Economic growth with retarding development – the IMF 2023 Report on Malaysia

31st May 2023

1] INTRODUCTION

The IMF Report on Malaysia 2023 projects a slower economic growth this year owing to a high global inflation rate and the cross-border conflict between Russia and Ukraine. This institution expects the global economic growth to drop to 2.8 per cent this year, down from its earlier forecast of 2.9 per cent and in comparison to the growth in 2022 of 3.4 per cent. Consequently, a correlated decreasing growth in the country is expected.

2] ECONOMIC GROWTH DIMENSION

The central theme in a capital-driven economy is a system driven by endless economic growth impulse. This mode becomes the root of our multiple, interlinked, and the contributory and accelerating crises become embedded within the socioeconomic system. The consequence of this growth – especially with the Global North excessive material throughput – drives the ceaseless accumulation of capital where it builts upon a constellation of exploitation of labour and extraction of natural resources.

Capitalism – which surges from crisis to crisis – is leading us to ecological collapse, while creating inequality on its capital accumulation process through commodifying essential goods and services. It assumes the replication of neocolonial relations with the Global South, and committed neoimperialism in this endeavour.

One distinguished aspect clearly distinctive is that with globalisation, rentier capitalism compradores begin attaching to neo-imperial monopoly capitalism and their linkages to the global commodity chain dimension because of the multiple roles of rent intermediaries between capital and its accumulation. The consequence is that these capitalists are accentuating wealth disparity with the working class.

Malaysia’s 50 Richest 2020: bottom 40% of population only get 16.4% of the national income share of wealth; see  Khalid 2019.

The absolute gap across income groups has increased with the top 20% of population – the T20 – possess 46.2% of the national income share, while M40 have 37.4% but the bottom 40% of population – the B40 – only 16% share of national income.

Compounded with

i) Compared to many other countries that have graduated from middle-income status, Malaysia has a lower share of employment at high skill levels and higher levels of inequality.

The foreign cheap labour is the biggest policy issue in Malaysia because if they are cheap, our young people cannot get their wages up.

ii) There is a growing sense that despite economic growth, the aspirations of Malaysia’s middle-class are not being met and that the economy did not produced enough well-paying and sufficient high-quality jobs. There is a widespread sense that the proceeds of growth have not been equitably shared and that increases in the cost-of-living are outstripping incomes, especially in urban areas, where three-fourths of Malaysians reside. The UNICEF 2020 Report has shown that low income female-headed households are exceptionally vulnerable.

iii) The country shall, increasingly, need to depend upon more knowledge-intensive and productivity-driven growth, closer to the technological frontier and with a greater emphasis on achieving inclusive and sustainable development, yet this generation is not forthcoming.

iv) According to the World Bank’s Human Capital Index, Malaysia ranks 55th out of 157 countries. To fully realize its human potential and fulfil the country’s aspiration of achieving the high-income and developed country status, Malaysia will need to advance further in education, health and nutrition, and social protection outcomes. 

v) Key priority areas include enhancing the quality of schooling to improve learning outcomes, rethinking nutritional interventions to reduce childhood stunting, and providing adequate social welfare protection for  household investments in human capital formation.

Companies need to organise their training and reskilling programme as part of their business strategy. This is
also truism for the civil service, (see STORM 2023, Place, Position, Power of Public Sector) because the economic dimensions are changing very rapidly.
On one prominent aspect is that lower economic growth translates into lower ROE for FDI which is the Malaysia’s structural weakness of
relying on debt-driven domestic consumption to fuel economic growth.
Basically, Malaysia’s growth strategy of the last 25 years since the Asian Financial Crisis was a debt-driven domestic consumption story. This is the dominant structural issue that Malaysia now faces conspicuously, and has not only to destruct its legacy and lack lustre entities but to construct a new economic development mode, (see STORM April 2023, Structuring lnstitutional Reforms for Economic Development {SIRED} ; TAPAO; and Madani Malaysia praxis).

It had once expressed if development in Malaysia is to be self-directed and comprehensively inclusiveness, then traits of such a “developed society should also embrace secularisation, industrialisation, commercialisation, increased social mobility, increased material standard of living and increased education and literacy besides such things as the high consumption of inanimate energy, the smaller agricultural population compared to the industrial, and the widespread social network” (Syed Hussein Alatas, “Erring Modernization: The Dilemma of Developing Societies”, paper presented at the Symposium on the Developmental Aims 1996, pp 70-71).

Therefore, the key challenge for the next two decades, at least, would be to improve the indigenous innovative capacity of domestic firms and to continue to raise the productivity of Malaysian workers and firms whereas succeeding ruling regimes had given preference towards corporate capital than socioeconomic determinants of rakyat2  labour well-being, (see STORM, May 2023, MADANI the SCRIPT : labour exploitation and capital accumulation factors).

3] CRITIQUE OF THE IMF REPORT

On the inflation spectre, though it is projected to remain elevated at about 3.25%, there is a likelihood of a persistence in core inflation. Then, there is also an emerging evidence of a build-up of demand-side pressures, adding to higher prices, (see various MIDF Research reports).

Further, with record spending on subsidies, though seen from within the country that the inflation had not surge in tandem with global food and commodity prices, but nevertheless, there was still on the upward trend for most of 2022, reaching 3.3% for the year that may migrate to the later part of year.

Therefore, monetary policy would require further tightening to keep inflation contained and rakyat² expectations well anchored.

Secondly, whether the gradual fiscal consolidation strategy, as set out in the 2023 Budget, can be set to rebuild buffers has yet to he discerned. The national debt is yet to be on a downward path but instead has been tracking upwards. The ability to reduce overall fiscal risks – high budgetary expenditure on top of repayments to 1MDB debt interests, and the efficiency to collect due corporate taxes – is still an unknown uncertainty. Debt repayment is the second highest operational expenditure in the 2023 Budget, where 18.5 percent is designated to repaying public debt.

This owes to the fact the previous governance had not performed due compliance, expecially durable revenue collection measures of high quality and enforced with prudence.

Preceeding regimes had constant, and continuous, budget deficits (meaning it spends more than it brings in through taxes and other revenue), and had inadvertently borrowed huge sums of money to pay its bills.

If these measures are not applied bluntly, then likely there is not much of created space for critical investment needs and, most importantly, for targeted transfers to low-income households. Further, if these revenue-collection tasks are well coordinated, and managed administratively well, this would help market confidence in the country’s strong fundamentals.

Thirdly, the unity government’s commitment to fiscal reforms is highly appreciated by capital and endorsed by labour. As such tabling of the Fiscal Responsibility Act is most welcomed. Further, the planned subsidy reform, and plans to develop a medium-term revenue strategy, would positively tighten the economy, and may bring the currently accommodative stance to neutral. What this means is that the approaches would well be kept inflation contained, and thereby, rakyat² expectations anchored.

MIDF Research has indicated that Malaysia’s growth of gross domestic (GDP) is set to increase 4.5 per cent for this year and 2024. In a sense, the structural reforms initiated by the unity government is on the correct Madani Malaysia pathway to an economic growth, (see SIRED, 19/04/2023).

However, though the economy is growing but with unbalanced development where geographically some states in semanjung and in the Borneo states of Sabah and Sarawak are still stumped by retarded development.

As an instance, ten years ago, the median household income in Kuala Lumpur was 2.6 times higher than in Kelantan; latest data indicates that this ratio has crept higher to 3 times higher.

As stated, of great concern are regional inequalities as in Sabah and Sarawak  where the rights to access to basic infrastructure are sparse or not in existence.

In 2016, nearly one in three households living in Kelantan do not have access to piped water in the home, while one in nine households in both Kelantan and Sabah live in houses classified as ‘dilapidated’. In parts of Sabah and Sarawak where connectivity is poor, geographic disparities in access to basic services are more alarming: one in five households in East Malaysia live further than 9-km from the nearest public healthcare facility and secondary school.

Therefore, neoliberalism  entity like the IMF’s Executive Board may praise country’s performance to elicit continuing consultation services and financial dispensing from western imperialism .  

It is another budge in opening door to Global North domination and exploitation on national economic development – and indebting nations – than an equal exchanges for mutual shared prosperity among common wealth of nations.

This situation is the hallmark of neoliberal economic policies undertaken by country since gaining independence falling into the trap of development of underdevelopment,(read Ruy Mauro Marini, The Dialectics of Dependency).

4] IMF IMPERIAL INITIATIVE

IMF, and its sister entity the World Bank, is well-known for removing foreign exchange restrictions which retard the growth of global trade, with consequential international businesses being adversely affected.

Then, we have IMF’s High interest rates charged on its advances are considered one of the major disadvantages of IMF. So, the debt servicing for the less developed countries is difficult. For example, since 1982 the interest charged for loans out of the ordinary resources of the fund is 6.6 per cent. The interest rates payable on the loans made out of borrowed funds is as high as 14.56 per cent. So, developing countries experience a lot of difficulties in redeeming their loans borrowed from the IMF.

The IMF also often insisted upon that the borrowing countries have to reduce public expenditure in order to tide over their balance-of-payments (BOP) deficits. After 1970, the IMF imposed even stiffer conditional clauses. Among them are periodic assessment of the performance of the borrowing countries with adjustment programmes, increases in productivity, improvement in resource allocation, reduction in trade barrier, strengthening of the collaboration of the borrowing country with the World Bank, etc.

Then, further conditional clauses imposed by the IMF after 1995 are still stiff; just to state a few:

• liberalizing trade by removing exchange and import controls;
• eliminating all subsidies so that the exporters are not in an advantageous position in relation to other trading countries; and
• treating foreign lenders on an equal footing with domestic lenders. The fund maintains a close watch on the activities of the borrowing country related to monetary, fiscal, trade and tariff programmes. IMF’s intervention in the domestic economic matters of the borrowing countries places them in a difficult position.

As an example, of concern is that Malaysia was reported with US$57,566,000,000  of international debts in 2021, according to the World Bank collection of development indicators on  International Debt Securities: translated as two hundred fifty-three billion two hundred ninety million four hundred thousand Malaysian Rinngit Debt or RM$7,449 per rakyat owing.

International Debt Securities, Malaysia

The domination by rich countries is the major weakness of IMF. Though the majority of the members of the IMF are from the less developed countries of Asia, Africa and South Africa, the IMF is dominated by the rich countries like USA and western European nations . It is said that the policies and operations of the IMF are in favour of rich countries so much so that the IMF shall be regarded as “rich countries’ club”. These rich countries are always partial towards the issues faced by poor countries.

As reported in The Hindu (May 2, 2007), Venezuela’s president Hugo Chavez announced his country’s decision to leave IMF and the World Bank. He accused them of exploiting small countries. He branded the IMF and the Wold Bank as “mechanisms of American imperialism“.

Moreover, the OPEC nation’s leader Mr. Chavez said: “we are going to withdraw…. and let them pay back what they took from us”. He then issued an order to his Finance Minister to begin proceedings to withdraw Venezuela from both IMF and World Bank.

5] CONCLUSION

IMF ‘double standard’ displays capitalism’s inherent inhumanity where human lives in the periphery are worth less than human lives in the metropolis.

The IMF’s behavior is thus reflective of the very nature of capitalism, of its essential inhumanity. It does not only mean “inhumanity” merely in the sense that it places profits before people, but also in the sense which follows from it, namely that it does not see all human life as of equal value – that it is surely, and necessarily, applies “double standards” in every sphere of life, (Prabhat Patnaik, 15/05/2023).

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MADANI – the SCRIPT towards renewal in socialism: the Labour exploitation-Capital accumulation Factor

12/05/2023

1] INTRODUCTION

Historical politico-economic development of a country comes from social practice, the struggle for production, the class struggle, and scientific work.

With a new perspectives emerging post-1960s, from the Third World revolutionaries like Che Guevara and Fidel Castro in Cuba, Frantz Fanon in Algiers, Ho Chi-Minh and Nguyen Giap in Vietnam, Amílcar Cabral in Guinea-Bissau, and Eduardo Mondlane in Mozambique, and from socialist-progressive academics like Ruy Mauro Marini, Andre Gunder Frank, Samir Amin, Immanuel Wallerstein, Arghiri Emmanuel, István Mészáros, Lebowitz, Magdoff, Baran and Sweezy, Foster, Suwandi, Saito and the Patnaiks’ – who are critical on the dominant capitalist world system and existing socialist frameworks – there were – and still ongoing – various, and varied, enquiries regarding capitalist development and on Third World underdevelopment in development that inevitably open the door to a better understanding of our country place in world history, our present national politico-economic dilemma, and ahead, the future progression.

To understand Malaysia “economic developmemt”, we need to acknowledge the historical perspective when Third World Global South countries had been, and is still are, supplying the Global North metropolis with raw materials and tropical agricultural goods produced with cheap labour, while the metropolis Global North has overwhelming political and economic power and control over our economic destiny. The development of the Global South peripheral countries was, during colonial settlement and postcolonial domination, once deemed impossible within the capitalist system. Development in Third World countries would only become possible if there was a revolution that cut off the supply chains that connected them to the metropolis monopoly-capital ownership and dominating financialisation control. An immediate relevance is the introduction to progressive modern models to be promoted to uplift Global South countries to dynamic development executions more urgent than never before.

The dependency narrative hinges on the principle of unequal exchange as part of an approach of how imperialism transfers value. The idea that unequal exchange was part of imperialism emerged at more or less the same time in different places, affecting various workers, showing how diverse ideas are historically determinate.

All these frameworks point to the central conflict between capital and labour, which is reflected in the global differences in wages and differing degrees of exploitation, (see TNCs and Labour).

One needs to know that it is not just value that was created during production, but it is in the exchange of products or services when value is finally realised. Resultant outcome is due expropriation, and the exploitation thereon that create the full circle of capital accumulation encompassing both production and its circulation.

Emmanuel’s theory of unequal exchange is hence as inseparably linked to the original theory of Prebish, Singer, Lewis and Baron on trade and development. Emmanuel’s argument that “by transferring through non-equivalent exchange, a large part of its surplus to the rich coun­tries, the periphery deprives itself of the means of accumulation and growth.” Therefore, an impor­tant implication of Emmanuel’s theory is that a widening wage gap leads to a deterioration of the periphery’s (emerging economies, low-income countries, developing countries) terms of trade, and a subsequent reduction in its rate of economic growth.

2] LABOUR SUPEREXPLOITATION

Labour superexploitation conceptually captures the real condition of the working class in Africa, Asia and south America. It involves three elements: low wages, long hours, and intense work leading to due strenuous exhaustion. Above all, it is characterised by “the greater exploitation of the worker’s physical strength, as opposed to the exploitation resulting from increasing his productivity, and tends normally to be expressed in the fact that labor power is remunerated below its real value.” Ruy Mauro Marini.

For the SCRIPT in Madani Malaysia to be successful, in term of implementation and sustainability of a progressive politico-economic developmental praxis, working-class unity has to be consolidated.

It can only be further solidified if the tenet of divisive divisions by capitalism is better understood both in theory and in practice. Hence, we argue for a comprehensive yet bold project that is based on TAPAO that goes beyond its ethos as a renewal of an socialist ideal with Malaysian characteristics in order to take full account of the struggle of the labour movement.

Within the context of Malaysia development of underdevelopment – glaringly as in the cases of northeastern states in semanjung and the Borneo state of Sabah, and the many urban poors in the country as documented by the World Bank and UNICEF, we are witnessing the relational inequality generated. This is further reproduced by labour superexploitation and relational surplus value whence labour superexploitation is the essence of capitalism as neoliberalism is imperialism, too.

It is an undeniable fact that the capitalist needs to keep wages as low as possible to make the biggest profits possible. However, it has to be emphasised, too, that wages make up a significant part of the purchasing power that is required to sell the products and thereby realize the profit.
In a simplistic explanation, the capitalist form of accumulation has a tendency to destroy its own market. If capitalists increase wages, their profits decrease; if they decrease wages, their markets decrease. In both cases, capital has become hesitant to invest, not because they cannot produce, but because they do not know if what they produce can be sold, and acquire the profits thereupon.

Marini put it this way: “The individual consumption of the workers thus represents a decisive element in the creation of demand for the commodities produced, being one of the conditions for the flow of production to be adequately resolved in the flow of circulation.”

Ruy Mauro Marini’s Contribution to the Political Economy of Imperialism

As applied to the Malaysian economy which is +40% dependent on foreign trade, a positive trade balance is crucial for its healthy national economy because the export surplus provides the purchasing power needed to keep domestic supply and demand in balance.

However, if the national economy where economic growth is more dependent on private consumption, especially when preceding governaning administrations were being encouraged for fiscal support, namely in the substantial withdrawals from retirement funds (the Employees Provident Fund) and allocated budgetary expenditures for large-scale indirect fiscal support to businesses, then the increase in private consumption came at a cost because such huge withdrawals from the Employees Provident Fund inevitably affected the people’s financial security in the long term, and the depletion of national coffer benefitted again the capital cronies.

To make matter worse, economic growth has been, through succeeding regimes, promoted through misguided consumption patterns rather than return on investments in the past two decades. It used to be about 40 per cent to gross domestic product (GDP) in the late-nineties but presently, consumption stands at almost a high 60 per cent. 

Of course, this over-reliance on domestic consumption is not good to the metropolis monopoly-capital because the country has become a consumption-driven economy neglecting an investment growth path that has decreased the capital inflow and the subsequent accumulation process by such respective Global North financialised capital investments.

Even with the reality in a global environment where the division of of the world is rich and poor countries, into center and periphery, it threatens the basis for capitalism’s growth and only prolongs its longevity.

If, on one hand, the sacrifice of our workers’ individual consumption for the sake of exporting to the world market would be depressing the levels of domestic demand and making the world market the only outlet for production – the resulting increase in profits puts the capitalist in a position to develop consumption expectations without a counterpart in domestic production (especially when the national economy is so pivoted to the global market) – then the spectre in expectations have to be satisfied through imports, thus unbalancing national terms of trade patterns accordingly.

On another hand, the relationship between production and consumption develops differently from the Global North imperialist core, where there is a correspondence between the growth of production and the expansion of the home market. The possibility for the industrial capitalist to obtain abroad the food necessary for the worker at a low price did not entail a fall in wage level but made space for the consumption of other manufactured goods by the working class. In the imperialist core countries, the industrial production sector therefore became centered on goods for popular consumption. As the wage level increased, capital will be oriented toward increasing the productivity of labour by introducing new technology like mechanical automation or even computerisation-in-manufacturing, and effective organization of the labour process like just-in-time kanban work procedures. The way to increase profit for capital then is still to produce more goods with less labour.

3] CIRCULATION AND PRODUCTION PROCESS

This Circulation and Production process is,  considered one of the critical points against the theory of unequal exchange. However, looking at a broader perspective, this approach actually corresponds to Marx’s presentation in Capital where “The Process of Production of Capital”  includes both the production of the goods and the sale. The first two sections of Capital are devoted to explaining the characteristics of commodities by analyzing problems in the sphere of circulation. It is only after more than a hundred pages, in the third section, that the study of the production of goods begins. This makes the theoretical examination of a problem coincide with its historical development, as it accounts for the transformation of simple mercantile production into capitalist mercantile production, (see Marx, Capital, vol. 1, 61–71, 303, 305, 470, 503, 545, 558–60, 590–91).

Under similar Malaysian environment, to undertake the circulation sphere as a starting point makes all the more sense when in study of the imperialism of unequal exchange, it has everything to do with the exchange on the world market, between the dynamic accumulation circle in the core and the dysfunctional national accumulation circle in the periphery like our country. The dependent economy is subordinated to the accumulation in the industrial countries where its primary function is to secure the profit rate and the overall accumulation of for global capitalism.

Indeed, our argument lies not only on consumption power as the driver of development, but to focus on the problems of the realization of production, too. Since the geographical separation that exists between the location of production and the location of consumption in the dependent economy tend to generate peculiar conditions for the exploitation of labour in the production sector, which Marini had appropriately termed as “super-exploitation.” This super-exploitation aggravates the split between national production and domestic consumption, from the heart of the production sphere,(Marx, ibid, p. 648).

The Marxism view of surplus value presents that only labour creates value, but capitalism by having a monopoly on the means of production, is able to appropriate the value created by labour. Capital regards, and turns, labour as a commodity. As such, a labour effort, and the labour loss, is capital surplus through the sale of the commodity for more value than the labour’s wages. 

4] SURPLUS VALUE AND UNDERDEVELOPMENT

There are basically three ways that capital can increase the rate of surplus value and thereby the potential volume of profit:

• Increase the absolute surplus value by an extension of working time and/or the intensification of work, in relation to the required working hours to reproduce the “basket of goods” that forms the value of laboir power.

• Increase the relative surplus value by an increase in productivity, as a result of new technology or more effective management form, which reduces the “necessary working hours” share of total working hours.

• Extract super surplus value by lowering the actual level of reproductive costs and thus the “necessary working time” share of total working hours.

Marini defines super-exploitation as “the intensification of work, the extension of the working day and the expropriation of part of the necessary labour for the labourer to replace his labour power.”

The “intensification and extension of the working day” equals Marx’s absolute surplus value. However, it is the last-mentioned form that is of special interest to our present discourse. By the “expropriation of part of the necessary labour for the labourer to replace his labour power”, Marini is referring to a wage depression in the colonial arrears under the value of labour power. As he concludes, “In capitalist terms, these mechanisms…signify that the labour (power) is paid under its value, and they correspond, therefore, to a super-exploitation of labour.”

Marini draws the conclusion that the super-exploitation of labour power in the periphery has an impact on the pattern of extraction of surplus value in the core of the imperialist system, from being dependent on absolute surplus value (longer and more intensified labour) to relative surplus value (greater productivity) due to the dynamic development of industrial capitalism in the second half of nineteenth century.

Under such conditions, and the situational envornment, it is not surprising that the working class in the center managed to get its share of gains from the increased productivity through the trade union struggle for a higher wage, whereas the southeast Asian experience is one of decimation of trade unionism whenever disputes on working conditions or impairment of workers rights arose; and Malaysia is no exception.

As another instant, the supply of cheap agricultural products from Asia, Africa and south America in the second half of the nineteenth century made it possible for say English capitalism to reduce the value of labour power (reduce the cost of reproduction of labour power) and thus increase surplus value (profit) and, at the same time, increase wages (the price of labour power). In turn, this favoured a mode of capital reproduction in the imperialist center, which then was depending on the consumption power of the working class.

By contrast, super-exploitation — the remuneration of labour below its value (reproduction cost) — became the model used by capital in colonial countries in Asia, Africa and south America in the export sector supplying raw materials and food for the imperialist center. For example, Global South capitalism was not so much dependent on the consumption of a domestic market as long as Europe and the United States demanded their production. Super-exploitation, thus became the most prominent way of increasing profits in the reproduction of capitalism in respective Third World countries.

Marini’s concept of super-exploitation in the colonies and Emmanuel’s explanation of the wage rise in the imperialist center as the driver of unequal exchange between center and periphery supplement each other nicely. Both Marini and Emmanuel argue that the deviation of the wage from the value of labour power has become the generator of an unequal exchange.

After the financial crisis of 2007, however, China was able to shift the cycle of capital accumulation from being focused on the world market to being dependent on domestic circulation – the dual chinese economy. By tripling the wage level and massive state programs for internal investment that would eventually alleviate 800 millions out of poverty, China has reduced unequal exchange and broken the polarising tendency that has ruled capitalism for more than 150 years.

5] TRUST IN MADANI

For Malaysia politico-economic model to be successful, and sustainable, the core issue of contradiction between capital and labour needs to be resolved with the Madani trust.

More so, after ethnocapital has owned, controlling and dominated the Malaysia resources, it is appropriate period of a new era under an unity governance to present a new narrative on Malaysian labour working cohesively and collaboratively – at this particular junction of a historical period – with capital to a shared prosperity domain under a common wealth practice for labour, too.

For one main obvious reality of capitalism is that massive poverty across the Global South is not the result of some local insufficiency (resources or skill talent) but rather due to the functioning of neocolonialism perpertuated by liberal economic policies as neoimperialism where the ongoing effects of dependency on financialisation capitalism need to be tamed.

The haemorrhage to present economy is the resulting outcome  of those extractive institutional forces since post-independence, accelerated by succeeding regimes in governance with odious practices, and as articulated by Prof  Kamal Hassan in Corruption and Hypocrisy in Malay Muslim Politics while Khalid’s London School of Economics and Political Science research has pinpointed the class structure-laden beneficiaries to their enduring enterprises.

The trust between labour and capital has to be firmed up solidly in fulfillment of a Madani Malaysia – more so when 98.5% of businesses are the SMEs contributing 36% of the national GDP where labour is important as capital because it provides employment for 7.3 million people – nearly half of the country’s workforce.

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Further readings:

Madani Malaysia praxis

The Big Push

TAPAO