Like many other developing nations, Malaysia also faces the complex challenge of balancing economic growth with equitable distribution of wealth. However, recent government policies, such as the introduction of targeted subsidies, have been touted as measures to aid those in need that might come with a big prolonged price. These initiative interventions introduced by the current government would disrupt market dynamics, inadvertently exacerbating economic disparities and creating long-term socioeconomic issues. This article explores alternative strategies the Malaysian government can adopt to enhance economic stability and improve living standards for all Malaysian citizens, particularly those below the parity index.
The current government initiative of targeted subsidies is intended to assist lower-income groups with the intent of reducing the costs of essential goods and services through the introduction of targeted diesel subsidies, etc. The intent is good, however, these subsidies often lead to market distortions, resulting in unintended consequences. Have you ever considered how such policies might create more problems than they solve? Market disruptions, leakages, and a culture of dependency are among the most significant drawbacks of this approach. The impact of the targeted subsidies implemented by the current government will be prolonged, and create a dark loop of blockchain that will eventually have a significant negative impact on the economy in the long run, as well as increasing inflation in many ways that no one will notice.
Market disruptions occur when subsidies, either in the form of fuel or distort the prices of goods and services, lead to inefficiencies in supply and demand. For example, if fuel is subsidized, consumers may use more than necessary, leading to wastage and environmental damage. Conversely, producers or manufacturers might reduce their supply because the lower prices erode their profit margins. This can lead to shortages or increased reliance on imports, which places additional stress on the current economy. In other words, the Malaysian economy will be fragile and would create a big loophole that may create another side effect of blockchain in the current circular economy.
Leakages are another critical issue. Have you ever wondered where all the money goes? Another issue will be corruption. This is jihad rhetoric by the current Prime Minister of Malaysia. In reality, corruption will increase, and there will be no way it can be stopped, even though the media will show otherwise due to current policies. Reduce maybe, or abolish would be impossible. Targeted subsidies are prone to diversion, where benefits intended for the poor are captured by intermediaries or wealthier individuals. For instance, subsidized goods may be resold at higher prices in black markets, benefiting those who manipulate the system rather than the intended recipients. This reduces the effectiveness of subsidies and leads to wasted resources.
Moreover, continuous reliance on subsidies can create a culture of dependency. When people become accustomed to receiving government aid, they may lose the incentive to innovate or strive for self-sufficiency. This dependency not only hampers individual growth but also stifles broader economic progress, as a significant portion of the population remains reliant on government support rather than contributing to economic development, including universities and SMEs. Have you ever thought about what happens to a society that doesn’t push its members to be self-reliant and innovative?
Technological advancements like blockchain and the principles of the circular economy promise increased efficiency and sustainability. However, they also carry the risk of indirectly driving up prices of goods and services, which can be detrimental to low-income groups. Are we prepared for the hidden costs of these technologies?
Blockchain technology, while offering transparency and security, requires substantial investment in infrastructure, training, and regulatory adjustments. These initial costs are often transferred to consumers, resulting in higher prices, which will be diverted by increasing the electricity bills, water, etc. For example, if a supply chain integrates blockchain for better traceability, the increased operational costs might lead to higher prices for end products. Similarly, the circular economy, which focuses on reducing waste and promoting recycling, necessitates significant changes in business operations. These changes, including the adoption of new technologies and processes, involve upfront costs. Until these models become mainstream and economies of scale are achieved, consumers may face higher prices. Instead of helping the B40, it indirectly reduces the consumer parity index as well as the purchasing power index, which causes them to be more dependent on government needs. So the main question is, does this targeted subsidy really help B40 or does it only lowering M40 and create big gaps between T20 and B40 and diminished M40?
The indirect impact of these technologies can also be seen in the housing market. Implementing energy-efficient technologies or sustainable building materials can increase construction costs, which are then passed on to buyers and renters. While these measures are beneficial in the long term, they can make housing less affordable in the short term. Where will people go when housing becomes unaffordable? Other new subsidies introduced or formulas?
The growing gap between the rich and the poor in Malaysia has far-reaching implications, where the introduction of targeted subsidies will eventually turn M40 into B40 and T20 becoming M40. Economic inequality can lead to social unrest, brain drain, and economic stagnation, all of which undermine national stability and growth. Have you ever questioned the true cost of inequality? Social unrest is a significant concern. Economic inequality often results in dissatisfaction and resentment among the lower-income groups. This can manifest in various forms, including protests, strikes, and even violence. For instance, in countries where economic disparities are pronounced, social tensions frequently lead to instability and disruptions, which can deter investment and hinder economic progress. What will happen when the voices of the dissatisfied grow louder? I hope for the best for Malaysia’s future and I greatly appreciate the wisdom of the Sarawak Premier who opts out of the current policies and is stern with developing Sarawak by searching for an alternative direction.
Brain drain is another critical issue. Talented individuals, particularly those with advanced education and skills, may seek better opportunities abroad if they perceive that the local environment does not offer adequate prospects for professional growth and fair compensation. This emigration of skilled labor leads to a loss of intellectual capital, which is vital for innovation and economic development, where current semiconductors are now facing depletion of local talents follow up suit engineers, biotech, etc. Malaysia has already experienced this phenomenon, with many of its brightest minds moving to countries with more favorable economic conditions. How can we build a future if our best minds are leaving? Milling more graduates? Or we end up losing more and more in the future to other countries.
Economic stagnation is a further consequence of growing inequality. When a significant portion of the population has limited purchasing power, overall consumer spending declines. This reduced demand can lead to slower economic growth and perpetuate a cycle of poverty for lower-income groups. For example, if the B40 group (bottom 40% income group) cannot afford necessities, they are unlikely to spend on other goods and services, thereby stifling business growth and economic expansion. Can an economy thrive when a large part of its population is left behind?
Instead of reducing subsidies, the Malaysian government should consider strategies that directly enhance the purchasing power of consumers, particularly those in the B40 group. This approach involves reducing the consumer power or parity index, strengthening social safety nets, and promoting financial literacy. Have you ever wondered what could happen if we focused on empowering consumers instead of providing temporary relief? Another issue will arise as well as the M40 group seems to be neglected by the government.
Reducing the consumer power or parity index involves aligning income levels with the cost of living. This can be achieved by ensuring that wages grow in tandem with inflation and productivity improvements. For instance, implementing minimum wage policies that are periodically adjusted based on economic conditions can help maintain the purchasing power of workers. Additionally, policies that encourage businesses to share productivity gains with employees, such as profit-sharing schemes, can ensure that wage growth keeps pace with economic progress. What if everyone earned a fair wage that matched the rising costs of living?
Strengthening social safety nets is another crucial strategy. Expanding access to healthcare, education, and unemployment benefits can provide a more robust support system for vulnerable populations. For example, a comprehensive healthcare system that offers affordable or free services can reduce the financial burden on low-income families, allowing them to allocate more of their income to other needs. Similarly, improving access to quality education can enhance long-term economic prospects for individuals by providing them with the skills needed for better-paying jobs. How much more resilient would our society be if everyone had access to essential services?
Promoting financial literacy is essential for empowering individuals to make informed financial decisions. Nationwide financial literacy programs can teach people how to budget, save, and invest wisely, improving their economic resilience. For example, initiatives that educate people about the importance of saving for emergencies or retirement can help build financial security and reduce reliance on government assistance. What if everyone knew how to manage their finances effectively?
The following measures can help rejuvenate Malaysia’s economy while ensuring equitable benefits for all citizens. Are we ready to embrace these changes for a more stable and prosperous future?
Implement progressive tax reforms that ensure higher income groups contribute a fair share, thereby redistributing wealth more effectively. Revenue from these taxes can be reinvested into public services and infrastructure. For example, increasing taxes on luxury goods or high-income earners can generate funds for social programs that benefit lower-income groups. However, the current tax system is burdening for some, especially those in the M40 and B40. Could a fairer tax system be the key to unlocking better public services and infrastructure?
Prioritising education and vocational training can equip the workforce with skills needed for the evolving job market, fostering innovation and productivity. For instance, government-funded programs that offer training in high-demand fields such as information technology, healthcare, and renewable energy can help individuals secure better-paying jobs. How would a more skilled workforce transform our economy?
Small and medium-sized enterprises (SMEs) are the backbone of the economy. Providing them with incentives, access to capital, and support services can drive local economic growth and job creation. For example, offering low-interest loans or grants to SMEs can help them expand and create more jobs, contributing to economic stability. The targeted subsidies hurt SMEs and would create a financial burden for SMEs in the long run. How can we better support the businesses that drive our economy?
Investing in sustainable development projects can create new economic opportunities while addressing environmental challenges. This includes renewable energy projects, sustainable agriculture, and green technologies. For instance, government support for solar energy projects can reduce dependence on fossil fuels, create jobs in the renewable energy sector, and promote environmental sustainability. Can sustainable development pave the way for a greener, more prosperous Malaysia?
Malaysia can draw inspiration from countries that have successfully implemented policies to reduce economic disparities and enhance overall prosperity. Are we ready to learn from the best?
Singapore has achieved high economic growth while maintaining low levels of inequality through a combination of progressive taxation, substantial investment in public housing, and world-class education. The government provides affordable housing to a significant portion of the population, ensuring that even lower-income groups have access to decent living conditions. Additionally, Singapore’s education system is highly regarded, with a focus on lifelong learning and skills development. This approach has enabled Singapore to maintain a skilled workforce and attract high levels of foreign investment. Can we replicate Singapore’s success in our context?
Scandinavian countries, such as Sweden and Denmark, are known for their robust social safety nets, high levels of public investment in healthcare and education, and progressive tax systems. These countries provide universal healthcare and free or subsidized education, ensuring that all citizens have access to essential services. Progressive taxation helps redistribute wealth, reducing economic disparities and fostering social cohesion. What can we learn from the Scandinavian model to build a fairer society?
Germany’s strong focus on vocational training and support for SMEs has created a resilient economy with low unemployment and a high standard of living. The German dual education system, which combines classroom learning with on-the-job training, ensures that young people acquire practical skills needed in the job market. Additionally, Germany’s emphasis on supporting SMEs through favorable policies and access to finance has contributed to a dynamic and innovative economy. Could Germany’s approach to vocational training and SME support be the blueprint for our economic resilience?
Blaming others for economic challenges will not solve the underlying issues. Instead, the Malaysian government must adopt a holistic approach that goes beyond targeted subsidies and addresses the root causes of economic inequality. By reducing the consumer power or parity index, enhancing social safety nets, promoting financial literacy, and implementing strategic policies, Malaysia can create a more equitable and prosperous society. Drawing on successful global examples, Malaysia can craft policies that ensure sustainable economic growth and improve the quality of life for all its citizens, particularly those in the B40 group. It is time for the government to open its eyes to these opportunities and take decisive action to secure a brighter future for Malaysia. Are we ready to take the bold steps necessary for a better tomorrow?
The challenge of balancing economic growth with equitable wealth distribution in Malaysia is a complex but critical task. While targeted subsidies have been the go-to solution, their long-term effectiveness is questionable due to market distortions, leakages, and a culture of dependency. The Malaysian government must consider alternative strategies that directly enhance the purchasing power of its citizens, particularly those in the B40 group. By reducing the consumer power or parity index, strengthening social safety nets, and promoting financial literacy, Malaysia can achieve a more equitable and prosperous society. Drawing inspiration from global success stories, Malaysia can implement progressive tax reforms, prioritise education and vocational training, support SMEs, and invest in sustainable development. The time for change is now. Will Malaysia seize this opportunity to secure a brighter future for all its citizens?
Ts. Dr. Hj. Muhammad Khusairy Bin Capt. Hj. Bakri, a Postdoctoral Research Associate at the Composite Materials and Engineering Center, Washington State University (WSU), and Ahmad Faisal Bin Mahdi is a Senior Lecturer at the Faculty of Business and Management, Universiti Teknologi MARA (UiTM), a Chartered Institute of Marketing member
