Malaysia sticks to development planning<\/p>\n
Zainal Aznam Yusof outlines some of the trends in the
\nMalaysian economy, and its prospects in the years ahead.<\/p>\n
With all the razzmatazz over liberalization, the fetish of
\nmarket forces and the laying out of the red carpet for the
\nprivate sector to sustain economic growth, one would have thought
\nthat these would spell the demise of economic planning. Not so.
\nAt least not for Malaysia, where development planning is taken
\nseriously. The recently published Seventh Malaysia Plan, 1996-
\n2000 (SMP) is testimony to the longevity of development planning.<\/p>\n
The SMP has set targets of 8 percent growth per annum and
\ngrowth in investment of 5 percent per annum, with a higher target
\nfor private investment (at 7.8 percent per annum). If the targets
\nare achieved, then private investment's share of total investment
\nwill reach 73.6 percent by 2000. And the share of total
\ninvestment in GNP will reach 42.5 percent by the year 2000 as
\ncompared with 34.1 percent in 1990. The burden of mobilizing
\nfinancial resources will fall on the private sector, with the
\nshare of private savings expected to increase from 18.7 percent
\nof GNP in 1995 to 27.4 percent in 2000.<\/p>\n
If we are to take a slightly longer historical perspective,
\nthe SMP seems to embody a more clearly and freshly enunciated
\nshift towards a strategy of maintaining rapid growth by raising
\nproductivity and, for the first time, announcing a target for
\ntotal factor productivity (TFP) contribution to growth. Focus
\nwill be put on \" ... accelerating productivity, and efficiency,
\nprimarily through private sector initiatives. Special emphasis
\nwill be given to skills upgrading, capital deepening and
\ntechnological development\".<\/p>\n
The growth targets and financial resources will continue to
\nraise the level of industrialization. The manufacturing sector is
\nslated to grow at 10.7 percent per annum, and although this is
\nless than the Sixth Plan (13.3 percent), its share of GDP would
\nthus increase to 37.5 percent by 2000, compared to 26.9 percent
\nin 1995. Gross manufactured exports are expected to increase by
\n16.9 percent per annum, more than total exports (14.4 percent).
\nReflecting the pace and depth of industrialization, the share of
\nmanufactured exports is planned to increase from 76.6 percent in
\n1995 to 88.6 percent in 2000.<\/p>\n
If the growth target of 8 percent is achieved, it would mean
\nthat the Malaysian economy will have succeeded in growing at more
\nthan 8 percent per annum for more than 10 years. That would be an
\nachievement, and one which is even more laudatory because it
\nwould have been attained on the back of low inflation.<\/p>\n
Worries over relatively poor productivity growth has, finally,
\npersuaded the planners than an explicit productivity target
\nshould be embedded in the SMP. There has been a strong populist
\nand academic consensus recently, largely due to the work of the
\nWorld Bank, that Malaysia and a few other countries including
\nSingapore, Thailand and Indonesia, are \"investment driven\"
\neconomies as opposed to \"productivity driven\" ones such as South
\nKorea, Taiwan and Hong Kong. And the endogenous growth theory
\ncould tell a slightly different story. It would be easy to
\nsuccumb to the temptation to put aside the arcane technical
\nquarrels over measuring the TFP and all that goes with it in the
\ninterest of brevity and space. But it does matter because the SMP
\nhas the ambitious target of raising the contribution of TFP to
\ngrowth to 41.3 percent during the plan period, compared with 28.7
\npercent during the first half of the 1990s. Is this achievable?<\/p>\n
It would seem that, according to some sources, over the 1974-
\n1995 period, TFP grew at an average annual rate of 1.6 percent,
\ncontributing 23 percent of the growth of the economy. A mature
\nindustrial economy would have about half of its growth coming
\nfrom TFP. One suspects that sheer factor accumulation and,
\ntherefore, labor and capital's contribution to growth, would
\nstill be sizable, that is more from \"perspiration\" rather than
\n\"inspiration\".<\/p>\n
A long-standing target of the Malaysian political economy is
\nequity within a pluralistic society. Just how do you cope with
\ngrowth so that it will not be so injurious to equity and ethnic
\nrelations? Development planning has explicitly taken this
\nsensitive concern and successive plans have reported on the
\nprogress that has been achieved on this front. Planning has
\nassiduously tracked the progress in reducing racial economic
\nimbalances in income, employment and ownership. The equity story
\nhas been a good one, with the level of absolute poverty falling
\nfrom about half in 1970 to about 8.9 percent, and with just about
\n2.2 percent labeled as \"hard core poor\", in 1995.<\/p>\n
There is thus a new worry about the distribution of income.
\nNot only is overall income inequality widening but the racial
\nincome imbalance between the bumiputras and the non-bumiputras
\nhas been widening too. The mean household income of bumiputras
\ngrew at 9.3 percent per annum between 1991-1995 while the Chinese
\nhousehold income increased by 10 percent per annum and the Indian
\nmean income grew by 10.1 percent. So the bumiputra-Chinese income
\nratio went from 1:1.74 in 1990 to 1:1.81 in 1995. Rural-urban
\nincome disparities also widened because rural household income
\ngrew much slower than urban household income. Rapid economic
\ngrowth, therefore, has been accompanied by a worsening in the
\ndistribution of income.<\/p>\n
Interestingly, the official evidence of a widening of income
\ninequality has not attracted much attention and the bells and
\nwhistles have been rather muted. Why? One would hazard the guess
\nthat after almost 20 years of rising tempers, anger and obsession
\nover poverty, inequality and the restructuring of society,
\ninterest has waned. Perhaps there is inequality fatigue.<\/p>\n
Maybe Malaysians have become more tolerant of inequality so
\nthat statistics on inequality are greeted with yawns, especially
\nas opportunities for material advancement are still mushrooming.
\nThey are sharing the growth and never mind if some are getting
\nmore than others. It would be heartening if this is a genuine and
\ndurable popular attitude but it would be wise to anticipate
\nreversals in sentiment. It is a fragile tolerance.<\/p>\n
Dr. Zainal Aznam Yusof is Deputy Director-General (Economics),
\nInstitute of Strategic and International Studies, Malaysia.<\/p>",
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