No choice but to enhance competition, liberalisation

 

This policy can unleash the latent potential of the economy and breed Malaysian entrepreneurs who can compete at home and abroad, says a former Economic Planning Unit director-general

THE nation has launched two stimulus packages essentially to strengthen the economy, following the financial meltdown in the US and in many developed countries. A total of about RM67 billion has been earmarked for this purpose. It is to be implemented in 2009 and 2010. These stimulus packages will help strengthen the green shoots that have appeared in one or two areas.

Yet there have been questions on whether the government will come out with the third package. There is no need for this, at present. The government can, however, support the two packages with other instruments, such as measures aimed at further liberalising the economy.

Indeed some pronouncements have been made to liberalise the 27 services subsectors, and easing foreign participation in the financial services. In addition, the prime minister has also said during a recent Pemudah meeting that the role of the Foreign Investment Committee will be reviewed in the near future. These pronouncements and commitments send a clear signal that the nation needs liberalisation to further boost the economy.

The recent small inflows of investments have been influenced by a relative lack of attractiveness of the economy, notwithstanding, other possible reasons. However, the rising competition, liberalisation, and deregulation can only help polish and boost further the attractiveness of the economy. The continued upgrading of Malaysia's recent ranking by international bodies (IMD for example) reflect the improving competitiveness of the national economy and its potential.

Liberalisation means greater permission or involvement of foreign participation (or by others) in corporate equity whilst deregulation denotes reducing the procedures, conditions, and bureaucracies to facilitate businesses. These two factors have immensely supported the structural adjustments in 1986 leading to an impressive annual economic growth of over 8 per cent throughout 1988 till 1997.

Implementing this proven formula again in the present scenario, can generate positive results.

However, these measures have to be appropriately formulated if they are to be impactful. We have some issues that have to be addressed. Given our low threshold for painful adjustments, we need strong political and social will to do so. We sometimes propose changes but defer their implementation after appeals by certain quarters. Some read this as flip-flops. Some issues cited include too much dependence on foreign labour, too much subsidy and price control, resulting in differing true costs and benefits to the society. Some industries survive here because of the availability of subsidies while some should be established here but do not.

In addition, the demand for growth with distribution led to claims that the economy has not been liberal. These claims need scrutiny. The Malaysian style of giving market access first and allowing time (5 years) for the firms to implement the distributional requirements is said to be non liberal. However, in practice, the implementation is often delayed or deferred for many years, because Bumiputera equity in some cases is not available. Thus, the Malaysian economy is more liberal than it otherwise appears to be. We lose credit for this.

Moving forward we have no other choice but to enhance competition and liberalisation in our economy. This policy can unleash the latent potential of the economy and its operators, and create the various opportunities for income and employment. It can also breed Malaysian entrepreneurs who can compete at home and internationally as well.

Being overly protected and not exposed to the market tests, the entrepreneurs will not be able to withstand competition and will fail, if supports are withdrawn or market prices prevail.

Two policy implications of this stance need to be examined. First, the issue of growth with distribution has to be factored in but should be largely based on a more competitive environment, second, how we engineer a mechanism of transition to a less-subsidy culture for our economic players while not severely dislocating the production system. Hopefully, these will be examined by the team that will propose a higher income economic model to the government.

It is said that Malaysians are used to high income made possible by the liberal and outward orientation of the economy and capability of attracting foreign investments.

Yet we cannot rest on our laurels because the dynamics of marketplace are changing fast and we have to and adjust quickly too. We have done this in the past and we have to do again to avoid unemployment and income stagnation, in our midst. We cannot afford this.

Such a stance is also compelling in view of the need to strengthen government finance which can be assisted by rapidly enhancing and diversifying total output and employment, and having a competitive domestic economy.

Liberalisation and deregulation can facilitate a much buoyant economy for all to benefit. After all, as they say a recession is "when your neighbour's son is unemployed, but when yours is, it is a depression".

I rest my case.

Tan Sri Dr Sulaiman Mahbob is the former director-general of the Economic Planning Unit, Prime Minister's Department