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New development formula vital for achieving high-income nation status

New development formula vital for achieving high-income nation status

19 Jan 2021

The government is expected to release its 12th Development Plan in the first quarter of this year, to give a medium-term direction for the economy and thrusts of development policy to drive the economy in the coming years.

Whether the plan will bring with it a longer-term perspective framework covering the period of 2021-2030 has yet to be seen.

It would be good to have such a long-term view so that the community has a chance to get a feel of the longer term vision that may unfold.

Surely with the ample time series data, such as the Input-Output Tables, collected since the early 1970s, the Economic Planning Unit can easily undertake this long-term exercise of gauging the underlying strengths, potentials, and weaknesses of the economy.

Indeed, examining these strengths and weaknesses will give us an understanding of the structural issues and challenges that the economy has encountered and will continue to confront in our efforts to reach a high-income country status or to break free from the clutches of the middle-income trap — an affront facing many emerging economies, our nation included.

The 12th Plan should be concerned with the nation’s productivity level and long-term trends, which, if seen in a comparative setting vis-a-vis others, such as South Korea, reveals that there is much to be improved.

At the national level, we will be concerned with total factor productivity while, at a micro level, we are concerned with labour productivity and technical skills that our workforce have, relative to the need for rapid technological change in the face of changing global comparative and competitive advantages brought about by digitalisation and changing economic dynamics.

The latter is caused by factors such as slowdown of multilateralism, Brexit, the pandemic outbreak and also the recent trade friction between the United States and China, when outgoing American president Donald Trump had issued the threat of relocating US companies from China.

In the region, Vietnam and Indonesia have put their efforts into strengthening the competitiveness of their economies. Their ability to attract foreign investments, despite the pandemic, speaks of their potential in the years to come.

Much has been said elsewhere about our declining manufacturing dominance in total output, partly because of low value-added creation and contribution to the economy.

The plan should emphasise the critical need to review the incentive system to attract high quality industrial investments based on open economy competition.

We cannot help but reinforce industrialisation during the 12th Plan period to bring in the technology and to equip our youth with high skills and creativity.

We are no longer in the class of labour-surplus economies, like Indonesia, nor are we among high export-oriented service economies, like Singapore and Hong Kong.

A new development formula based on new technology industrialisation must be found and anchored upon as a basis of wealth creation during the 2021-2030 period.

The Malaysian Investment Development Authority must be prepared to shoulder this task.

Having spoken of this concern and the role of manufacturing in achieving the high-income nation objective, the plan has to equally address the fundamental political economy of the country, namely, the issues of growth and distribution.

Both economic growth and distribution of its benefits must be seen to be equitable both in terms of the needs of space and income class.

We may want to leave the ethnic approach of distribution and focus more on income class and space consideration, given the federal nature of our political governance.

This approach will be more acceptable and palatable to all.

However, we cannot forget the specific need to factor in the interest of the Orang Asli, who have to be absorbed into the mainstream economy as soon as possible. A special land development scheme must be planned for them. They have been left out from the fast speed of the modern economy for too long.

This 12th Plan and its narratives must lift our spirits again in the hopes of becoming a high-income nation that the original Vision 2020 aspired to achieve, before it was waylaid by economic and financial crises.

Tan Sri Dr Sulaiman Mahbob is Adjunct Professor at INPUMA of the University of Malaya, and UNIRAZAK and USM

Source: NST