Thursday, March 14, 2013

It’s not the economy, stupid

Exclusive, Featured, Opinion  |  MARCH 13, 2013, 1:14 PM

It’s not the economy, stupid


ong-kian-ming-i'm-ok-man-thumbnailA foreign fund manager asked me this question last month – “What exactly are Malaysians unhappy with?” After all, the country grew by 5.6% in 2012 compared to a lethargic 1.2% for Singapore for the same year. Investment, measured by gross fixed capital formation grew by an astounding 25% in 2012 compared to a lacklustre 10.2% in 2011.

As a proportion of gross domestic product (GDP – sum of goods and services produced in a year), investment was approximately 26% in 2012 compared to only 18% in 2009. Foreign direct investment in 2012 reached RM34.8 billion, a significant improvement on the abysmal RM5.0 billion in 2009.

The government seems to have a clear plan of action in putting the country back on track via the Economic and Government Transformation Plans (ETP and GTP). The shopping malls and hotels are bustling in Kuala Lumpur. New buildings and hotels are sprouting up all around the Klang Valley area.

The LRT and MRT projects will address the congestion problems in the Greater KL area and increase property values and development opportunities around their vicinity. Malaysia also had the 2nd and 3rd largest public listing in the world after Facebook via Felda Global Ventures Holding (FGVH) and IHH Healthcare.

Things seem to be looking pretty good for the country. But why is there still talk of the Barisan Nasional losing power in the upcoming general election?

A similar puzzle confronted George Bush Senior in the run up to his 1992 presidential campaign. He enjoyed approval ratings exceeding 90% during the successful Operation Desert Storm in 1991 where Saddam Hussein’s troops were routed after trying to invade Kuwait. A year later, his approval ratings tanked over the perception that he was mishandling the economy which led to Bill Clinton’s now infamous tagline “It’s the economy, stupid”.
Najib Abdul Razak
In Malaysia, Prime Minister Najib Abdul Razak is facing a similar quandary. Except that in his case, it doesn’t seem to be the economic performance of the country that is holding him back. In fact, the string of seemingly positive economic news that would have raised the popularity of a national leader in any other country seems to have almost no effect on his approval ratings which registered a 2% dip in the latest Merdeka Survey polls in February 2013. What gives? Have Malaysians suddenly gone mad?

I would like to propose that there are perfectly rational and logical reasons for the lack of responsiveness on the part of the average Malaysian to all this positive economic news.

Firstly, economic growth is not filtering down to the man on the street.

Our gross national income per capita has grown impressively, in nominal terms, from RM24,879 in 2009 to RM30,809 in 2012, a 24% increase. If this growth is equally distributed between corporations and wage earners and also within all wage earners, each working adult should be earning at least 25% more today compared to 3 years ago.

But the economic growth figures sit uneasily with the number of people who have successfully applied for BR1M (Bantuan Rakyat 1 Malaysia – a government scheme which awards cash to the poor) 1.0 and are currently applying for BR1M 2.0.

A total of RM2.6 billion was distributed in 2012 to 5.2 million households even though the budget initially projected for only RM1.8 billion to be distributed to 3.4 million households. This means that 80% of the 6.4 million households in Malaysia were earning less than RM3,000 a month rather than the initially estimated 3.4 million households (or 53%).
This stands in marked contrast to the RM30,809 GNI per capita in 2012 or RM2,567 per month per person or RM10,270 a month for a household of four. Clearly the economic output in the country isn’t being distributed in a manner that is being enjoyed by a majority of Malaysians.

The BR1M 2.0 figures are even more astounding. RM3 billion was set aside in the 2013 budget for an estimated 4.3m households earning less than RM3,000 a month and 2.7m single unmarried individuals earning less than RM2,000 a month for a total of seven million handouts. In other words, even as GDP grew by 5.6% last year and GDP per capita increased to RM32,000, there are going to be MORE people applying for BR1M compared to a year ago.

If the anticipated ‘trickle-down effect’ to the man on the street arising from healthy economic growth has not been felt, then the big headline numbers – record investments, higher growth, higher GDP per capita, more Entry Point Projects (EPPs) under the ETP – which have been incessantly announced and highlighted by Najib’s economic team would mean little to most of the voting public.

Secondly, real wages have stagnated over the past 10 years especially for those at the bottom. In addition, the problem of underemployment seems to plague many fresh graduates.

Even if economic growth was not evenly distributed, as is often the case, its positive impact would be felt more if those at the bottom of the economic ladder saw increases in their real wages and purchasing power. But in the last 10 years, the World Bank estimated that the average increase in wages in Malaysia was approximately 2.6% which is lower than the average inflation rate of 2.8%. In other words, average real wages have decreased over the past 10 years.

To put this another way, the starting salary of a graduate in 1978 was approximately RM1,100 a month. In 2010, this has increased to an average of RM2,500. But in 1978, it would have taken 56 months of a starting salary (or slightly less than 5 years) to buy a 2-storey house in Taman Tun Dr Ismail (a KL suburb) for RM62,000. In 2010, it would take 140 months of a starting salary (or about 12 years) to buy a RM350,000 2-storey house in Nilai, Negeri Sembilan.

Despite the current 3% unemployment rate, other survey data reveal a deeper underlying problem of underemployment among many Malaysians including our graduates.

In a 2011 study done by the Ministry of Higher Education on graduates within 6 months of their graduation, it was found that 25% of degree holders, 24% of diploma holders and 36% of certificate holders still had not started working yet. And even among those who are working, only 64% had permanent jobs while 19.6% were on contract and 14% were holding temporary jobs. This survey also revealed that 70% of fresh graduates earned less than RM2,500 a month with the largest group (29%) earning less than RM1,500 a month.

The only sector of the economy which seemed to have experienced a steady increase in real wages is the public sector. The average wage rate in Wilayah Perseketuan Putrajaya is RM6,746 a month in 2009 compared to RM5,962 a month for the next highest state which is Selangor.

Small wonder that it was reported earlier this year that the Public Service Commission received over 1.1 million job applications out of a possible 46,000 appointments for public service jobs. And this is 1.1 million applications out of a labor force of approximately 13 million people!

For these underemployed graduates with salaries below RM2,500 a month, not to mention those without degrees who are earning much less than these graduates, any talk of a growing GDP and the ETP hitting nearly all of its targets would ring hollow.

Thirdly, increased expectations as well as increased scepticism are working against the BN administration.
The BN government was able to stave off the prediction of modernisation theory – which says that development would bring about greater demands for democracy by an increasingly sophisticated electorate – because it was able to generate gravity defying economic growth during the 1990s.

It was undoubtedly helped by the presence of repressive laws, restrictions in the dissemination of information and a fragmented opposition. Even the 1998 Asian economic crisis was not sufficient to overturn BN’s electorate advantage. The 2008 general elections changed the political landscape and political equation for good.

Increased access to information, denser communication networks especially through social media, and higher levels of education mean that it would take much more than just good economic news to convince the Malaysian electorate that the country is on the right track. It seems that all it takes these days is for another ‘Cowgate’ scandal or accusations of a RM24m ring to undermine whatever positive publicity that may have been generated from the multitude of KPIs (key performance indicators) being achieved under the GTP or the ETP.

The experiences of many a voter, amplified by social media, makes them very sceptical of the positive reports being generated by the government that crime and corruption are being effectively tackled.
Hence, despite enjoying a popularity rating that is over 60%, Najib cannot escape from the much lower ratings enjoyed by his government and by the BN, which failed to even break the 50% mark, according to the latest polls by the Merdeka Centre.

In many ways, Najib is seen as carrying too much baggage – his own and more importantly, the accumulated baggage of BN’s 56 years in power. The desire for what political scientists have termed ‘self-expression values’ over and above that of immediate economic benefits has proven too strong for the BN government to resist. The historic Bersih 3.0 gathering, numbering more than 200,000 people, according to some estimates, exemplifies this desire for greater self-expression.
The experiences of Mexico and Taiwan offer interesting comparisons to Malaysia.

After being in power for almost 60 years, the Institutional Revolutionary Party (PRI) in Mexico won a bitterly contested and some said stolen, presidential election in 1988. The gradual political reforms that were forced on the PRI by opposition parties would subsequently pave the way for the opposition National Action Party (PAN) to win the 2000 presidential elections. This was despite outgoing PRI president, Ernesto Zedillo, presiding over a country that grew by an average of 3.7% from 1996 to 2000 after averaging a sickly 2% from 1989 to 1994 under Carlos Salinas.

Taiwan had its first popularly elected President in Lee Teng Hui of the long ruling Kuomintang in 1996 and he presided over an increasingly democratic Taiwan which grew by an average of 4.8% from 1996 to 2000. In a three-cornered fight in the 2000 presidential election, opposition candidate Chen Shui Bian defeated Kuomintang’s Lien Chen and former KMT leader James Soong ushering in a peaceful democratic transition of power in this state.

It remains to be seen if Malaysia will experience a similar peaceful democratic transition in the upcoming general election. But one thing is for certain, “it’s no longer only about the economy, stupid…”

Ong Kian Ming is the DAP’s election strategist. He can be reached at

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