(First published in theSun on 24th October 2013, and can be accessed here.)

TWO things will be taking place simultaneously tomorrow: the 2014 Budget announcement, and the Universal Periodic Review (UPR) in Geneva, a review of our human rights records over the past four years. Is there any direct correlation between civil liberties and economic growth? What is the relationship and can this be measured?

Researchers (BenYishay and Betancourt) in their study of the relationship between the two found that “personal autonomy and individual rights” is the most significant indicator in explaining long-term economic growth. This is because it captures the ability of individuals to exercise their personal social freedoms and economic rights freely with respect to employment, location, and ownership of property.

The significant relationship between the two is unsurprising. Individuals having the ability to freely choose whom they wish to marry, the education they want for themselves, where to work and live, without interference from any external party including the state, allows for individuals to own property and participate in the exchange of goods and services freely, which make for a flourishing economy.

Of course, some critics would question how China or Vietnam have progressed so remarkably without fulfilling certain civil liberty criteria. One response is that their economic activities in the earlier years revolved around low level development growth, such as in agricultural markets.

Once economies move into modern development markets that require the rule of law such as financial markets, the application of civil liberties and political rights – the equal treatment of all citizens alike before the law – will certainly start to matter. The Index of Economic Freedom, for example, also shows how a higher score for the rule of law leads to better economic freedom. As China and Vietnam move into these markets, it may perhaps become more imperative that they apply these principles.

Another study by a World Bank economist showed that civil liberties impact positively on government projects and government effectiveness by allowing citizens’ voices and a free media to keep government accountable, since centralised, top-down approaches to governance fail to deliver expected results. (Pritchett and Kaufman, 1998).

Our human rights record as compiled by the UN Human Rights Council from various organisations for the UPR shows violations with regard to religion, peaceful assembly, indigenous people’s native customary rights, refugee rights, and so on. The passing of the Prevention of Crime Act (PCA) that brings back detention without trial and is essentially a return of the Internal Security Act (ISA), and the court judgment on “Allah” make our record even more troubling.

Malaysia is one such country that has moved up the value chain into higher level modern development markets, and its growth now depends on these, hence the emphasis on the services sector. But what policymakers and cabinet leaders must realise is that apart from focusing on industrial policy, fundamental factors to achieving long-term economic growth must include civil liberties, political freedom and the rule of law.

This is essentially an exercise on whether greater democratisation leads to a more vibrant and robust economy, and different research seem to show this is certainly the case. As individual freedoms are granted and civil liberties restored, Malaysia would eventually become an attractive place to live, work and set up a family. Foreign companies wanting to invest, and the foreign talent pool we hope to attract are made up of individuals who want to exercise their rights to religion, expression and peaceful assembly. These are all factors that contribute directly to a dynamic economy.

Individual liberties would also allow for greater participatory democracy. Local communities being able to check on local council, state and federal government spending, for example, would reduce the likelihood of corruption taking place. Government projects would be more effective in their delivery, thereby boosting economic development the way in which they are set out to do.

The study referred to at the beginning of this piece unfortunately does not provide country by country data. It would be interesting to examine how Malaysia fares in the “personal autonomy and individual rights” category. While individuals are free to exercise social and economic rights, these rights do not seem to apply uniformly to all citizens of all races, religions, regions, genders or political affiliations.

Finally, it is also apt to ask whether individuals in our society are free to “participate in the exchange of goods and services”, especially given the dominance of state-owned companies prevalent in our economy. For private enterprises to participate in the economy – which would be the driver of growth – the presence of government-linked companies and by default, political interests in the economy, must eventually be reduced to a minimum.

As Malaysians tune in to the budget announcement tomorrow, let us not forget that at the very same time, our human rights record will be under intense scrutiny for a full 3.5 hours in Geneva, and that these two events are more inextricably linked than what governments may have us think.

(First published in theSun on 25th September 2013 and can be accessed here).

WHEN Prime Minister Datuk Seri Najib Razak launched the Bumiputra Economic Empowerment Council (BEEC), it brought with it more questions than answers.
Since 1971, Malaysia has undergone numerous development plans with the same type of language and goals, starting from the New Economic Policy (NEP).

Each five-year Malaysia Plan had a table detailing the breakdown of ownership of share capital of limited companies by ethnicity. However, through the years, the level of detail in statistical breakdowns has deteriorated. Earlier documents provided richer data than later ones, which hampers comparisons between the plans.

For instance, in the second and third plans (1971-1975 and 1976-1980 respectively), classifications were broken down by “Malays”, or “Malay interests”.

Starting from the Fourth Malaysia Plan (1981-1985), this was replaced by “bumiputra” which included non-Malay bumiputras (with one exception for an ethnic breakdown of poor households in Sabah and Sarawak).

Today, all tables reflective of socioeconomic status under our Malaysia Plans (we are under the 10th Malaysia Plan, from 2011-2015) only show breakdown by bumiputra – this does not distinguish between Malays and non-Malay bumiputra (orang asli and natives from Sabah and Sarawak).

It would have been crucial to make this distinction, since one would expect these two communities to have different needs, within different contexts, and therefore requiring different programmes. Najib in his speech therefore quoted bumiputra corporate company equity rate having gone up to 23.5% in 2011.

This is coming close to, yet not having achieved, the original objective of the NEP launched under the Second Malaysia Plan, with the aim of “… within a period of 20 years, Malay and other indigenous people will manage and own at least 30% of the total commercial and industrial activities in all categories and scales of operation”.

The methodology of calculating this was not clearly spelt out within the plans. This resulted in a paper published in 2006 by a think-tank suggesting that this target had been surpassed, if one included the equity held in care of bumiputra by government-linked companies (GLCs) and nominee companies (the traces of which are extremely difficult to determine based on publicly available sources).

Related to this is whether or not publicly listed companies ought to be evaluated based on par value or market capitalisation – in 2006, the Economic Planning Unit held it ought to be the former when in fact the latter seemed to be a more sensible and accurate measure of equity ownership.

But say that the government’s official calculations are correct, and we take the figures given in Najib’s speech at face value. This would have spelt out tremendous achievements, since bumiputra monthly average household income has increased by 2,500% in 42 years, to RM4,457 in 2012, and bumiputra poverty rate has gone down from 64.8% in the 1970s to 2.2% in 2012.

The bumiputra from the Kadazan, Iban and orang asli communities would surely be delighted to learn of this.

With such stellar performance, one would have thought increased government aid would no longer have been necessary. Herein lies the problem of potential uneven distribution of wealth within the bumiputra community, and it does not help that we only have lump-sum figures to work with.

Strangely enough, Najib states that the 10th Malaysia Plan was aimed at “providing fair opportunities to all Malaysians, regardless of ethnic groups …” and “based on the principle of friendly market, need, transparency and merit”, but within the same paragraph also says that the meritocracy here meant “competition among bumiputra”.

It is only possible to mean one and not the other; both statements cannot be simultaneously correct.

The numerous studies of successful Malay entrepreneurs today ought to be testament to their ability to flourish in a competitive market. The BEEC assumes that the bumiputra needs more help than ever before.

This reverses the prime minister’s commitments made under the New Economic Model, to open up the economy through fairness in government tenders, fair competition, removing market distortions, among others.

In his administration’s efforts to establish greater competition among the bumiputra, he has also singled out bumiputra vendor development systems “based on merit” among “all ministries and GLCs”, including Petronas for the oil and gas sectors.

For instance, specific mention was made that bumiputra companies would benefit from contracts worth RM20 billion each year for upstream and downstream service work.

Petronas Licensing and General Guidelines 2012 does spell out strict procedures of obtaining licences from Petronas. This already requires that any company must have bumiputra involvement at the equity, directorship, management and employee levels at certain levels.

No details on the licensing process after negotiations is usually made available thereafter, apart from a media release published online on the successful contract awarded.

One concern here is the lack of transparency and accountability, since this usually involves large sums of money and the only oversight on Petronas being that of the prime minister, as stipulated by the Petroleum Development Act 1974. This is especially so if licensing changes are made without having to follow any approval process.

Transparency is a problem for issues of aid anywhere in the world. Even in the realm of international aid, charities and celebrity donors are told how many gunny-sacks of rice are being flown in to a Third World village. But they don’t know how much rice exactly is being given to whom.

(First posted in theSun on 11 September 2013 and can be accessed here.)

THE government says it intends to pursue fiscally responsible policies, but this must be consistently applied throughout its bureaucracy from top to bottom, and in all areas.

Last month, ratings house Fitch Ratings downgraded Malaysia from a “stable” to “negative” outlook, noting the poor state of Malaysia’s public finances and uncertain prospects for budgetary reform and fiscal consolidation.

Indeed, there have been concerns expressed over recent years of the country’s federal government debt, which has risen up to 53.5% of GDP at the end of 2012.

The two budgetary vulnerabilities it identified were the reliance on petroleum-derived revenues, and the high and rising weight of subsidies in expenditure.

It is likely for these reasons that the Najib administration decided to revert to its “subsidy rationalisation” plan, namely the announcement last week of the fuel price increase of 20 sen for RON95 and 15 sen for RON97 at the petrol pumps, which will reportedly save government up to RM3.3 billion annually.

From a fiscally responsible point of view, removing petrol subsidies both ensures that government is reallocating resources to better target aid to the poor, as well as reduces the dependency people (including the rich) have on cheap fuel. The same argument would go for the goods and services tax (GST) that may be announced in the 2014 budget.

Both reducing subsidies and introducing the GST would, in the long run, certainly help boost Malaysia’s debt situation, thereby improving our international ratings. But the real reasons for which people are questioning these decisions have little to do with economic theory.

First, subsidies to independent power producers (IPPs) contribute an estimated RM8 billion annually out of the total subsidies paid a year (RM42.4 billion in 2012). Although some IPP contracts are being renegotiated, there is a need for greater transparency as to the terms of these new contracts. A legitimate question is therefore why the subsidy rationalisation scheme is not being uniformly implemented across the board.

Second, leaders had previously committed to the maintaining of petrol price before the general election. Although one understands the need for politicians to be expedient, this does not help Malaysians in their financial planning. Knowing one’s potential rapid increase in living costs would allow for adjustments to be made accordingly. Surprise price increases are not helpful in this case.

A third and most common complaint by now is the exorbitant and excessive spending of government, many foolish practices of which are reported year after year by the auditor-general.

It is all well and good for government to responsibly raise revenues so that the national coffers do not run dry. But an equally, and perhaps more, responsible thing to do would be to watch where the money is being spent, and to do so in an accountable manner.

The Resources Governance Index 2013, which measures the quality of governance in the oil and gas sectors around the world, ranked Malaysia 34 out of 58 countries and scoring only 46 out of 100. Placed in the “weak” category, Malaysia performed poorly in the areas of “institutional and legal setting” and “safeguards and quality controls”.

Transparency in government procurement is another equally important area. The Auditor-General’s Report in 2011 revealed that the open tender process was not conducted for several projects. It is particularly important for projects that are privatised under either PPP (public-private partnerships) or PFI (private finance initiatives) arrangements to be awarded under open tenders, which is not necessarily the case at present.

Finally, the greatest concern is that incomes are not rising in commensurate measure with the rise in living costs. A more open and competitive economic environment would allow for greater job opportunities that accompany investments, especially that of higher value functions. Malaysia’s performance in the Economic Freedom Index 2013 dropped slightly, affected by declines in monetary freedom, trade freedom and freedom from corruption.

It is important for information to be made available in the value chain of money both going in and out of government accounts. Although recorded in the thick budget books of “Estimates of Federal Government Revenue and Expenditure” respectively, there are still elements that could be made more transparent.

In short, while the government waxes lyrical about the need to exercise fiscal responsibility, this must be applied in all areas of its policymaking. There must therefore be a visible drive to reduce wastage and excessively lucrative pay-outs to companies at the expense of the public. Without this, the level of trust in what these funds are being used for will not improve, subsequently making all justifications of economic efficiency futile.