Some Key Public Sector Economic Policies For The Forseeable Future
Since the early 1980s, we have stressed that this country will rely on the private sector as the primary engine of economic growth. In a way we were ahead of the rest of the world, even the developed countries in entrusting economic growth to the private sector.
In the early years, our fledgling private sector could not fully respond to the challenge that was issued. Then came the unpredictable and difficult recession and slowdown years. However in the last three years the private sector has bloomed and responded. The policy is now bearing fruit. The outcome: in 1988, we grew in real terms by 8.9 per cent; in 1989, by 8.8 per cent; in 1990, by 9.4 per cent without expansionary budgetting by the Government. Even the tiger economies of North East Asia have not done so well.
No nation can afford to abandon a winning formula. And this nation will not. For the forseeable future, Malaysia will continue to drive the private sector, to rely on it as the primary engine of growth.
In the meantime the Government will continue to downsize of its role in the field of economic production and business. The State cannot of course retreat totally from the economic life of Malaysia. It will not abdicate its responsibility for overseeing and providing the legal and regulatory framework for rapid economic and social development.
The Government will be pro – active to ensure healthy fiscal and monetary management and the smooth functioning of the Malaysian economy. It will escalate the development of the necessary physical infrastructure and the most conducive business environment – consistent with its other social priorities. And where absolutely neccessary the Government will not be so completly bound by its commitment to withdrawal from the economic role, that it will not intervene. It will play its role judiciously and actively.
The process of de-regulation will continue. There can be no doubt that regulations are an essential part of the governance of society, of which the economy is a part. A state without laws and regulations is a state flirting with anarchy. Without order, there can be little business and no development. What is not required is over regulation although it may not be easy to decide when the Government is over regulating.
Wisdom lies of course in the ability to distinguish between those laws and regulations which are productive of our societal objectives and those that are not; and it lies in making the right judgements with regard to the trade – offs. Thus Governments will be neither foolish nor irresponsible, and will cater to the needs of the wider society as well as the requirements of rapid growth and a competitive, robust and resilient economy. It will be guided by the knowledge that the freeing of enterprise too – not only laws and regulations, and state intervention – can contribute to the achievement of the wider social objectives. In this light and given the fact that there are clear areas of unproductive regulation which need to be phased out, you can expect the process of productive de- regulation to continue. The recent move of Bank Negara to de-regulate the BLR regime is an example in point.
Privatisation will continue to be an important cornerstone of our national development and national efficiency strategy. This policy is not founded on ideological belief. It is aimed specifically at enhancing competitiveness, efficiency and productivity in the economy, at reducing the administrative and financial burdens on the Government and at expediting the attainment of national distributional goals.
In implementing our privatisation policy, the Government is fully aware of the need to protect public interest, to ensure that the poor are provided access to essential services, to guarantee that quality services are provided at minimum cost, to avoid unproductive monopolistic practices and to ensure the welfare of workers.
There will be problems. No endeavour comes without a price tag. But it is clear enough that this policy has thus far generated positive results and we can expect its implementation to be accelerated in the future. With the completion of the Privatisation Master Plan Study, I believe that many of the bottlenecks and rigidities that obstruct the progress of the needed privatisation will be removed, thus accelerating its smooth implementation.
There will be in the years ahead an Accelerated Industrialisation Drive, a drive that is not based on a fascination with industry but on the simple truth that if we want to develop rapidly -in a situation where the developed economies will be moving out of industrialisation into a post – industrial stage – this is the way to go. If we are to industrialise rapidly, we will need to capitalise on our national strengths and forcefully tackle our weaknesses.
In pursuit of this policy, the Government will need to deal with the problem of a narrow manufacturing base. In 1988, 63 per cent of total Malaysian manufactured exports came from the electrical and electronic and textile industries. Electronics alone accounted for 50 per cent of total manufactured exports. We must diversify.
Despite the most rapid development in the free trade zones insignificant demand has been generated for local intermediate products. We will have to deal with the problem of weak industrial linkages.
There is inadequate development of indigenous technology. There is too little value- added, too much simple assembly and production. There is also a need to counter rising production costs brought about by rising costs of labour, raw materials and overheads by improving efficiency and productivity. There is a serious shortage of skilled manpower. All these and many more issues will need to be addressed.
Small and medium scale industries have an important role to play in generating employment opportunities, in strengthening industrial linkages, in penetrating markets and generating export earnings. They have a crucial role as a spawning ground for the birth of tomorrow’s entrepreneurs.
The Government will devise appropriate assistance schemes and will seek to raise the level of management expertise, technological know-how and skills of the employees in this very important and in many ways neglected sector of our economy.
The SMIs will be one of the primary foundations for our future industrial thrust. The Government is fully committed to its healthiest development.
Just as we must diversify the products we export so must we diversify the markets we export to. Malaysian exporters must look also at the non – traditional markets. It will require new knowledge, new networks, new contacts and new approaches towards dealing with unfamiliar laws, rules and regulation. It will be uncomfortable but it would be a mistake to consider that it is not worth the discomfort to deal with these markets. Alone they may be small but cumulatively the market of the developing Asian, African and Latin America countries are big. If the developed countries find it worth while to export to these markets then it must be worth while for us also. The Government will help but the private sector must play their part. Reliance on export- led growth is still the way to rapid growth.
Entry into the world market pits our companies against all comers and subjects them to the full force of international competition. This is a challange we must accept not simply because the domestic market is too small but because in the long run it will actually enrich our domestic market and reduce our dependence on export.
We must persist with export-led growth despite the global slowdown, despite the rise of protectionism, trade blocs and managed trade. When the going is tougher, we must not turn inward. We simply have no choice but to be more lean, more resourceful, more productive and generally more competitive, more able to take on the world. 56. The liberalisation of the Malaysian economy has had beneficial result and contributed towards a more dynamic growth.
Obviously, liberalisation must be undertaken responsibly and in stages so as not to create economic uncertainty and impose excessive structural adjustment costs. We should take into the fullest consideration Malaysia’s capacity to undertake liberalisation. We should not dismiss the infant industry argument, but we should not bow to illegitimate pressure.
At the same time, productive liberalisation ensures that our private sector will be less reliant on artificial profits and on protection, which benefits some producers at the expense of consumers and other producers. Infants must grow up. They must grow up to be sturdy and strong. And this cannot be done if they are over-protected.
For reasons that are obvious, the Government will continue to foster the inflow of foreign investment. This is essential for Malaysia’s Accelerated Industrialisation Drive. Again, we will not abandon a winning strategy. But we will fine-tune it to ensure that measures are in place to ensure that Malaysia maximises the net benefit from the inflow of foreign investment.
In the past, the domestic private sector has largely failed to meet the targets set in successive Malaysia Plans. Apparently domestic investors feel that the Government has not devoted enough effort to the fostering of domestic investment as we have devoted to those from overseas. This is not completely true but we will redress the situation as we get better feed back.
Small and medium scale enterprises must be assisted to grow bigger. Surplus savings and domestic capital must be more productively channeled into investments. Entrepreneurs must be spawned. Where necessary, technological and training help must be extended; and infrastructural support must be given.
It is worthwhile to stress again that the development that we need cannot take place without the infrastructural underpinning. We must keep one step ahead of demand and need. In the recent Budget, we clearly stated what we will do in the shorter term. The Sixth Malaysia Plan will make clear what we will do in the medium term while the second outline perspective Plan will indicate the direction over the long term. The Government is fully aware of the infrastructure bottlenecks and of the need for massive investments in the years to come. We will not let growth to be retarded by excessive congestion and investment indigestion, as has happened in many countries.
In our drive to move vigorously ahead nothing is more important then the development of human resources.
From the experience in the last two decades of all the economic miracles of the countries that have been poor in terms of “natural resources”, it is blindingly clear that the most important resource of any nation must be the talents, skills, creativity and will of its people. What we have between our ears, at our elbow and in our heart is much more important than what we have below our feet and around us. Our people is our ultimate resource. Without a doubt, in the 1990s and beyond, Malaysia must give the fullest emphasis possible to the development of this ultimate resource.
Malaysia has one of the best educational systems in the Third World. But for the journey that we must make over our second generation, new standards have to be set and new results achieved.
We cannot but aspire to the highest standards with regard to the skills of our people, to their devotion to knowhow and knowledge upgrading and self-improvement, to their language competence, to their work attitudes and discipline, to their managerial abilities, to their achievement motivation, their attitude towards excellence and to the fostering of the entrepreneurial spirit.
We cannot afford to neglect the importance of entrepreneurship and entrepreneural development, which goes, of course beyond training and education. We must ensure the correct mix with regard to professionals, sub-professionals, craftsmen and artisans, and the correct balance with regard to those with competence in science and technology, the a rts and social sciences.
In the development of human resources we cannot afford to neglect half the population i.e. the Bumiputeras. If they are not brought into the mainstream, if their potentials are not fully developed, if they are allowed to be a milestone around the national neck, then our progress is going to be retarded by that much. No nation can achieve full progress with only half its human resources harnessed. What may be considered a burden now can, with the correct attitude and management be the force that lightens our burden and hasten our progress. The Bumiputeras must play their part fully in the achievement of the national goal.
Inflation is the bane of all economic planners. Fortunately except during the first oil shock when inflation went up to 17%, Malaysia has managed to keep inflation low. We must continue to keep it low. The Government, the business sector, and the people must be committed to keeping it low. The only real way to combat inflation is to live within one’s means. If we cannot afford we just don’t buy. In Malaysia this is possible for we can produce practically all we need in terms of food, shelter and clothing. When recently we had a recession, life was bearable because we were able to buy our needs at roughly the same price i.e. we had practically no inflation. Now that we have more money, demand pull is slowly forcing prices up. So although we may be more prosperous now, although we may be financially wealthier now, but in terms of purchasing power we are not as well-off as we should be.
The public must understand what causes inflation and must be disciplined enough to combat it . In some countries when inflation rates go up to thousands of per cent per year, Governments have been changed again and again without inflation being contained. The reason is that the people are not disciplined and prepared to restrain themselves. No Government can put a stop to inflation unless the people are prepared to accept the discomfort of austerity.
In the fight against inflation nothing is more effective than education and discipline among the people.
In an interdependent trading world, the exchange rate plays a vital role. Too cheap a currency will increase import bills and debt payment but it will make exports competitive. But the full benefit of a low exchange rate on export can be negated by the cost of imported material which go into the exported products. A high currency value will “enrich” our people, particularly in terms of buying imported luxuries but our exports will not be competitive and the economy will eventually be adversely affected.
Clearly the management of the exchange rate is of extreme importance to the progress of our nation. There is only a limited ability to manipulate. In the final analysis it is how we balance our trade that will determine how our currency is valued. Malaysia must learn to be competitive through higher productivity rather than through manipulating exchange rates. Again the people must understand their role, particularly with regard to productivity.
In a world of high technology Malaysia cannot afford to lag behind. We cannot be in the front line of modern technology but we must always try to catch up at least in those fields where we may have certain advantages. We have already adopted a National Plan of Action for Industrial Technology Development. This is the easy part. We must now proceed expeditiously to the enormously difficult task of implementation.
The Government will certainly provide the necessary commitment and leadership to this national endeavour. The institutional and support infrastructure will be put in place to ensure rapid, realistic, focussed and market – driven development of our technological capabilities. But let us never forget that technology is not for the laboratory but the factory floor and the market. The private sector and our people must respond. Far too often the results of research are ignoured in favour of the tried and tested moneyspinners. It has been said that the secret of Japan’s success is its skill in applying research results to marketable products. If we don’t do this we are going to be left behind whatever may be the level of our technology.
While increasing our industrial manufacturing sector, Malaysia must make sure that our agriculture and services sector will not be neglected. We must advance. We must strive for efficiency, modernity and competitiveness. These should be the key guiding principles of our national policy towards agriculture, tourism and the fullest development of the entire services sector.
Nor can we afford to neglect the rural sector of our economy and society. In the years ahead, we must work for a second rural development transformation, restructuring the villages so as to be compatible with both agriculture and modern industry. Less and less farmers should produce more and more food, thus releasing manpower for an industrial society.
While doing all these we must also ensure that our valuable natural resources are not wasted. Our land must remain productive and fertile, our atmosphere clear and clean, our water unpolluted, our forest resources capable of regeneration, able to yield the needs of our national development. The beauty of our land must not be desecrated – for it s own sake and for our economic advancement.
In the information age that we are living in the Malaysian society must be information rich. It can be no accident that there is today no wealthy, developed country that is information -poor and no information-rich country that is poor and undeveloped.
There was a time when land was the most fundamental basis of prosperity and wealth. Then came the second wave, the age of industrialisation. Smokestacks rose where the fields were once cultivated. Now, increasingly, knowledge will not only be the basis of power but also prosperity. Again we must keep up. Already Malaysians are among the biggest users of computers in the region. Computer literacy is a must if we want to progress and develop. No effort must be spared in the creation of an information rich Malaysian society.
In international relations, the emphasis should be less on politics and ideology but more on economic imperatives. Small though we may be we must strive to influence the course of international trade. To grow we have to export. Our domestic market is far too small. It is important to us that free trade is maintained. The trend towards the form ation of trading blocs will damage our progress and we must oppose it. We must therefore play our part and not passively accept the dictates of those powerful nations who may not even notice what their decision have done to us.
A country without adequate economic defence capabilities and the ability to marshall influence and create coalitions in the international economic arena is an economically defenceless nation and an economically powerless state. This Malaysia cannot afford to be.
There are many other policies that must be in place if we are to make the 1990s the most economically productive decade in our history.Let me end by mentioning just one more: the necessity of making Malaysia Incorporated a flourishing reality.
Let me stress not all collaboration between our public and private sector is justifiable or productive. In many areas there must be a long arm’s length approach. But there can be no doubt that a productive partnership will take us a long way towards our aspirations.
Some Key Public Sector Economic Policies For The Forseeable Future