The riots in the UK have been horrific, and they are symptomatic of something even more sinister. Boris Johnson, the London Mayor, remarked that the rioters were just a tiny minority with no ideological justification for such actions. If only.
The truth is policies in the advanced world are increasingly catering to an elite subset of people as opposed to the masses. In a country like the US, which long ago lost any claim to being the land of equality for all, Social Security, Medicare, Medicaid cuts are considered acceptable to reduce the deficit but not income taxes for the wealthiest 1%. Can all we see now, unsettled governments and unsettled people, be explained by unequal growth?
I’d like to compare that with what’s happening in our own country. A specific incident comes to mind.
A few months ago, the comparison of subsidies to an opium addiction by our Prime Minister furthered debates on both sides of the aisle on the viability of our economy with/without the alkaloid. However, this was only a manifestation of a larger and far more important dichotomy – the morphology of our economy.
This is a debate that should have started when our Prime Minister stamped out the focal points of his government, chief of which being that ‘the era of government knows best is over’ – very Reaganesque IMO.
But Reagan didn’t do the economy much good. His ‘government is not the answer to our problems, government is the problem’ maxim appears casuistically sound at best with the buildup of the military-industrial complex, the quadrupling of the national debt, the higher poverty rates, a decline in real wages for average families, and the fact that 70% of the rise in average family income during those glorious years went to the top 1%in the country. 70% to the top 1%.
Anyway, enough about Reagan; back to greener pastures at home.
Are inclusiveness and high-income two sides of the same coin or can they be mutually reinforcing? Is this push to reach high-income status by 2020 going to result in a more unequal society as the poor get left behind?
Besides bordering on the undemocratic side, unbridled and unfettered free-market capitalism also brings a series of issues and problems brought on by vast inequality that never allows a nation to properly progress. Two examples come into mind that I’ll briefly elucidate on. Firstly: educational performance. Students in the top performance quartile with parents in the bottom-income quartile are less likely to go to college/university than someone who’s in the bottom quartile in terms of performance but whose parents have incomes in the top-quartile. Secondly, income differences also seem to solidify the social structure and class differences, which decrease one’s chances of moving up the social ladder.
In Malaysia’s case, the racial disunity we talk about is a reinforced by the class differences we see here. Concerted efforts have to be made in order to change this.
Where do government policies fit into everything that’s been discussed?
Firstly, we’ve done very well as a nation to get to where we are now. Our poverty rates have declined tremendously from 49.3% to 3.8% in less than 40 years. The inter-racial average income ratios have fallen among all different cohorts in those years as well. The mean gross household income for the bottom and middle 40% has increased by a factor of 4 with incomes for the top 20% increasing by a smaller but still significant factor of 3.
Moving on to the now; It’s been said that the ETP will lead us on to become a high-income nation that is inclusive as well as sustainable. From that, our move to a predominantly service-based economy should result in a shift to middle-income salary brackets for a significant number. Supply-side bottlenecks like structural misalignment and excessive bureaucracy that has so far been prevalent here have been identified and will be tackled. That should bode well for the mass of the population. However, the ETP is currently disseminated in a form that isn’t suitable for the people who are most likely to benefit from it. Graphs and numbers aren’t going to mean anything to the man in the street. That has to improve.
The fact that both the federal government and the opposition are falling over each other to claim credit for ‘first noticing’ the increased cost of living is a welcome sign. It tends to hamper those at the bottom half more because a higher proportion of their income goes, not only to consumption, but to consumption of necessities that have borne the brunt of the increase. The policies so far include the disbursement of RM 1.4 billion to underprivileged recipients, the maintenance of oil subsidies and the 1Malaysia housing scheme among others. These are good short to medium-term policies that help bear the brunt but do little in terms of improving the productivity of those caught in the ‘trap’.
It was a good move to form a committee to decide a sectoral minimum wage, to push up wages at the bottom of the income distribution. Most of our workers weren’t getting what they should have gotten given years of stagnant, and in some cases, declining real wages. It should be implemented soon.
There’s been a lot of discussion about the Goods and Services Tax (GST) that the government is on the verge of implementing. Besides being a multi-stage consumption tax on goods and services, the GST is temporally neutral and theoretically does not alter spending habits or behavioural patterns; in other words, it does not distort the allocation of resources unlike how subsidies do. Proponents claim that although the tax’s effects can be mitigated or even be counter-balanced with the introduction of zero-rated goods – goods that are not taxed that tend to be consumed in greater proportion relative to income by the poor. Furthermore, it allows the monetisation of each stage of the production process and broadens the nation’s narrow tax base. However, there will be some effects on the poor; the poor consume a larger proportion of their income than the rich and will undoubtedly feel it. When it’s implemented, revenue derived from the tax should be ring-fenced and earmarked for development expenditure for those in the low-income groups. Again, this should be after finding efficiency savings that the government can and should make – it should not be implemented for the sole purpose of reducing personal income taxes and corporate taxes.
I’ve only touched on a few policies but they all lead to and come from one very important conclusion. Inclusive and free societies tend to be ones that are more equal. The morphology of our economy from one that is predominantly controlled from Putrajaya to one controlled by the private sector must not lead to a corporatised economy at the expense of those unable to develop required skillsets to cope. That’s transformation for you.
*This piece is the personal opinion or view of the writer. The NRC11 does not endorse this view unless specified.
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