The Future of Freedom in Malaysia and around the World

Speech by Dr. Ong Kian Ming. Deputy Minister of International Trade and Industry (MITI) at the 116th Birthday of Almarhum Tunku Abdul Rahman Putra Al-haj and the 9th Anniversary of the Institute for Democracy and Economic Affairs (IDEAS)

Salutations.

  1. Before I begin, I would like to make a few disclaimers. I was formerly a member of the IDEAS Council back in 2013, when I was still a backbencher and still in the opposition.[1] I have been a keen observer and supporter of the work which IDEAS has done over the past 9 years in advancing ideas of liberty, freedom and institutional reform.

I have benefitted from the exposure and training which IDEAS has provided to its interns over the years. A former IDEAS intern recently started working for me as a special officer. I say all of this to let you know that I am not a dispassionate or disinterested member of the new Pakatan Harapan government, who has been invited to give a perfunctory address. But rather, I am and will continue to be a keen supporter of many of the ideas and initiatives which IDEAS has and continues to advocate for, especially in the area of institutional reform.

2. One of the reasons I accepted the invitation to give this keynote was to give myself the opportunity to gather my thoughts and to reflect on the topic at hand; namely, the “Future of Freedom”. The Future of Freedom not just from a Malaysian standpoint, but also from a regional and global perspective. The speech preparation process forces me to grapple with this topic intellectually. And I will share the outcomes of these ‘grapplings’ with all of you. If you find any of what I am about to say particularly illuminating, please come and give me a pat on the back. If you find what I am about to say particularly offensive or worse, uninformative, please put the blame on IDEAS (just kidding …) With this, let me begin with a couple of passages from a magazine…

2. One of the reasons I accepted the invitation to give this keynote was to give myself the opportunity to gather my thoughts and to reflect on the topic at hand; namely, the “Future of Freedom”. The Future of Freedom not just from a Malaysian standpoint, but also from a regional and global perspective. The speech preparation process forces me to grapple with this topic intellectually. And I will share the outcomes of these ‘grapplings’ with all of you. If you find any of what I am about to say particularly illuminating, please come and give me a pat on the back. If you find what I am about to say particularly offensive or worse, uninformative, please put the blame on IDEAS (just kidding …) With this, let me begin with a couple of passages from a magazine…

3. ACROSS the rich world, there is a sense that the economy no longer works for many people. Globalisation has brought huge benefits to the world as a whole. But middle-income people in rich countries appear to have fared badly in recent years.

But while ordinary people are struggling, those at the top are doing just fine. Income and wealth inequality have shot up. The top 1% of Americans command nearly twice the amount of income as the bottom 50%.

Part of the problem is that people do not feel as though they get a fair shot to make something of themselves. Big corporations, including tech giants such as Amazon, Google and Facebook, seem to be hogging all the gains. Relative to the size of the economy, corporate profits have risen sharply in recent years.

Small wonder that many people feel alienated. The feeling that the economy does not work for ordinary people has driven many towards populist causes, including Brexit, Donald Trump and the National Front in France. Support for capitalism among young people is low.”

4. Can you hazard a guess as to where the above quoted passage comes from? No, it is not from the Guardian, the Independent, nor the Socialist. It is from the other bastion of ‘left-wing journalism’; namely, The Economist.[2]

5. I started with a quote from the Economist to warn us against making the mistake of dismissing the wave against the fundamental ideas of liberty and freedom. It would be FAR TOO EASY, for example, to dismiss Trump and supporters of his ideas as being uneducated, backward and ignorant. Indeed, I would go so far as to say that this patronising attitude is downright dangerous, as it inevitably takes us away from trying to understand the root causes of discontent.

6. Whether it is the coal workers in West Virginia wearing MAGA caps, protestors wearing yellow vests in France, or Nigel Farage supporters campaigning for BREXIT, the discontent on the ground is REAL. The discontentment may be targeted at various groups, which include investment bankers, multinational giants, individuals in the top 1%, the G20, and international institutions such as the World Bank, the IMF, the WTO, the European Union (EU). On the other hand, the targeted issues include: economic liberalisation, free trade agreements, supra-national regulations, capitalism and free markets, just to name a few. For the purposes of this address, I would lump all these issues into one broad category – that of globalisation.

7. Many gathered here this evening probably have been educated overseas (including some from THE University of Cambridge). Some of you would have experience working overseas. Amidst such an august crowd, the temptation would be to express frustration at those who rail against globalisation and greater liberalisation. “Why can’t they see how much good globalisation has brought to the world?” “Why can’t they admit that the global poverty rate has been reduced as a result of global trade and investment”? “What can’t they appreciate the increase in access to goods and services as a result of tariff reductions?”

8. While the questions above raise valid points with regard to the benefits of globalisation, they ignore three other realities which have taken place as the world has become more integrated. (I) Firstly, the benefits of globalisation have been disproportionately enjoyed by those at the top (II) Secondly, the costs associated with globalisation have not been properly addressed (III) Thirdly, policymakers may NOT see or may CHOOSE NOT to see the downsides of globalisation. Let me address these realities in turn.

9. I want to start by addressing these realities in general. And then, I want to relate these realities to Malaysia’s experience as a developing country which has reached middle income status.

10. Firstly, it would be hard to deny that globalisation has benefitted the top 1% of income earners much more than the bottom 50%. This is true in the developed world, particularly in the United States. This is true also in the developing world, especially in places like China and India. Yes, globalisation has drastically reduced the poverty rate and raised incomes in developing countries. However, there is a PERCEPTION that those at the top, the ‘fatcats’, so to speak, have creamed off a disproportionate percentage of the wealth gained from globalisation. This narrative is perhaps MORE damaging to the public image of globalisation.

11. The top 1% of income earners in Malaysia may not have gotten as much public scrutiny as their counterparts in other countries. But the news of lucrative pay packages of top executives in Government Linked Companies (GLCs) has drawn public scrutiny, including from the Prime Minister. Some of these extraordinary pay packages are associated with people with political connections. For example, the RM33.4m pay package of Tan Sri Rozali Ismail in 2013 as executive chairman of Puncak Niaga Holdings Berhad (PNHB). This was when PNHB was the de facto monopoly in the water industry in Selangor.[3] Some of these extraordinary pay packages are also linked to publicly listed companies which have to ‘compete’ for global talent, such as the CEO of IHH Healthcare Berhad, Dr. Tan See Leng, who received RM33.9m in 2017 (including stock options).[4]

12. Meanwhile, wages at the bottom have remained stagnant. The starting pay of a graduate does not seem to have moved much from an average of RM2000. The starting pay, however, of graduates working for multinationals including in the financial services sector, have progressed to much higher levels. I am sure that IDEAS feels the ‘pinch’ from having to somewhat compete against some of these MNCs when hiring staff. I am not arguing against having a premium for high performing graduates who are in demand. Rather, I am pointing out that this lived reality is EXACERBATED in a country like Malaysia, which is open (and should be open) to FDIs including from MNCs. This is the first reality.

13. Now, moving on to the second reality… One of the costs associated with globalisation is the issue of how ‘losers’ are taken care of. Take for example, the debate surrounding free trade. Economists would gladly accept the reality that there are winners and losers from trade liberalisation. What economists would argue is that the net benefits of free trade are positive, especially when the ‘losers’ from free trade can be ‘compensated’. In developed countries, these ‘losers’ are often blue collar workers who have lost their manufacturing jobs to the developing countries. Economic theory says that these workers should be retrained and reskilled for more high value jobs and jobs in the service sector that are less easy to hollow out. But in reality, this kind of retraining and reskilling has not really taken place.[5]

14. While Malaysia was developing and industrialising, we benefitted from the flow of manufacturing jobs from developed countries. But now, our economy has matured. As the manufacturing sector’s importance to the economy has decreased, we too are feeling the pinch of early deindustrialisation and hollowing out.

15. However, the manifestation of this trend is different for middle income countries like Malaysia, as compared to developed countries.  Due to our relatively small size and shorter history of industrialisation, globalisation has not led to a discernible hollowing out of economic activity. At the same time, we have managed to mitigate the effects of this hollowing out by attracting higher value manufacturing activities; e.g. E&E and furniture making in Johor to replace those which have moved out e.g. textiles. We have not experienced the effect of significant deindustrialisation, which has scarred great proportions of the American Mid-West and parts of the Western Europe with empty factories, high structural unemployment and shrinking populations.

16. Thus, the ‘losers’ from globalisation in Malaysia are not the former blue collar factory workers. One of these ‘losers’ are the young people who possess skills which are poorly matched to the demands of the labour market. For a variety of reasons, these young workers (many of them with post-secondary qualifications) either end up working in sectors which they were not trained in (e.g. engineers working as sales people) or working in the informal sector (e.g. selling products in pasar malams). These young workers often end up earning less than what they were expecting with their qualifications.

17. The government has launched skills retraining and internship programs such as SL1M, whereby the private sector and GLCs are ‘incentivised’ to employ unemployed graduates. However, they seem to have had limited success in providing many of these young workers with better skills and stable jobs.

18. Besides the young, the ‘losers’ from globalisation in the Malaysian context can be found in areas which have not benefitted much from investments and trade. Unequal distribution of regional growth has left out many parts of East Malaysia and also the East Coast of Peninsular Malaysia. Sabah and Sarawak may not experience high unemployment. However, the sentiment there is that they are not being fairly compensated in the form of equitable government spending, or policies to grow the state’s economy. As long as this persists, the lived reality that globalisation benefits mostly the ‘Malayans’ from Peninsular Malaysia will continue.

19. The third reality with regard to facing the potential shortcomings of globalisation is that policymakers often only hear news which fits into their own understanding of the world. This may be due, in part, to wanting to minimise cognitive dissonance; that is, carrying contrasting viewpoints in one’s head. It could also be due to not wanting to be proven wrong. Obama, for example, did not adequately address how his stricter environmental policies would be helpful for the manufacturing sector in the Mid-West states of Michigan, Ohio and Wisconsin. All of these states voted for Trump in 2016 after choosing Obama in 2012. David Cameron could not dispel the narrative that EU regulations and policies were taking jobs away from British citizens. A surprising BREXIT vote was the result.

20. Notice I used the word POLICYMAKER rather than politician. This is because even well-respect policymakers fall into the trap of not wanting to hear alternative voices. Alan Greenspan was once touted as one of the most successful central bankers in US history. Yet, did not want to admit the flaws in the financial markets that were caused by rapid and unchecked regulation. He later admitted that he made ‘an error’ in allowing unfettered financial regulation which caused the 2008 global financial crisis.[6]

21. In Malaysia, the direct link between globalisation-related policies and its consequences is less clear cut. Instead, the negative effects of economic liberalisation have been linked to crony capitalism. Skewed Public Private Partnerships (PPPs) which favour private enterprises rather than the public purse have raised public ire. So have privatization schemes which benefitted politically-linked individuals. Politicians, rather than policies, have taken the brunt of the public’s negative perception

22. The last time Malaysians thought that they were suffering greatly as a result of the forces of globalisation, I would argue, was during the Asian Financial Crisis in 1998. And yet, that experience did not drastically change Malaysia’s position in terms of our openness to free trade and foreign direct investment!

23. But we cannot assume that this kind of worldview will be maintained in Malaysia, especially when faced with the global trends of protectionism. Policy makers and policy influencers, including those sitting in this room, MUST be more sensitive to the legitimate concerns of unfettered and unregulated ‘capitalism’. We must be willing to grapple with the realities and arguments raised by opponents of globalisation; and we must adjust and refine our positions and policies as and when necessary.

24. What I have recommended is nothing new. Again, going back to the Economist:

Dealing with such “market-failure” problems requires judicious regulation. Minimum standards of business practice are required in industries for markets to work tolerably well: think of capital requirements in banking or food-safety in the catering business. Free-marketeers rightly point out that intervention is often injudicious and ends up tilting the scales not towards consumers but to vested business interests. But the intellectual momentum now is with the interventionists. [7]

The good news is that market intervention can come in many forms. Indeed, market intervention can be viewed from a different perspective – that of institutional reform. Well thought-out and comprehensive institutional reforms can often result in the STRENGTHENING, not the weakening of markets.

25. For example, institutional reforms to decentralise monopolies or oligopolies will lead to greater competition, lower prices and more choices for the consumer. In Malaysia, markets which are currently being controlled by one or a handful of players via government licenses still exist; e.g. the importation of rice or through natural monopolies such as TNB (in energy distribution). There is room for institutional reform via anti-monopoly regulations and legislation.

26. With a set of comprehensive labour market reforms, employers will be able to access a steadier supply of high skilled labour in the long run. These reforms may include a gradual increase in the minimum wage in the context of tri-partite bargaining, better targeted skills training and retraining and incentives for smart manufacturing. As a result, employees will be able to enjoy higher wages, a higher standard of living, and an increase in productivity.

27. Think tanks like IDEAS can contribute their proposals on how to improve the regulatory frameworks governing various markets and industries. Smarter and more effective regulations are better than NOT having any regulations at all.

28. In addition to institutional reforms, we must do a much better job in telling positive STORIES regarding globalisation through REAL LIFE examples. A touching story of how a single mother of four accessed the global marketplace for her homemade durian cakes is much more effective in creating a positive narrative for trade – infinitely more compared to the cold hard statistics on how much trade has grown year or year or month on month. Believe me when I say this, especially from a self-proclaimed statistics nerd!

29. Last but not least, regardless of the institutional reform or narrative created, policymakers must properly scrutinise the effects of their policies. We need to go to the ground and employ critical eyes, ears and minds. Only when there is a palpable sense of support towards globalisation’s contributions, can the policy maker rest easy. The positive impact of these policies must not only be felt by the masses. The masses must KNOW that improvements in their lives are the result of government policies which harness the best effects of the global marketplace.

30. I want to end by quoting from a book entitled “Saving Capitalism from the Capitalists”. One of the main authors of this book was a long time professor at the University of Chicago’s Booth School of Business, as well as former chief economist of the IMF and former governor of the Reserve Bank of India. Raghuram Rajan and Luigi Zingales wrote:

 “To sum up: Politics – for better or worse – lays the foundations for markets, and thus for prosperity. For creative destruction, sustained by free markets, is the elixir that has let the free enterprise system flourish for so many years. Yet the disruptions that creative destruction spawns sometimes prove too big for a free society to survive without a safety net. Markets need to be preserved against their biggest enemy: Themselves. Markets need a heart for their own good.”[8]

31. What is the Future of Freedom in Malaysia and around the world? Markets need to develop a heart, a face and a compelling narrative in order for it to survive and thrive.

32. Before I end, I want to once again thank IDEAS for this invitation and I would like congratulate them on their 9th anniversary. I look forward to many more years of IDEAS contributing thought leadership in Malaysia and beyond. Thank you for your kind attention and have a wonderful evening.


[1] http://www.ideas.org.my/ideas-council-reaffirmed-need-independent-policy-analysis/

[2] https://www.economist.com/open-future/2018/04/16/fixing-the-flaws-in-todays-capitalism published on the 16th of April, 2018

[3] http://english.astroawani.com/malaysia-news/investigate-syabas-bosss-rm33-4-million-salary-says-dap-17726

[4] http://www.theedgemarkets.com/article/are-ceos-overpaid

[5] https://www.economist.com/open-future/2018/05/28/trade-creates-losers-heres-how-to-help-them

[6] https://www.theguardian.com/business/2008/oct/24/economics-creditcrunch-federal-reserve-greenspan

[7] https://www.economist.com/the-economist-explains/2017/01/02/can-markets-be-too-free

[8] http://faculty.chicagobooth.edu/luigi.zingales/papers/research/capintro.pdf

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