We cannot expect the economy to spring back into action when the lockdowns end because the extent of the restrictions has caused real, structural harm to many firms
Pic By MUHD AMIN NAHARUL
WHATEVER IS the outcome of the political realignments in Malaysia — it is as much a failure of policy as it is a failure of government — that had caused the current malaise.
Merely changing the government while following the same policy framework will not necessarily deliver better outcomes. What is needed, whether there is a change in administration or not, is the courage to change the policy framework.
Lockdowns Must End
The immediate challenge is to acknowledge that the economy can only begin to recover when the lockdown ends. According to the Ministry of Entrepreneur Development and Cooperatives, 90% of MSMEs cannot last until October or November and if the lockdown continues until then 580,000 might close.
The pre-conditions to end the lockdown are to change the management of the virus response because it is now widely recognised that the current lockdown policy has failed. The numbers of daily infections are not coming down as hoped and vaccination numbers, although improving, have yet to bring the desired effects.
While it is important to continue the vaccination programme and to enhance the “Find- Test-Trace-Isolate-Treat” approach recommended by the World Health Organisation, it is also important to use data-driven targeted and pre-emptive lockdowns and to enhance the use of prophylaxis and treatments for 98% of cases that are Category 1 (no symptoms) and Category 2 (mild symptoms).
Continued Support Will be Needed
We cannot expect the economy to spring back into action when the lockdowns end because the extent of the restrictions has caused real, structural harm to many companies. Continued support will be necessary to help in the post-lockdown recovery and a transition to sustainable growth.
The recovery potential depends on a number of issues. Some companies are resilient and will spring back as customers return. Some will have to rebuild links to customers, especially business-to-business and supply-chain firms. If their customers rebound, so will they. Exporters can hopefully respond quickly to an upturn in overseas demand.
Many firms won’t survive, some will have lost markets and customers which won’t return and of course, 150,000 may already have closed according to industry estimates.
Continuing support policies can help these companies, especially micro, small and medium enterprises (MSMEs), to deal with cashflow, paying outstanding bills and financing debt. The extension of the wage subsidy programme and rehiring programmes will also be helpful, but is it essential that Putrajaya engages with companies — especially MSMEs — to find out what they need instead of dreaming up packages that no one really wants or needs.
For households, savings are exhausted, Employees Provident Fund (EPF) has been wiped out for nine million Account 2 holders, debt has risen, the loan moratorium will end and repayments will begin again — at higher rates.
Average salaries fell by 9% and median salaries fell 15.6% so more than half of salaried employees earn less than RM2,062 per month now. Around 3.4 million people are unemployed or underemployed which is 19.8% of the workforce.
So, it is more likely that households will struggle to rebuild their lives, get a job and rebalance their finances first before spending and post-lockdown strategies should develop a social market economy approach which balances market-driven growth with social equity.
Long-term Social Market Development
In the long term, the economic development model for Malaysia must be reviewed. The foundation must focus on market liberalisation, reducing the role of government in the economy and reforming the government-linked companies (GLCs).
Priorities could also include scaling back government involvement in business through responsible privatisation of non-core, non-strategic GLCs’ subsidiaries. Instead of active involvement in business, the focus of the government should target social wellbeing including health, education and social welfare.
Labour market reform and policies to creating well-paid, meaningful work to address unemployment and the massive underemployment problem must be a priority. High-value, not high-tech economic activity must be emphasised for domestic and trade markets with a focus on job creation. Reform of the structure and funding of the education and skills development system is also essential.
The pandemic has exposed structural social inequality like never before and shown that Malaysia has no social welfare infrastructure beyond emergency cash hand-outs and food parcels. The bottom 40% and middle 40% alike have been hit.
Building a social welfare system with universal comprehensive coverage from cradle-to-grave must be a central pillar of the recovery and development strategy from now on. This must cover the nine branches of social security — sickness, unemployment, medical care, family, old age, employment injury, maternity, invalidity benefits and survivors’ benefits.
Security in retirement must also be prioritised and whole-scale reform of the pensions system to rebuild pension funds for individuals. A multi-pillar pension framework and income layering are necessary elements in building a sustainable pension system that goes beyond the current model relying on existing institutions.
Many people have compared the current Covid-19 pandemic to a wartime scenario and indeed the costs in terms of lives and livelihoods and the demands on our front liners have all the characteristics of a war effort.
After World War II, as Winston Churchill was working with so many others to form the United Nations, he famously quipped: “Never let a good crisis go to waste”.
In Germany, Konrad Adenauer and others responded to the post-war crisis by building a Social Market Economy which laid the foundations for more than 75 years of ongoing social and economic success.
Malaysia faces a similar challenge and must look forward with hope to the post-Covid period as an opportunity to build back better, to create a new and successful development agenda based on social equity and high value, high-quality economic growth. This requires a change in policy not just a change in personnel.
- Dr Paolo Casadio is an economist at HELP University, Professor Terence Gomez is an economist at University of Malaya, Dr Mohamed Aslam Haneef is a professor of Islamic Economics at the International Islamic University Malaysia and Professor Geoffrey Williams is an economist at Malaysia University of Science and Technology.
The views expressed are of the writers and do not necessarily reflect the stand of the newspaper’s owners and editorial board.