. Comments: letters@thesundaily.com