Economics: Are we better off today?
18 June 2005
This article “Explaining Growth: Malaysia” by Kevin Chew and Chaynee Wong dated 14 Jun 2002 is probably instructive. Most of their data was extracted from Bank Negara and other government sources.
Here are a few highlights:
1. The study covers the period from 1970 to 2001
2. Per capita income grew at about 5.2% between 1970 to 1996 but shrunk by 1% in 1997 and 1998 during the Asian Financial Crisis. Overall per capita grew from RM860 in 1970 to RM 13,412 in 2000.
3. Real GDP (Gross Domestic Product) grew between 5 to 10%.
4. There was a comparison of household income classified by race.
5. The effects of the NEP in its various forms were discussed.
6. Poverty reduced from 49.3% to 7.5% from 1970 to 1999
7. Malaysia performed very poorly compared to the Newly Industrialised Economies (NIE) such as South Korea, Taiwan, Singapore in the following areas:
i. Per capita
ii. Tertiary enrolment, increased from 2 to 12% for Malaysia, 13 to 68% for South Korea, 7 to 28% for Hong Kong and 6 to 43% for Singapore,
iii. Total Factor Productivity, TFP, was the lowest for Malaysia
iv. Production of graduates in Science and Technology was also lowest for Malaysia
8. Growth in the past was achieved by pouring money into investments without a corresponding increase in technical progress and economic efficiency.
9. This strategy cannot be sustained in the face of China’s challenge and unless a change in strategy is adopted, Malaysia’s growth will reduce.
Other metrics to measure Malaysia’s progress:
A. Per capita income based on World Bank World Development Indicators in Year 2000 USD prices.
Income increased from USD 1131 in 1971 to USD 4641 in 2005
A. Performance of Ringgit (RM) against Singapore Dollar (SGD) –
In 1973, the RM was at par with the SGD. It gradually dropped to 89% over the next 12 years to 1985. Thereafter it dropped rapidly over the next 12 years to about 52% of the SGD. There was a sharp fall to 42.5% during the 1997 financial crisis before the introduction of capital control in Sept 1998. Since then, the RM has hovered around the 43 to 45% range.
Interpretation: The steep fall in the RM value from 1985 to 1997 coincided with the wide-spread privatisation of state assets by Dr. Mahathir. The value of the RM vis-a-vis the SGD can be taken as an indication of the relative progress of Malaysia compared to Singapore.
Finally, what does this mean for the typical graduate?
Over the past 35 years, the starting salary in government for a graduate has increased 237% from RM 750 to RM 1780.
Price of a Toyota has increased 730% from RM 8,000 to RM 58,400
Price of a typical double-storey house in Petaling Jaya has increased 1290% from RM 38,750 to RM 500,000.
It would take a fresh graduate in 1970 5.2 years to pay off the car and house, whereas in 2005, it would have taken him 26.1 years to do so. In other words, he has to work 5 times longer to buy that car and house!
Effectively, over the years, the average graduate has become poorer despite the apparent dramatic increase in per capita income.
If this trend were to continue, the outlook for the typical graduate 35 years hence in 2040 will be very bleak. The situation for an ordinary worker will be even worse.
What are the solutions?
1. Reduce import duties and taxes on cars
2. Improve land administration procedures. Make the process more transparent and more efficient through the creation of an online land database, publicly-available. This will reduce holding costs for the housing developers.
3. Eliminate hidden subsidies in housing prices that effectively increase the price to the house buyer. Cross subsidies for low-cost housing and purchases by Bumiputras should be removed.
4. Remove restriction on land ownership on all categories of land, thus increasing the supply of land to the public, thereby reducing the price. Malay reserve land and native land should be reclassified as non-reserve land, thus creating a greater demand and better price for the land.
5. All release of Government land should be through public tenders.
posted by granddaddy @ 9:48 PM
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