Liberalisation of services will make life more difficult for the majority of Malaysians and fuel resentment among the marginalised, writes Jeyakumar Devaraj.
On 22 April 2009, Prime Minister Najib Razak announced that Malaysia will be liberalising 27 service sub-sectors by dropping the NEP requirement that 30 per cent of all shares offered by a company seeking registration on the Stock Market should be reserved for bumiputra individuals or interests. According to him liberalisation of services is one of the key strategies to propel Malaysia from being a middle-income nation to a high-income nation by creating a conducive business environment to attract investments, technologies and higher value employment opportunities.
Five days later, Najib again announced measures to liberalise the banking sector in Malaysia, allowing nine new banking and insurance licenses and easing foreign ownership limits for non-commercial banks. Najib also said the government would be progressively liberalising the other service sub-sectors on an on-going basis.
What is going on here? Are these changes good for ordinary Malaysians?
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Liberalisation refers to the reduction or abolition of rules that restrict private capital from doing business. Measures that allow local capital to provide a service that was previously provided by the government is one form of liberalisation. Allowing foreign capital to invest in Malaysia’s services sector is another form of liberalisation.
Najib is telling the nation that opening up the services sector in Malaysia so that businessmen can invest freely would benefit the country by
• stimulating the growth of these sectors
• bringing in foreign investments
• bringing in expertise.
This will generate business – consumers from other countries in the region may come and purchase high quality services in Malaysia, thus growing the Malaysian economy and ultimately benefiting the rakyat.
The larger framework
To understand where Najib is coming from (and where he is steering the country) one needs to appreciate that the philosophy of government has changed drastically in the past 60 years. There have been two main approaches to governing in the non-communist or “free world “ since the end of the Second World War. One is the social democratic approach that was dominant in the first 30 years after the war, that is from 1946 to the mid-1970s. The other is the neo-liberal approach that gained dominance from 1975 onwards. The main differences are tabulated below –
Social Democratic Approach to Governing
The main difference lies in the way Capitalists are viewed. The Social Democrats believe that the State should intervene to ensure the interests of the poorer strata of society are not neglected by capitalists in their rush for profits.
The neo-liberals believe that unfettered capitalism will lead to faster growth and this will help everyone even the poorer strata.
– big government
– many laws and rules that limit what capitalists can do
– high taxes
– State involvement in provision of basic amenities
– Minimal government intervention
– More freedom to the capitalists
– Bring down taxes. It reduces the incentive of capitalists to invest.
– Basic amenities are more efficiently provided by the private sector
This translates into the Welfare State that was set up in Western Europe in 1946 – 1975
– Free Health Care
– Free Education
– Unemployment benefits
– Subsidized transport
– Subsidized housing for poorer strata
– Many specific programmes targeting groups of the poor
– High taxes for corporations and the rich
This has meant
– Larger co-payments for essential services
– Privatisation of essential services
– Reluctance to introduce minimum wage bill
– Housing left to developers. Removal of restrictions to selling houses to rich foreigners
– Lowering direct taxes
– New indirect taxes such as the GST which burden the poor
Over the past 30 years, the neo-liberal approach has become dominant and has brought about the progressive “liberalisation” of the economy: the removal of more and more of the restrictions put up to control/regulate private capital. Najib’s policy initiatives are part of that pro-business endeavour.
Impact on ordinary people
The table at the bottom of this page attempts to summarise the impact of neo-liberal (new liberal) economic policies on ordinary people –
Benefit to society
Encouraging the growth of Private Hospitals
Many high quality private hospitals have been set up.
(The “more choices” argument.)
Probably played a role in reducing the emigration of Malaysian doctors to richer countries.
Aggravated the brain drain and has led to poorer quality of medical services in the government hospitals.
Even the poorer go to private hospitals because of loss in faith in government hospitals.
Illnesses can cause financial catastrophe to families.
Encouraging growth of Private Colleges and Universities
Helps non-Malays by-pass the Bumiputra quotas and still get tertiary education.
Cheaper tertiary education compared to going overseas.
Financial burden on families.
Many graduates start out life with a debt.
Makes students and young graduates more “business minded” and less inclined to look into the problems of society.
Several private colleges that are substandard – giving very poor quality education.
Water, Electricity, Postal services, Highways,
Work it out yourself!
Overall leads to more inequality and social exclusion
So, who does liberalisation benefit?
It all depends on the type of interventions that the Government has been making in the economy and the specific liberalisation measures taken. In Malaysia, among other things, government intervention in the economy has been to promote the development of the Malay business class and Malay professionals. Numerous measures were taken to discriminate in favour of Malay professionals and businessmen – bumiputra policy – and the 30 per cent quota for bumiputras in the allocation of shares is one such measure.
The abolition of pro-bumiputra measures will obviously be welcomed by the non-bumiputra businessmen and professionals, for then some of the restrictions against their participation and /or promotion are removed. This is why the Chinese Malaysian business community may be quite happy with Najib’s liberalisation moves. This is also one reason that the Chinese middle-class was happy with Mahathir: he allowed private education, and this helped a generation of non-Malays get college education in our country instead of going overseas.
But the Malaysian government’s involvement in the economy was not confined to policies to promote the Malay businessmen and professionals. Several earlier policies ensured that the poorer strata got better essential services – like health care for example. The weakening of pro-poor policies due to the liberalisation drive will obviously worsen the lot of the poorer strata in Malaysia.
Let’s take the promotion of health tourism, a classic example of a liberalisation initiative. Who benefits? Who loses out? The table below provides an analysis –
Top 15% of the income pyramid
Managers, lawyers, accountants, senior doctors
Big businessmen, BN Politicians Executives in big private corporations
Companies selling medical equipment and medicines
Entrepreneurs in Hotel and Travel industry, Restaurants
Get well paying jobs in the privately owned hospitals catering for Health Tourism
Get world class medical care in Private Hospitals as they are wealthy or because their employment contract gives them this perk.
Will have a much larger market to sell to!
Will benefit from the arrival of Health tourists
Next 20% of the income pyramid
Normal doctors, nurses, radiographers, lab technicians
Business men eg Tour operators, restaurant owners, shopping centres
Middle income families (RM 3000 to RM 8000 per month)
May get better paying jobs in these hospitals. But if liberalization extends to allowing the importation of these categories of workers from India, Philippines, Burma etc, then that would push wages and bargaining power down!
May get a boost in their business from the influx of the families of health tourists. Effect will be limited to the area close to the Private Hospitals involved
Have access to high quality medical care. But many of them will not have employer paid medical insurance, and the normal health insurance may impose restrictions on treatment in more expensive private hospitals.
Poorer 65% of the population
May get ordinary jobs in these hospitals
Theoretically have the “choice” of high quality health care
But pay will be kept low by existing out-sourcing tactics and the presence of 3 million lowly paid foreign workers.
In reality, they cannot afford the high premiums for this kind of health coverage.
They will still have to depend on the government health care system which will be even more under-staffed and rundown because of the exodus of trained staff to the private hospitals.
Should be able to earn more from taxation of these rich private hospitals
But one of the liberalization plans is to reduce corporate tax from 26% currently to about the Singapore rate of 18% over the next few years.
Also if foreign companies are allowed to invest in these private hospitals, they will tend to transfer out their profits to low-tax havens by means of “transfer pricing”
Transfer Pricing – a mechanism by which a corporation can transfer its profits out of a country with higher tax rates to a country with minimal tax rates by buying good and services at much higher prices from subsidiary companies registered in the low tax regime country
From the table above we see that
• Liberalisation can stimulate economic activity, and can grow the GDP and perhaps provide jobs.
• Some people especially the top professionals and some businessmen will have a chance to make more money
• The top 20 per cent of the population may have access to world-class services.
• But the poorer 65 per cent will be affected adversely – the quality of the health services they now enjoy will deteriorate even further.
Why has there been such a major change in the policy of our country?
Certainly not because of the charisma of the Mahathirs and the Thatchers. Marx tells us the history of mankind is determined by the struggle between different class interests – whether or not we perceive it consciously.
“The history of all hitherto existing society is the history of class struggles.. . . Oppressor and oppressed, stood in constant opposition to one another, carried on an uninterrupted, now hidden, now open fight…”
There has been a significant deterioration in the political position of the working class in the 20 years from 1980. Basically, the capitalist states of the West won the Cold War. Their victory is reflected in three separate sets of events
• The defeats of large mass-based leftist movements in several countries. The Parti Komunis Indonesia for example was devastated in 1965 by the right wing coup unleashed by Suharto – several hundred thousand communist members and supporters were murdered. Pinochet’s coup in Chile decimated the left forces that were supporting Allende’s experiment in introducing socialist policies democratically. In Malaysia, the ISA was used with brutal effect on the Socialist Front and was one main reason why the Labour Party, which had built a significant mass movement, folded up.
• The weakening of the Soviet Union and the Eastern Bloc due to internal problems which led in the late 1980’s to the complete collapse of these States. This greatly eroded the bargaining power of the working class throughout the world because
– the disappearance of an alternative economic system that was not based on private ownership of the means of production removed the “danger” of defections of more nations to the Soviet bloc.
– the re-integration of the Soviet Union, Eastern Europe and China into the global capitalist economy offered capital even more opportunities to invest in low-wage countries and the leverage to launch an assault on the previous gains of the working class in their own countries.
– The erosion of the power of the state to appropriate a larger portion of the surplus amassed by corporations resulted in budgetary constraints for the state, cutbacks on welfare provisions, user-pay regimens and the shifting of the tax burden onto the working class in the form of Value Added Taxes (GST in Malaysia, 2007)
• Communism and socialism became discredited. The ideologists and propaganda agents of the West succeeded in persuading many people that
– “Free enterprise” is the only economic system that can sustain a democratic political process.
– Socialism is against human nature for it tries to suppress individuality and self-interest. Therefore socialism and communism must rely on force and authoritarian methods to force people into a mode of behaviour that is against their real nature.
– The planned economies were inefficient and wasteful. That is why the level of living in the Eastern Block was so much lower than the level in the “free” West!
– Socialism and communism are against all religions, and their intention would be to make atheists of everyone.
A lot of this is of course rubbish, but nonetheless, is accepted by the majority in Malaysian society!
As a result of these defeats of the working class, the voices of large corporate interests have become the dominant voices within states and also within international bodies. The voice of those with social-democratic inclinations, who would argue for a more equitable distribution of the wealth of the world but within the framework of a capitalist economy, has become almost inaudible – giving further proof to the saying that reformism rides on the coat-tails of a revolutionary movement!
“There is no alternative,” warned Thatcher. If the working class doesn’t recognise this new reality and buckle down to serious work but with lower remuneration and a weaker safety net, the national economy will deteriorate and with it the economic situation of the working people! The capitalist ideologues rejoiced, and claimed victory! It was the end of history!!
This neo-liberal wave is not confined to Malaysia alone. All over the world the poorer 70 per cent of society is being marginalised. Concessions granted in an earlier period are being withdrawn bit by bit. The quality of life is deteriorating. In parts of the world, people are dying because of these neo-liberal measures. This is most glaring in the poorest continent – Africa – where “Structural Adjustment Schemes” imposed as conditions for IMF and World Bank aid has devastated the provision of basic amenities to the population. The chart reproduced from WHO reports, shows the severity of this onslaught on the poorer people of the world.
Under Five Mortality (per 1000 live births) in selected countries
World Health Report 1995, 2005
Note – In 1992 it was found that in Burkina Faso, 150 out of every 1000
children born in 1987 had died before they reached 5 years.
– This under-five mortality rate is a good measure of the socio-economic conditions of a country.
– Malaysia’s rate of 7/1000 in 2003 is about that found in Europe. Cuba is even better!
What should we do?
We need to point out to the people of Malaysia that liberalization of the economy:
• is a pro-capitalist agenda
• is premised on the mistaken belief that unfettered capitalism will lead to the best possible society
• will lead to more and more hardships for the majority of Malaysians
• is not fully understood by the non-Malays, who think it is a good idea because they are only looking at one part of government policy – that pertaining to the bumiputra programme.
• should be opposed by everyone who has the interests of the rakyat at heart.
We should continue working with groups that are already involved in campaigns against liberalisation – health, GST, FTA, and Water. Ultimately, we need the political pressure of an enlightened rakyat to challenge and ultimately reverse this drive towards further liberalisation.
In doing this we need to be aware that the Pakatan Rakyat parties also subscribe to the liberalisation agenda – especially DAP and PKR. For example
• They measure the govern-ment’s – federal and state – economic success by looking at the FDI inflows.
• They promote health tourism.
• They would accept the FTA with the US
• The PR state governments haven’t yet put a moratorium on new private hospitals.
• A senior DAP leader has asked for the reduction of corporate taxes to 18 per cent immediately as a means of stimulating the economy.
Despite the fact that the PR is definitely the better alternative to the BN, we need to impress upon the Pakatan leadership that their catchy slogan of “merakyatkan ekonomi” will just remain a nice slogan if they do not wake up to the reality that the globalised economy is currently skewed towards large corporate interests, and that countries like Malaysia have a big role to play in pushing for a different world economic order.
The most effective way of convincing politicians, whatever their shade, is to create the groundswell of public opinion that further liberalisation is going to make life more difficult for the majority of Malaysians, and fuel the resentment in the marginalised that manifests itself as gang violence and rempitism!
Aliran member Dr Jeyakumar Devaraj is the Member of Parliament for Sungai Siput.
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