Wednesday, May 11, 2011

MP writes an obituary for NEM


By Liew Chin Tong
Malaysiakini

I would like to pay tribute to members of the National Economic Advisory Council for producing arguably the most candid official report on the problems of the Malaysian political economic structure known as the New Economic Model.

The NEM is indeed stillborn as the old rent-seeking model continues to thrive under its current ill-disguised incarnation.

In what amounts to a farewell luncheon for members of the National Economic Advisory Council, which was tasked to draft the New Economic Model, Prime Minister Najib Razak thanked NEAC members for their work and contribution in preparing the NEM report.

“And, although your work is over, you are most welcome to be part of this journey and be part of future contributions to Malaysia,” he said.

Najib said the recommendations contained in the NEM report to transform Malaysia into an inclusive and sustainable high-income economy are now being transformed into an action plan.

The NEAC is now coming to an end as is the New Economic Model. Whereas the Economic Transformation Programme is a different animal altogether. The ETP, executed by Pemandu, is essentially a rehashing of Mahathirist policies.

First, the main premises of NEM is that Malaysia can no longer survives on throwing money at problems. Having more capital investments, be it foreign or local, will not help Malaysia out of its middle-income trap.

NEM recommendations fell on deaf ears

Productivity gains through innovation is the way to go for Malaysia to move out of the middle-income trap, where talent is the basis of innovation. But ETP under Pemandu’s watch is focusing on capital investment numbers and practically nothing else.

Second, social inclusiveness is the one of the three key pillars in the NEM but Pemandu’s ETP pays no attention to the subject. The BN government should have learnt from the example of Singapore where its citizens have voiced out their frustration at the government for focusing on GDP growth purely without being able to solve the rising inflation faced by the men on the street.

The sandwich class will continue to struggle with unaffordable housing, healthcare, and other basic needs as the NEM is unable to meet their needs, fueling the brain drain that is gripping the nation.

Third, while the NEM had argued that economic decision-making powers should be devolved to state and local governments and not concentrated in the hands of the central government; the ETP avoided the question of government structural reforms.

Unfortunately, the key recommendations of NEM (as shown below) fell on deaf ears and the NEAC closes shop as a result.

Approach to economic development: The old versus NEM

Old Approach NEM Approach
Growth primarily through capital accumulation.
Focus on investment in production and physical infrastructure in combination with low skilled labour for low value added exports.
Growth though productivity.
Focus on innovative processes and cutting-edge technology, supported by healthy level of private investment and talent, for high value added goods and services.
Dominant state participation in the economy.
Large direct public investment (including through GLCs) in selected economic sectors.
Private sector-led growth.
Promote competition across and within sectors to revive private investment and market dynamism.
Centralized strategic planning.
Guidance and approval from the federal authorities for economic decisions.
Localised autonomy in decision-making.
Empower state and local authorities to develop and support growth initiatives, and encourage competition between localities.
Balanced regional growth.
Disperse economic activities across states to spread benefits from development.
Cluster- and corridor-based economic activities.
Concentration of economic activities for economies of scale and better provision of supporting services.
Favour specific industries and firms.
Grant preferential treatment in the form of incentives and financing to selected entities.
Favour technologically capable industries and firms.
Grant incentives to support innovation and risk-taking to enable entrepreneurs to develop higher value added products and services.
Export dependence on G-3 (US Europe and Japan) markets.
Part of production chain to supply consumer goods and components to traditional markets.
Asian and Middle East orientation.
Develop and integrate actively into regional production and financial networks to leverage on flows of investment, trade and ideas.
Restrictions on foreign skilled workers.
Fear that foreign talent would displace local workers.
Retain and attract skilled professionals.
Embrace talent, both local and foreign, needed to spur an innovative, high value added economy.

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