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Higher wages crucial for future prosperity of Malaysia, Asean

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The government should not expect low-income families to continue accepting poverty level wages so that Malaysia can win in the race to the bottom, writes Jeyakumar Devaraj.

There was a time when Malaysia could leverage on its relatively low wages to produce cheaply for the affluent societies of Europe, America and Japan and thus promote high economic growth.

Dr Lim Chong Eu, the then Penang Chief Minister, recognised the opportunity in the early 1970s and pioneered the establishment of “free trade zones” in Penang, and Malaysia entered a period of export-led growth.

But things have changed quite a bit in the past 30 years. Malaysia is now a higher-middle-income nation aspiring to join the ranks of developed countries within the next decade.

We can no longer rely on a low-wage policy to produce cheaply for the export market.

For one, there are other countries in the region and further afield who can beat us in that low-wage game – Thailand, Vietnam, China and quite a number of African and South Asian countries whose per capita GDP levels are lower than ours.

Secondly, and more importantly, the golden goose – the affluent consumer market of the developed world which used to absorb the bulk of our cheaply produced exports – is now quite sick. It has been seriously enfeebled by the continuous off-shoring of manufacturing to developing countries over the past three decades.

What this means is that we have entered a new era where we in the Asean region cannot just focus on producing cheaply and hope that consumers in some other country will buy our products.

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We need to encourage the growth of our own consumer markets within Asean, in China, South Asia and in Africa. In this way, aggregate demand for goods and services will rise sufficiently to create investment opportunities for our businesses and employment opportunities for our youth.

And how do we make consumer markets grow? Quite simple – pay higher wages to workers, because household consumption is the largest component of aggregate demand, perhaps around 50-60% in Malaysia.

Higher basic wages to our workers – and there are some 9.5 million of them at present – would immediately boost the income of micro-businesses in our country, stall holders, pasar malam traders and small businesses in the wet markets.

About 1.5 million small and micro-business operators can be found in Malaysia at present. They too will benefit from an increase in the basic wage.

All this will in turn expand business opportunities for the bigger businesses in Malaysia and Asean.

This is precisely why it is important that we increase our minimum wage significantly and continue to do so at regular intervals. Not only is it socially just, it is also an essential step towards consolidating the nation’s economic growth.

Agreed, it is not that simple to implement massive wage increases, for we are a part of an increasingly integrated global economy. For example, hardly any tariffs are in place for the export of goods among Asean countries. So if we increase our wages too drastically, the prices of made-in-Malaysia goods would go up, and cheaper goods from our Asean neighbours might result in the closure of some local manufacturing firms and the retrenchment of our workers.

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But what is “drastic”? An immediate doubling of the minimum wage to RM2,000 per month could be considered drastic.

But an increment to RM1,170, as recommended by the National Wage Council, is quite conservative and far from drastic. Of course, businesses will cry crocodile tears and sob that they are going to go under – it is in their DNA to keep costs as low as possible and not worry at all about creating the market for their goods. But why did the Pakatan Harapan cabinet buy their story?

Moving on, acknowledging potential setbacks arising from large wage increases does not absolve our government from strategising on how to overcome these – for there are ways to do so. We have to ask our leaders in Putrajaya:

  • Do you agree with the Keynesian analysis put forth above regarding the importance of boosting domestic demand so that we can have sustained economic growth in the Asean region? Or is the PH government saying that we need to continue the low-wage policy for the “good of the nation”?
  • If you agree that boosting domestic demand is an important objective, have you studied ways of overcoming the possibility of cheaper imports drowning some of our manufacturers if our wages are raised too much?
  • Have you begun talking with other Asean countries about how we could deepen the internal Asean market without undermining one another? Have you broached the same idea to the Group of 77? If not, why not?
  • Why haven’t you, the government, included civil society in these deliberations?
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It is not unreasonable for us to ask such questions of our elected leaders – for they should strive to be one step ahead of the situation and work on a roadmap for the 21st Century. They cannot continue applying yesterday’s solutions to a situation that has changed quite dramatically.

They certainly should not ask our B40 families to continue accepting poverty level wages so that Malaysia can win in the race to the bottom that the global economic system has trapped the Asean countries in.

We need to seek a way out of this trap. And our leaders have to lead in this effort. We hope they rise to this challenge.

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