Growth, Distribution and the NEP in Malaysia Jomo Kwame Sundaram Malaysia Forum, 4 April 2010, Columbia University
Malaysian Development 5 phases: 1957-1969: laissez faire, import substitution, rural development, growing unemployment 1970-1980: NEP, X industrialization, petroleum 1981-1985: Look East, heavy industry 1986-1997: liberalization, X industrialization2, bank crisis BAFIA, sterling losses, 1984 K controls, endaka end 1997-98 Asian crisis 1998-2010: state sustains growth
1957-1969 ISI: tariffs, MIEL: industrial zones, MIDF FDI guarantees Rural devt: Razak v Aziz Ishak Malaysian common market Affirmative action: SEDCs; Bumi economic congress, Bank Bumi, MTI
1970-1980 ISI EOI: Industrial Incentives Act, L law reform, FTZs female workers May 1969: rejection of Alliance palace coup BN Increased unemployment + inequality ethnic perceptions redistribution NEP 1975 ICA; Oil 1974 PDA fiscal space public investments
1981-1985: Mahathir 1 Heavy industrialization (ISI2) Look East: Labour policy Volcker International economic slowdown Isi penuh (full employment) jimat cermat (austerity)
1986-1997: Mahathir 2 Privatization + contracting out partial educational + economic liberalization 1986 Promotion of Investments Act Financial crisis Banking crisis 1989 BAFIA EOI2 boom
1998-2010: M3 A N 1997-98 crisis greater public consumption, investments Private investments down, FDI down Neglect of technology policy Renewed financial liberalization despite global financial crisis!
Lessons Prioritize real economy, not finance Nationalist vs ethno-populist Pragmatism, not dogma Distribution outcome of contention, rent-seeking
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 Growth highest during 1971-96 (NEP, M1) RM $ (1978 prices) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Real Per Capital GDP and its Annual Growth Rates 1960-1995 Alliance Phase N E P Phase Econ Liberalisation Per Cap GDP % Growth GDP % Growth Per Cap. GDP $ % Growth 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6%
Gross domestic product by sector, 1970-2006 1970 1980 1990 2000 2006 Agric. & Forestry 29.0 22.9 18.7 8.7 7.9 Mining & quarrying 13.7 10.1 9.8 6.3 8.8 Manufacturing 13.9 19.6 26.9 33.4 31.1 Construction 3.8 4.6 3.6 3.3 3.1 Services 36.2 40.1 41.9 52.4 51.8
Output by sector, 1970-2008
Export composition, 1960-2000 100% 90% Manufacture 80% 70% 60% 50% 40% 30% 20% 10% Oil & Gas Tin Timber Palm Oil Rubber Manufactures Others Oil & Gas Tin Timber Palm Oil Rubber 0% 1960 1970 1980 1990 1995 2000
Per capita national income, 1970-2007
Population by location, 1957-2005 (%) 1957 1970 1980 1990 2000 2005 Rural 91.0 71.2 62.5 45.3 38.1 37.0 Urban 19.0 28.8 37.5 54.7 61.9 63.0
Employment by sector, 1970-2006 (%) 1970 1980 1990 2000 2006 Agric. & Forestry 53.5 39.7 26.0 20.0 12.5 Mining & quarrying 2.6 1.7 0.5 0.5 0.4 Manufacturing 8.7 15.7 19.9 23.9 29.1 Construction 2.7 5.6 6.3 7.4 6.8 Services 32.5 37.4 47.3 48.2 51.3
Sectoral employment change, 1970-2005 1970-75 1976-80 1980-85 1985-90 1990-95 1996-2000 2000-05 Agriculture & forestry 7.4 0.2 2.2 4.4-17.8-5.7-1.2 Mining & quarrying 1.4-9.5-24.5-11.9 10.0 1.7 2.4 Manufacturing 107.0 21.2 9.7 50.6 53.9 26.2 22.1 Construction 126.4 31.2 40.2-0.6 55.5 5.3 1.0 Services 42.9 16.1-19.9-16.2 15.6-17.5-19.1 Total 31.0 10.1 13.5 17.7 18.4 15.9 17.5
Poverty trends,1970-2007 1970 1990 1999 2007 Total 49.3 16.5 7.5 3.6 Rural 58.6 21.1 12.4 7.1 Urban 24.6 7.1 3.4 2.0 Poorest - 3.9 1.4 0.7
Poverty (b), Gini (r), 1970-2007
Employment status, 1957-2005 1957 1980 2005 Employer 3.8 3.4 35.0 Own account worker 27.0 16.6 Employee 56.7 58.3 75.7 Unpaid family worker 8.3 11.0 4.5
Ethnic household income ratio, 1970-1987 Chinese/ Malay Chinese/ Indian Indian/ Malay Urban/ Rural 1970 1973 1976 1979 1984 1987 2.29 2.21 2.28 1.91 1.76 1.65 1.30 1.31 1.46 1.24 1.37 1.31 1.77 1.69 1.56 1.54 1.28 1.25 2.14 2.12 2.12 1.77 1.87 1.72
Occupations by Ethnicity, 1970-2005 (%) 1970 2005 Bumi Chin Ind Bumi Chin Ind Managers 24.1 62.9 7.8 37.1 55.1 7.1 Professionals 47.0 39.5 10.8 58.5 31.7 8.2 Technicians - - - - 29.7 59.5 Clerical 35.4 45.9 17.2 56.7 34.3 8.4 Services 44.3 39.6 14.6 51.5 39.6 8.0 Sales 26.7 61.7 11.1 - - - Agriculture 72.0 17.3 9.7 80.8 11.3 4.3 Crafts & Trades - - - 46.0 44.6 8.2 Production 34.2 55.9 9.6 60.4 24.8 12.9 Elementary - - - 54.4 25.2 14.7 Total 51.8 36.6 10.6 56.4 32.5 9.1
Employment Status By Ethnicity, 1957 (%) Employer and own account worker Malays Chinese Indians Others Total 18.9 28.3 9.8 14.5 35.0 (66.1) (28.8) (4.1) (1.1) Unpaid family worker Employee 14.1 4.2 0.5 4.1 8.3 (80.0) (17.8) (0.9) (1.3) 37.8 67.6 89.6 81.4 56.7 (30.8) (42.5) (22.9) (3.7) In employment (47.3) (35.7) (14.5) (2.6)
Employment Status By Ethnicity, 1980 (%) Employer Own account worker Unpaid family worker Malays Chinese Indians Others Total 2.6 5.8 4.6 4.1 4.0 (35.5) (51.5) (12.3) (0.7) 32.9 24.7 8.3 32.1 27.4 (64.5) (31.5) (3.2) (0.8) 9.2 5.4 3.3 10.1 7.3 (67.9) (26.2) (4.9) (1.0) 55.2 64.1 83.8 53.8 61.4 Employee (48.3) (36.5) (14.6) (0.6) In employment (53.6) (35.0) (10.7) (0.7)
Employment Status By Ethnicity, 2007 (%) Bumiputera Chinese Indians Others Total Employer 2.2 7.5 3.3 0.7 3.4 (41.7) (54.3) (6.7) (0.2) Own account worker 19.9 16.7 10.0 10.8 17.4 (76.0) (24.0) (4.1) (0.6) Unpaid family worker 5.7 5.2 2.2 2.1 4.9 (76.3) (26.2) (3.1) (0.4) Employee 72.2 20.6 84.6 84.6 74.2 (65.0) (23.9) (8.1) (1.1) In employment (66.7) (25.1) (7.1) (1.0)
Ethnic ownership of share capital, 1970-2006 (%) 1970 1985 1990 2006 Bumiputera 2.4 19.1 19.3 19.4 Chinese 27.2 33.4 45.5 42.4 Indians 1.0 1.2 1.0 1.1 Foreigners 63.4 26.0 25.4 32.5
Bumiputera ownership of share capital, 1970-2006 % 1970 1985 1990 2000 2006 Total 2.4 19.1 19.3 18.9 19.4 Individuals 1.6 11.7 14.2 14.2 15.1 Institutions 3.0 2.6 0.8 7.4 5.1 Trust agencies 1.7 1.7
Post-crisis investment collapse
Private investment down, govt investment up 28
Private consumption flat, government spending up Average Growth % in GDP Demand Components Pre Crisis Post Crisis Pvt Consumption Gov Expenditure Investment 29
Consumption engine of growth % Share of Demand Components to GDP Growth Pre Crisis Post Crisis Pvt Consumption Gov Expenditure Investment 30
Key interest rates low Before After US 16 Dec 1.0 0 to 0.25 ECB 5 Dec 3.25 2.5 UK 8 Jan 2.0 1.5 Japan 19 Dec 0.3 0.1 China (1year lending rate) Malaysia (Overnight policy rate) 23 Dec 5.58 5.31 21 Jan 3.25 2.5
Stimulus package delay slows recovery (% GDP) 1 st stimulus 2nd US 1.1% 6.0% EU 1.5% Japan 2.5% 5.8% China 18.0% S. Korea 1.1% 4.0% Singapore 8.5% Malaysia 1.1%
Growth v redistribution? Per capita growth highest during 1971-1984 Fiscally sustained (oil fiscal space) After 1984, reduced fiscal space Exchange rate 1988-1997 high growth Weak indus. invt finance dominant partial liberalization 1997-98 Asian crisis Slower growth sustained by govt spending, fiscally unsustainable Stimulus delay weak recovery, jobs 4 boys Ethnic patronage problem, not redistribution
4,500 SINGAPOREANS HEADING FOR NEW ZEALAND Star Mar 27, 2010 As a new population of foreigners settles in, many of Singapore s own defence-trained talents are moving abroad. By Seah Chiang Nee. WHILE Singapore is busy attracting talents from abroad, some 4,500 of its own better-educated citizens may be heading for New Zealand. Such a large number has come as a surprise for two reasons. One is that the New Zealand is not even a top choice and, secondly, Singapore is said to be recovering from the economic crisis.
In 2002, Singapore was ranked as having the second highest migration rate in the world (next to East Timor) 26.11 migrants per 1,000 citizens. This would have meant that some 20,640 of its 3 million people were emigrating at the time. As I was writing this, a news headline read: Singapore retains its top spot for Asian expats to live in. While hundreds of thousands of foreigners are making a beeline for Singapore, an opposite flow is also happening.
The outflow of people has long upset leaders like its founding leader Lee Kuan Yew, who once openly wept when he spoke about the subject. Almost one in four top students in Singapore end up working overseas, said Prime Minister Lee Hsien Loong. Some Malaysians are puzzled by this phenomenon. Critics say there are several reasons for the exodus, including high stress level, a high cost of living (one of the world s 10 most expensive cities), overcrowdedness and too much government control.
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