Five principles to make Malaysia great

WHAT is at stake in the next general election? There are accusations and counter-accusations being traded. Scandals are being hung for all to see – on both sides of the divide.

Can one expect a major shift in the economic policy framework? It is not certain if the next government is going to cut the size of the civil service. Or if we are going to have high quality state-financed healthcare as in Norway, Finland or the United Kingdom. Or if higher education is going to be entirely a public sector affair as in the UK or Australia.

It seems that the fundamental economic model is set and will not change.

Nevertheless, all political parties are strongly convinced of the importance of free trade, regional integration and the role of foreign direct investment. The implementation and details will vary with each party.

But there is no doubt that the country needs a clear agenda for economic progress.

The principles guiding economic reform have to be re-visited and a framework will have to be designed. One such list of priorities could be as follows:
» Rolling down government involvement in business
» Prioritising efficiency and the achievement of outcomes
» Creating adequate opportunities for all groups, particularly the disadvantaged
» Ensuring the economic neutrality of the country
» Affirming good governance

A little elaboration is in order.

First, government participation in business cannot be ruled out. As economic theory suggests, government participation is necessary in areas that are not attractive to the private sector. The government's involvement is usually welcome if security issues are at stake; or if the investment is risky but necessary for the public good.

The rationale for government-linked companies to invest in hospitals or private universities is a bit of a puzzle.

Why should the government (even if indirectly) get in the business of healthcare and education when it should be supporting the provision of these services?

Second, the efficiency of the public sector has to be further upgraded. This includes public delivery systems (where there has been tremendous improvement in many areas) and it should also include public procurement and the decision-making on projects (particularly mega projects).

Third, the responsibility of the government should be to ensure the fair distribution of opportunities. Prioritising opportunities entirely on the basis of ethnicity can create inefficiencies. It can also de-incentivise targeted agents. People who have been selected to receive benefits can lose the motivation to maximise their performance.

Efficiency and the achievement of outcomes cannot be pushed aside. There is a debate in economics on outcomes versus opportunities. In practical terms, one cannot indefinitely defend creating an opportunity-rich environment with no regard for outcomes.

Fourth, good governance covers a range of issues including institutional integrity, the freedom to voice one's opinions, being free from violence, transparency and zero tolerance for corruption.

The rule of law is a key pillar of good governance. It should stand above position, title, religious belief and political association.

Fifth, it is essential that Malaysia retain its independence and sovereignty.

Razeen Sally, a prominent academic and Sri Lanka observer, is known to have remarked at a conference that Sri Lanka should not become a vassal state of China. The same cautionary comment could be made in a different and perhaps a more general context.

Malaysia should resist any attempt to reduce itself into being a vassal state of any superpower.

Politicians claim that Malaysia needs foreign direct investment and that it does not matter where this comes from.

This is a naïve argument. There is a difference between an investment made for commercial reasons and one that is made so that a superpower can exert its sphere of influence.

A careful examination is necessary to decide on the economic viability of any foreign investment.

A set of criteria should be examined to assess whether foreign investment should be accepted: the rates of return should be acceptable, the use of foreign labour should be allowed subject to need, there should be transfer of technology, and the terms on which loans are offered should not be unfavourable.

Malaysia has to remain economically and politically neutral, a state that is free to pursue its own agenda.

If Malaysia is to be a star it needs to develop a more liberal culture in the economic and social spheres.

Dr Shankaran Nambiar is a senior research fellow at the Malaysian Institute of Economic Research. He is author of Malaysia in Troubled Times. Comments: