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Perils of Malaysia’s shrunken middle class

The current fractious politics, coupled with a shrunken middle class, could spell disaster

Dark clouds ahead for the nation - ANIL NETTO/ALIRAN

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It is now customary to speak of three classes or segments of society in Malaysia, the top 20%, the middle 40% and the bottom 40% of households (or the T20, M40 and B40) – roughly corresponding to their supposed proportions of the population.   

An unspoken assumption of this three-way classification must be that such proportionality of classes makes for a stable society. Most importantly and logically, most attention must be paid to the lowest or poorest segment of the population.

Thus, the focus of policies since the days of the Najib Razak government has been to target the bottom 40% for policy impact.

This was famously accomplished via BR1M (1Malaysia People’s Aid) cash handouts. These disbursements began in 2012 with one-off cash payments of RM500 to households with less than RM3,000 monthly income.

Initially, RM2.6bn was doled out to around 4.2 million households, or roughly 80% of Malaysian households. Five years down, the government had spent a whopping RM26.2bn on BR1M.

Fast forward to 22 June 2022. Prime Minister Ismail Sabri Yaakob has just announced an additional RM630m in cash aid under his version of BR1M, ie BKM (Malaysian Family Aid).

Some 8.6 million of the bottom 40% of households will receive up to RM2,500 this year with an allocation of RM1.1bn. The additional cash aid is expected to reach up to four million households, 1.2 million senior citizens and 3.4 million single individuals, beginning from 27 June. 

No doubt, the announcement is with one eye on the coming general election, likely to be held by this year.

Middle class – equally significant

Let me stress that the middle 40% (or the middle class) is as economically and politically significant as the bottom 40%.  

First, let’s look at some recent statistics of the three segments as shown in the table and graphic below.

Source: Household Income and Basic Survey Amenities Report 2019, Department of Statistics, Malaysia

The statistics above show that, as a whole, Malaysia is a high middle-income society. However, the aspiration of achieving developed nation status, as envisioned in Vision 2020, has not materialised. Worse, Malaysia now faces the phenomenon of a shrinking or shrunken middle class.

Declining middle class

On 21 September 2021, Ismail Sabri announced that an alarming 589,000 households in the M40 or middle class – that is, about 20% of this segment – had dropped into the bottom 40% category due to the economic crisis caused by the pandemic.

The shocking news was reiterated by Mustapa Mohamed, the minister responsible for economic affairs, who said this resulted from the economy shrinking by 5.6% in 2020.

In fact, it is the middle class in Malaysia that has shown the largest decline compared to the other two segments, as shown above.

One can extrapolate from this that should the Malaysian economy not recover adequately from the pandemic, we would eventually have a much shrunken middle class.

Conventional economics states that a middle class is essential for economic development and socio-political stability.

A shrinking middle class can lead to a deleterious spiral of low growth, dragging the economy even further down to unsustainable levels and arresting altogether economic upward mobility for income groups.

The Institute and Strategic and International Studies (ISIS) Malaysia prepared a policy brief that argued cogently that it is crucial today for the middle class to be “saved”.

Critical conjunction

Beyond the economic dimensions of the middle-class crisis are its political implications.

Books and articles abound on how Southeast Asian economies, Malaysia included, have benefited from their rising middle classes.

While the observations, findings and generalisations about the impact of the middle class or classes on politics have varied, most scholars agree that modernisation and democratisation have come in tandem with the advent of such middle classes in developing countries.

I have argued in several pieces that Malaysia’s New Economic Policy (NEP) created a large Malay middle class and was a factor crucial to the nation’s political stability.

A balanced and evenly distributed middle class among all communities has led to ethnic peace. Moreover, to a great extent, it also helped to propel a politics of reform in Malaysia since the 1990s.

In an ethnically and religiously divided polity such as Malaysia, sustaining a middle class would ensure upward mobility for all ethnic groups.

While there is no guarantee that middle-class individuals will automatically espouse progressive ideas, a prospering middle class would no doubt reduce incidences of toxic cultural frictions.

Malaysia is yet again at a crucial conjuncture in its political trajectory. The current fractious politics, coupled with a shrunken middle class, could spell disaster in more ways than one.

Social conditions could become even more perilous in these difficult times of the knock-on effects of the war in Ukraine with an impending scenario of global stagflation (inflation without growth).

A new government in Malaysia after the next general election, whatever shape it takes, must deal at all costs with the perils of a shrinking middle class.

Johan Saravanamuttu
Co-editor, Aliran newsletter
24 June 2022
AGENDA RAKYAT - Lima perkara utama
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The views expressed in Aliran's media statements and the NGO statements we have endorsed reflect Aliran's official stand. Views and opinions expressed in other pieces published here do not necessarily reflect Aliran's official position.

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Dr Johan Saravanamuttu, a long-time Aliran member, is emeritus professor at Universiti Sains Malaysia, adjunct professor at the Asia Europe Institute, University of Malaya and adjunct senior fellow at the S Rajaratnam School of International Studies, Nanyang Technological University. He believes in politics as a vocation but is frustrated that it is often the refuge of opportunists and the morally depraved
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