PETALING JAYA, 3 July 2009: Liberalising may have harmful long-term effects for the country, opposition politicians and an activist said.
DAP Member of Parliament (MP) for Klang, Charles Santiago, said Malaysia needs to develop entrepreneurship further before it can benefit from policies such as the ones the prime minister announced on 30 June 2009.
Santiago Santiago, who is an economist, noted that historically, opening up international markets has only benefited everyone when the countries involved are economic equals.
“Your industries need to have a competitive advantage over others, or you will be taken advantage of,” he said in a phone interview.
Prime Minister Datuk Seri Najib Razak said earlier this week the liberalisation reforms were intended to benefit both the wealthy and the poor. He also said the changes were intended to help pull Malaysia out of the global economic crisis.
Among others, Najib announced an increase in foreign shareholder limits and the removal of regulatory guidelines for equity stakes, mergers and takeovers.
Kohila Yanasekaran, an activist with the anti-poverty and social justice group Jerit, says the policies announced by Najib showed that the government was out of step with the rest of the world.
“When the world is talking about regulation, we are actually liberalising,” she said.
Santiago noted that Malaysia got out of the 1997 financial crisis by imposing currency controls. The solution came from regulation, not deregulation, he said.
“”What really happens is when we begin the process of financial liberalisation, the central bank, including the government, begins to lose control of monetary policies,” Santiago said. “It won’t happen today, it won’t happen tomorrow morning, but that’s the gradual process.”
Kohila said the government’s liberalisation was likely to worsen the situation for working Malaysians.
“Imagine international companies coming in and doing agriculture. What will happen to our farmers?” she said in a phone interview.
Not everyone benefits
Jeyakumar Dr Michael Jeyakumar Devaraj, the MP for Sungai Siput and a Parti Sosialis Malaysia founding member, said not everyone benefits from economic liberalisation even when the economy was doing well.
Market liberalisation is popular with politicians and business people because it increased corporate profits and the Gross Domestic Product (GDP), he said, noting that countries like Malaysia feel pressured to deregulate.
But, he said, once developing nations succumbed to the pressure, they find themselves driving costs and wages lower and lower to keep foreign investors from leaving.
“We’ve had 50 years of it now, and though the GDP has grown and there’s a much bigger middle class, divisions in society have also grown. There’s much more anger, there’s much more disillusionment, there’s still poverty.”
Santiago, however, disagreed that Malaysia would use low wages to have a competitive advantage over other countries.
He noted that Malaysia could not compete with the price of labour in India, Cambodia and Vietnam. Hence, he said, foreign investors would not necessarily flock to Malaysia just because the government opened up markets.
Santiago said he was more concerned that Malaysia would lose control of the policy tools it uses to manage the economy without reaping any benefits. He questioned whether Najib’s reforms would result in economic growth.
“The markets have made up their mind. Mid-afternoon [the day after the announcement], the markets were down, which tells you there’s no confidence in what the prime minister [said],” he said.
Santiago also said that while Malaysia and Singapore were wealthier than other countries in the region, they were also the hardest hit by the global economic crisis because their economies were the most internationally integrated.
Unemployment in Malaysia reached 8.9% in May, and the economy shrank at the fastest rate in 50 years after the crisis hit in the fourth quarter of 2008. 
D Evil says
I totally disagree with Santiago. Malaysia must liberalise, even if it is to remove the NEP rules. There is no way the BN government will remove these rules unless there are serious economic problems. Liberalisation will be a short-time pain. It will increase the dynamism of the economy in the long run.
kahseng says
Charles Santiago is a good man but he is mistaken on this one. There is no bad time for liberalization and globalization.
The key is to manage corruption during the process (like AP for Naza), and to give every one an opportunity to participate (like abuses of NEP and government procurement and contracts, unfair toll contracts).
Africa is the extreme example of never finding a good time to liberalize. When would be a good time for Africa?
China in late 1980 was an underdog, did it wait to become miraculously strong before opening up? What would happen had it waited, perhaps until 2009?
Haven’t we waited long enough for international-level banking, telecom, and transport services?
Japan has been strong, but never really opened up its service sector when it was strong. Does it excel in its service sector?
Liberalization and globalization do not cause people to lose opportunities. They reduce your food costs, living costs, etc. In the case that liberalization seems to have increased costs, that is because costs have been shifted (from subsidies financed by high tax) or standards have been raised.
For example, private medicine is more expensive, but also better quality. The caring thing is to ensure the poor have choice in government hospitals. Private hospitals’ competition and training will raise the quality of medical care even in government hospitals. Foreigners coming in as medical tourists demanding for higher medical services raise local quality.
For a more positive example, Tesco and other hypermarkets – often opposed by bleeding-heart defenders of the poor – are exactly the kind of companies that will reduce the prices of oil, flour, eggs, satay, fish, for the poor families and small traders at pasar malam.
Even economists can be confused with the tenets of “comparative” advantage. “Competitive” advantage is not the reason for globalization, it’s “comparative” advantage.
Even if you are poorer and less competent, you can gain from trade. The key is you give up less to gain the same thing – reduce your opportunity cost.
Proton is an example. We are less good in making cars, so don’t do it. Rather than spending 10 people hours to make the car parts, why not spend that labour on making electronics and sell it at 3x the price of a car part we can make, then use one portion of that to buy that car part from Thailand? Same with rice planting.
The issue is do what we do best, at the least cost, and we will gain more than by trying to do what we cannot do best. That’s globalization – it’s about managing costs in many ways. While it means high-cost labour may lose, it means more people in the country will win from lower costs overall.
But it is often the few vested interests of high-cost labour who scream the loudest. Let them win, and the broader consumers pay higher costs, leading to a situation where they can no longer afford to pay, and that industry dies anyway. A high-profile example is US auto makers and their labour union.
The protectionists will never stop. Even where we are richer, protectionists will not want to buy cheaper food from our poorer neighbors like Indonesia, Thailand, and Vietnam.
Kamal says
D Evil: Let’s not cut the nose off to spite the face.
While I am not sure what the better option is, probably the more important question we have not asked is what will the impact of liberalization be on the people.
On one hand, there will be more investments; this should mean more jobs, but on the other hand, governments will be dealing with strong MNCs and may find themselves unable or have more difficulty to regulate crucial public interests.
What we need before we open the country up further are strong instruments and laws that guarantee protecting the interests of the ‘weak’ – i.e. the workers. At the moment we cannot even agree on giving maids a day off!
I would be very cautious with economic liberalisation – because the implications will cross into the social and political spheres.
vin n says
Plan to open up economy won’t help— Dr. M
Oliver says
Socialists can’t be called economists. Liberalism = democracy = free-market. Read Adam Smith, George Orwell and Frederich Von Hayek to know why the free market should always prevail over planned and controlled economies. Yes, I have a first-class degree in economics.
Hong says
Oliver,
Economics is defined by the Merriam-Webster Dictionary as “a social science concerned chiefly with description and analysis of the production, distribution and consumption of goods and services”, and economists are obviously those who specialise in the study of this field. It is as simple as that.
Whether or not they have a left or right political bias has no bearing [on] the validity of labelling a person who engages in such study as an economist. The only thing their particular ideology, i.e. what they think, affects is their understanding and expression of economics. Similarly, a Marxist is as much a politician as a Christian Democrat, the only difference being in their policies.
I appreciate the fact that you brought up Hayek, though. Good man.