As conditions change, Malaysia needs second generation policies that prioritise inclusive growth to achieve vision 2020

Nov 25, 2014

Ms. Michelle Gyles-McDonnough, Resident Representative of UNDP Malaysia and the Main Authors of the MHDR Tan Sri Kamal Salih, Dr. Lee Hwok Aun and Dr. Muhammed Abdul Khalid launching the Malaysian Human Development Report 2013

Inaugural independent UNDP report highlights challenges and opportunities to Malaysia.

Kuala Lumpur, November 25, 2014 ~ The United Nations Development Programme (UNDP) launched the inaugural Malaysia Human Development Report titled ‘Redesigning an Inclusive Future’.

This independent national human development report provides a comprehensive and robust look into the challenges facing Malaysia and provides recommendations to steer the nation towards vision 2020 and beyond. Among the key subjects touched by the independent report are poverty, income and wealth inequality, vulnerable groups, low wages, small middle class, gender inequality, affirmative action and policy reforms.

Ms Michelle Gyles-McDonnough, Resident Representative, United Nations Development Programme for Malaysia, Singapore and Brunei Darussalam said, “As Malaysia focuses on defining a transformative agenda that will lead to the realization of its Vision 2020, the focus of the MHDR on inclusive growth and its ambition to contribute to “Redesigning an Inclusive Future” offers an opportunity for collective re-architecting of a future where growth and high income alone is insufficient.

This reinforces the global message and lesson learned that while growth is necessary, there is an urgency to move away from a growth model that, while on balance it has provided major human development gains, especially in many countries of the south, it also has resulted in worsening inequality worldwide.  We need now to focus our economies on a new paradigm, one that is centred on people, on lifting the bottom 40 percent and reducing their sense of precariousness, and on the expansion of the middle class as an indicator of inclusive growth.”

‘Redesigning an Inclusive Future’ reports key findings and policy recommendations to Malaysia for achieving inclusive growth. Highlights include:

Absolute poverty has decreased but relative poverty has emerged as a growing concern in recent years. Relative poverty, which measures the number of households living with less than half of the median income, is a better approach to assess inclusiveness compared to absolute poverty, which measures the number of households living below the poverty line.

Sabah has the most poor people compared to any other state. More than half of its population are Bumiputera minorities. Bumiputera minorities in Sabah and Sarawak and the Orang Asli of Peninsular Malaysia remain the most vulnerable ethnic groups in Malaysia, lagging far behind the Malays, Indians and Chinese in benefiting from the country’s progress.

The distribution of wealth is extremely skewed and is concentrated at the top. Asset inequality is nearly double that of income. The relative income gap between the rich and the poor has not changed in 20 years. Strengthening the pro-poor policy and introducing active redistribution policies will positively impact income distribution to benefit all members of society.

If the priority before was to ensure full employment, the new challenge is to address wage inequality and wage stagnation. Wage share to national income has decreased despite the sharp increase of corporate profits to national income. The rise in wages has been staggering further and further behind the rise of productivity in the country. Introducing a minimum wage has the highest positive impact on improving inequality.

The country’s middle class remains small at 20% of total households, despite continuing economic growth. This figure has not improved significantly over the last two decades, indicating limited upward social mobility. Social safety nets such as access to income security, basic services and opportunities help protect vulnerable groups with limited assets and capabilities, and prevent them from falling back into the bottom 40%.

About half of working-age Malaysian women are unemployed or not seeking employment. The female labour force participation rate is well below Malaysia’s overall labour force participation rate, despite the fact that the gap with that of men has decreased over time. It is estimated that the GDP stands to grow by almost 3% if the female labour force participation rate can be raised to over 70%. Although women are increasingly educated and empowered, their contributions to the economy have persistently been impeded by various factors.

Women consistently earn less than men at every level of the job spectrum. Male-female wage disparity is greatest at top-end jobs i.e. senior officers and managers. Even for occupations where women dominate, e.g. services and clerical work, men still earn a higher wage for doing similar work. The situation is even less rewarding for women in the informal economy, where labour laws are rarely observed.

Affirmative action continues to be complex and must be implemented reasonably. It is important to ensure a right balance between the special position of the Bumiputera and the legitimate interests of other communities.

Malaysia’s growth and development is a story of two halves – initial positive impact (1970 – 1990), followed by arising challenges (1991 – today). Malaysia needs second generation policies that prioritise inclusive growth and social cohesion.

Traditional one-size-fits-all, top-down strategies need to increasingly give way to bottom-up, decentralised growth. This strategy has never been fully tested in Malaysia.

During her speech, Ms. Gyles-McDonnough said  Malaysia’s New Economic Model (2010-2020) and Tenth Malaysian Plan (2011-2015) embrace an inclusive agenda and as Malaysia moves to the 11th Malaysian Plan, the last mile before 2020, it is imperative to reflect upon past successes,  and the unattained milestones and remaining challenges.  It is also imperative to acknowledge the materialization of new challenges - par for the course in a dynamic world – and make the best decisions for the future.

“UNDP remains a steadfast partner to walk this last mile with Malaysia towards 2020. We have done so together since Malaysia’s independence, and we believe that we remain the choice development partner for Malaysia in redesigning the most inclusive and sustainable future possible” said Ms. Gyles-McDonnough.

In the global Human Development Report 2014, titled Sustaining Human Progress: Reducing Vulnerabilities and Building Resilience, Malaysia ranked in the high human development category and 62 out of 187 countries, unmoved from last year’s ranking, with Malaysia neighbouring on either side Barbados, Palau, and Antigua and Barbuda, and Mauritus, Trinidad and Tobago and Lebanon in the Human Development Index (HDI).

The reports were launched by Ms. Michelle Gyles-McDonnough and the main authors of the MHDR, Tan Sri Kamal Salih, Dr. Lee Hwok Aun and Dr. Muhammed Abdul Khalid.

The report can be downloaded at www.mhdr.my