Public Response to the NEM (First Flush)

While the NEM is certainly a comprehensive macro-charting of the focus and strategies to be adopted to turn Malaysia into a developed country and a high-income nation, the immediate response from bloggers, opposition stalwarts and some segments of the public (as I had managed to scan so far) can be summed up in one word - SKEPTICAL. It lacks details on implementation, says Kit Siang; no evidence of serious efforts to carry through reforms especially within UMNO to stem out 'renteering' and 'patronage' ( particularly through taking commissions and preempting the distribution of contracts!) say some; how to raise income if industries are not raking in high profits, can pay higher wages, and employ more people? is the the response from many others.

I myself was expecting something new in terms of constructing an economic growth model: something different from the known models like Harrod-Domar, the Big Push model, the Endogenous Growth model etc. What we have is a roadmap for getting Malaysia out of 'the middle-income trap' reminiscent of the Equal Opportunity and Affirmative Action programs launched by the United States in the 70s. It announced 3 principles 'to drive this country to become a fully developed nation' ie. high income, sustainability and inclusiveness, through the adoption of strategieswith 8 reform initiatives viz. 

1) Re-energising the private sector to lead growth; 2) Developing a quality workforce and reducing dependency on foreign labour; 

3) Creating a competitive domestic economy; 

4) Strengthening the public sector; 

5) Putting in place transparent and market friendly affirmative action; 

6) Building knowledge base infrastructure; 

7) Enhancing the sources of growth; and 

8) Ensuring sustainability of growth.The affirmative action policy would be based on 4 principles ie. market-friendly, merit -based, transparent and based on needs.

If those principles and strategies sound familiar, they cannot be said to be 'cliches'. But they certainly are a big mouthful and therein perhaps lies the cause of some skepticims. But take note. These are the broad outlines to be presented to the public to get the public response. NST reports (March 31)," The first part of the NEAC report on the New Economic Model (NEM) was released to the public yesterday. The government will gather feedback from the public before formulating firm policies ( Highlight is mine).

So, no firm policies has yet been framed, is it? What has been released is just the broad perspective, the roadmap, the macro-view. The response that I have read so far seems to argue on the seriousness of the government to put the 'model' to work. There does no appear to me any discussion on the 'practicality' and 'inherent contradictions' contained in the model. Maybe this has not been found out yet. However NST (ditto) did say: " Najib's pledge was loudly applauded by some 1,600 industry captains at the opening of the ...Conference here although many were aware that some of the reform measures could face stiff resistance." (Highlight is mine).

At this point I would like to mention only a few of the initial fears with regard to practicality issues and the contradictions. First, the income level of the labour force depends on the industries' and governments' ability to pay. We can have a 50% labour force with degrees and high-level technical diplomas but can the industry and government employ them with a high pay? The industries must achieve a high level of productivity and profitability to employ more people with a high wage. To do that we need more capital, higher technology, higher consumer demand and more disposable income in peoples' pocket. How can higher market demand be created if wages are low and how can you increase the wages when profitability is low. Thus we have the chicken and egg problem; which comes first raise wages or the profitability of the industries.

Raising the productivity and profitability of the industries is not a matter that can be done through a policy statement. So many factors are involved and we leave that for the time being to the economic and industrial development planners.

Next I would like to point out the contradiction in the second and fourth principles of the affirmative action plan - merit-based and based on needs. Meritocracy has been much debated elsewhere; it's nice and fair when people have more or less an equal start. But some need to be assisted from the word 'go'. A merit based selection will just throw them out. So how do you reconcile the two principles?

For any model to work we have to get rid of the contradictions within the model. We need to test the model for inconsistencies and contradictions and debug them. I think this is what the policy makers, the planners, the implementors and the critiques of NEM should do now. Voicing skepticism and doubts on the seriousness of the government to carry out the NEB would not benefit the country and the people.