Caught in the middle-income trap

VOTERS and representatives are gearing up for the GE14.

And pundits are raising important issues worthy of consideration by voters and those who seek election or re-election.

One that hasn't been given too much attention however is whether Malaysia actually is seeking to and wants to become a fully developed or industrialised country. Although the government has such a plan and often repeats the mantra that Malaysia is on track, the reality is different.

Malaysia is within a middle-income trap in which a country, after making good grounds in increasing standard of living and economic activity over the years, then tends to stagnate and not reach fully developed status.

This is due to the economy and economic actors being unable to properly compete with the more developed and sophisticated fully-industrialised countries.

In 2016 the World Bank listed Malaysia between Maldives and Mauritius and slightly ahead of Russia on income per capita, joining the likes of Brazil and South Africa in a similar predicament.

There are many causes and indicators of this state of affair, including reliance on existing technologies without aggressively pursuing improvements, reliance on resource and primary industries as well as rent-seeking businesses, reliance on unskilled labour – particularly foreign, mismatch of education with industry needs, the exodus of skilled workers to "greener pastures" – the brain drain, inefficiencies in the macro (economic policy) and micro (specific industry policy) economies and last but by no means least, continuing high income inequality of citizens compared with Asean countries.

Malaysia can easily be contrasted with other countries in the East and Southeast Asian regions that once were as poor or even poorer than Malaysia but have now developed to fully industrialised status such as Singapore, Hong Kong (SAR) and South Korea (listed 9th, 16th and 23rd respectively on the 2016 World Bank index of income per capita).

At the excellent Jeffrey Cheah Institute Economic Series at Sunway University last year, some of the best national and international economists discussed the future of Malaysia and their recommended solutions were clear and cogent:

» Government policy must reward and encourage innovation and research and technological development in the private and GLC sectors. Currently R&D lags at 1% of GNI but must increase to 4%.

» Productivity growth must be encouraged instead of continuing support for low-cost foreign labour.

» Education policy must be pursued to increase Malaysia as a higher performing nation and greater effort must be made to retain students/graduates tempted to find tertiary study/work off-shore.

» Labour must be given an increasing share of the national wealth. Currently it lags at 40% of GNI which is much lower than developed countries.

But having said that, it is necessary to acknowledge that high-income status is not the be all and end all either – although low-income members of the community will benefit the most as Malaysia approaches fully developed status, would anyone say that in general Singaporeans are considerably happier as a people than Malaysians?

For example in the 2006 Life Satisfaction Index Malaysia ranked 17th compared with Singapore struggling at 53rd.

And on a personal note, as a western immigrant/expat, I've always been happy to make Malaysia my second home and rarely have I considered Singapore as more attractive.

Adam Lee
Petaling Jaya