The Tunnel Economy of Gaza

Collective of Geoeconomics

14/11/23

PREAMBLE

This article is re-published from Adam Tooze Chartbook #245, Nicolas Pelham’s account, Tannira (2021) essay in The Political Economy of Palestine; additional, comments from Wilson Centre, Council for Foreign Affairs and the New York Times illustrations; with datasets from UNRWA and  UNCTAD

I] INTRODUCTION

Resourceful people confined in such desperate circumstances resort to extraordinary makeshifts. In Gaza, the most remarkable phase of the struggle for survival and prosperity came with the era of the “tunnel economy”.

Today we hear of tunnels mainly in a military context or as places to hold hostages. Gaza’s tunnel system began first and foremost as a means of economic survival to gain access to Egypt.

II] TUNNEL ECONOMY

Nicolas Pelham’s account of the emergence of the tunnel economy from the Journal of Palestine Studies in 2012 is worth quoting at length:

Hamas’s summer 2007 military takeover of the Strip marked a turning point for the tunnel trade. The siege, already in place, was tightened. Egypt shut the Rafah terminal. Israel designated Gaza “a hostile entity” and, following a salvo of rocket-fire on its border areas in November 2007, cut food supplies by half and severed fuel imports. In January 2008, Israel announced a total blockade on fuel after rockets were fired at Sderot, banning all but seven categories of humanitarian supplies. As gasoline supplies dried up, Gazans abandoned cars on the roadside and bought donkeys. Under Israeli blockade at sea and a combined Egyptian-Israeli siege on land, Gaza’s humanitarian crisis loomed, threatening Hamas’s rule. The Islamists’ first attempt to break the stranglehold targeted Egypt as the weaker link. In January 2008, Hamas’s forces bulldozed a segment of wall at the Rafah crossing to allow hundreds of thousands of Palestinians to pour into Sinai. While long pent-up consumer demand was released, the measure provided only short-term relief. Within eleven days, Egyptian forces succeeded in herding Palestinians back. Egypt then reinforced the army contingent guarding the locked gates and built a fortified border wall. As the siege intensified, employment in Gazan manufacturing plummeted from 35,000 to 860 by mid-2008, and Gaza’s gross domestic product (GDP) fell by a third in real terms from its 2005 levels (compared to a 42 percent increase in the West Bank over the same period).6 With access above ground barred, the Islamist movement oversaw a program of industrial-scale burrowing underground. With each tunnel costing $80,000 to $200,000 to build, mosques and charitable networks launched schemes offering unrealistically high rates of return, promoting a pyramid scheme that ended in disaster. Preachers extolled commercial tunnel ventures as “resistance” activity and hailed workers killed on the job as “martyrs.” The National Security Forces (NSF), a PA force reconstituted by Hamas primarily with ’Izz al-Din al-Qassam Brigades (IQB) personnel, but also including several hundred (Fatah) PA defectors, guarded the border, occasionally exchanging fire with the Egyptian army, while the Hamas government oversaw construction activity. Simultaneously, the Hamas-run Rafah municipality upgraded the electricity grid to power hundreds of hoists, kept Gaza’s fire service on standby, and on several occasions extinguished fires in tunnels used to pump fuel.

As Mahmud Zahar, a Hamas Gaza leader, explained, “No electricity, no water, no food came from outside. That’s why we had to build the tunnels.”

Private investors, including Hamas members who raised capital through their mosque networks, partnered with families straddling the border. Lawyers drafted contracts for cooperatives to build and operate commercial tunnels. The contracts detailed the number of partners (generally four to fifteen), the value of the respective shares, and the mechanism for distributing shareholder profits. A typical partnership encompassed a cross-section of Gazan society, including, for example, a porter at the Rafah land crossing, a security officer in the former PA administration, agricultural workers, university graduates, nongovernmental organization (NGO) employees, and diggers.

Abu Ahmad, who had earned NIS 30–70/day as a taxi driver, invested his wife’s jewelry, worth $20,000, to partner with nine others in a tunnel venture. Investors could quickly recover their outlay. Fully operational, a tunnel could generate the cost of its construction in a month. With each tunnel jointly run by a partnership on each side of the border, Gazan and Egyptian owners generally split earnings equally. …. By the eve of Operation Cast Lead in December 2008, their number had grown to at least five hundred from a few dozen mainly factional tunnels in mid-2005; tunnel trade revenue increased from an average of $30 million/year in 2005 to $36 million/month. Mitigating to some extent the Gaza economy’s sharp contraction resulting from the international boycott of Hamas,

Hamas regulated the tunnel trade with a tunnel committee. It charged fees, organized security and regulated the types of good that were traded. As Tannira (2021) writes in the excellent collection The Political Economy of Palestine:

Under the trusteeship of Hamas, smaller businessmen were allowed to invest capital in the construction of mid-advanced tunnels to allow for the flow of goods and supplies. Tunnel workers (who were responsible for digging the tunnels) were also included in the ownership of these tunnels in a way that they had a particular quota of revenues generated through individual tunnels. At the same time, Hamas obtained between 25 and 40% of tunnel revenues … Traders tooka dvantage of the significantly cheaper prices of goods smuggled from Egypt … At the same time, goods were sold in the local markets at the same price as Israeli-taxed goods… Hence, new traders were able to make significant profits … The high security risks and security considerations involved …. led Hamas to only allow a smaller group of Hamas-vetted traders …. to get involved … “

At its height in the early 2010s Hamas was likely generating $750 m per year in revenue from the tunnel system. Crucially, the tunnel system enabled a supply of construction materials with which Gaza could meet its need for housing and rebuilding after the disastrous confrontation with Israel in 2008-9. As UNCTAD reports:
… between 2007 and 2013, (there were) more than 1,532 underground tunnels running under the 12 km border between Gaza and Egypt. …. The size of the tunnel trade was greater than the volume of trade through official channels (World Bank, 2014a). According to the United Nations Human Settlements Programme, based on the materials allowed in by Israel, it would have taken 80 years to rebuild the 6,000 housing units destroyed during the military operation in December 2008 January 2009. However, imports through the tunnels were so significant that they reduced the time frame to five years (Pelham, 2011). Similarly, Gaza’s power plant ran on diesel from Egypt brought through the tunnels in the range of 1 million litres per day before June 2013 (OCHA, 2013).5

The tunnel economy reached its peak between 2011 and 2013 after Mubarek’s repressive regime in Egypt was overthrown in the Arab spring and the Muslim Brotherhood ruled in Cairo. With supplies flowing in, and the construction sector booming, Gaza’s GDP per capita rebounded from the low of 2008. But then double disaster struck.

In July 2013 the Egyptian military seized power, overthrowing the allies of Hamas, and a year later, in July 2014 Israel launched its 50-day war against Hamas. The result was utter devastation. Not only was Gaza subject to a devastating bombardment by tens of thousands of artillery shells and bombs, but a joint Israeli-Egyptian campaign closed off the tunnel system.

By May 2015 the number of Palestinian refugees solely reliant on food distribution from the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA)  increased to 868,000 by May 2015, representing half the population of Gaza and 65 per cent of the registered refugees (UNRWA, 2015b).

Nor were bombardment and isolation the only threats that the Gazan economy had to deal with. As IMF data, show, the Gazan economy rebounded from the massive shock of 2014, only in 2017 to suffer a financial crisis and government spending squeeze. Tannira summarizes a disastrous escalation of this austerity.

Compounding the financial pressures on the Palestinian authorities, Israel regularly withholds tax revenue which are due under the Paris economic agreements of 1994.

Under the impact of these pressures, even before the current explosion of violence it has become increasingly difficult to speak of Gazan economic development at all. GDP per capita has slumped towards as little as $1500 per capita. The unemployment rate in Gaza hovers between 40 and 50 percent, roughly three times higher than in the West Bank.

As Shir Hever’s data show, wages in Gaza stagnate at the very bottom of the racialized pyramid in Israel/Palestine.

In the 1980s when Roy first coined the idea of “de-development” her aim was to insist that Gaza was not developing even though incomes were growing. Since 2014 even that seems over-optimistic. The Gaza economy as such has been extinguished. When people speak of an “open-air prison” they barely exaggerate.

III] DISPOSABLE DE-DEVELOPMENT

In the final edition of Roy’s ground-breaking work, which appeared in 2016:

she argues that Gaza’s trajectory over the last 48 years has reconstructed the territory from one that had been economically integrated and deeply dependent upon Israel and strongly tied to the West Bank, to an isolated and disposable enclave cut off from the West Bank as well as Israel and subject to ongoing military attacks.

So, this is the answer to our question. This is how half the population of Gaza can simply be ordered to move from one end of the enclave to the other. The civilians have no wealth to speak of and few or any connections with the outside world. They depend, in any case on aid and what little they can smuggle in. They have become, as Roy so presciently put it, “isolated and disposable”. At this moment of crisis, the IDF would prefer not to have them in the way, when what it wants to concentrate on doing is killing Hamas fighters and destroying their military infrastructure. So it is time for them to move.

Capitalisation of the Progressive Wages System

13/11/23

I] EXTRACTED VALUE

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. 

With capitalism, it means that capital pays the workers less than the value their labour has added to the goods. It is a situation where an amount of salary is not enough to maintain the worker even at subsistence level.

In Marxian economics, the rate of exploitation is the ratio of the total amount of unpaid labor done (surplus-value) to the total amount of wages paid (the value of labour power). The rate of exploitation is known as the rate of surplus-value. Workers under capitalism are compelled by their lack of ownership of the means of production to sell their labor power to capitalists for less than the full value of the goods they produce. Capitalists, in turn, need not produce anything themselves but are able to live instead off the productive energies of each and every worker effort.

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 (like kanban: just-in-time production), in relation to the required working hours to reproduce the “basket of goods” that forms the value of labour power.

• Increase the relative surplus value by an increase in productivity, as a result of new technology (automation or machine-processing equipments) or more effective management form (like artificial intelligence transactions and processing), 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 through global supply chaining in manufacturing and distribution of finished products.

II] LABOURING FORCE

Though the unemployment rate in the country is showing a steady decline towards pre-pandemic levels, and time-related underemploment has improved to pre-pandemic levels, skill-related underemployment remains high where it has increased to 37.4 percent in Q2 2023 (compared to 34.8 percent in Q4 2020). In particular, skill-related underemployment for women increased significantly over the last two quarters.

Tertiary educated workers are unable to obtain high-skilled jobs due to a mismatch in the area of study, or a lack of skills that do not relate to formal education qualifications or due to an insufficient number of high skilled jobs offered by firms.

It is estimated that 32.2 percent of Malaysian workers are either overqualified or under qualified in their jobs.

Already when compared with ASEAN neighbours such as Thailand, Vietnam, Myanmar and even Cambodia, real wage growth in Malaysia has been low. That wage growth is slower because of imperfect economic performance contributing to slower economic growth.

This also point to the glaring reality that many workers are earning well below the suggested “living wage” with an amount adequate enough to provide beyond affording basic necessities, such as social participation and financial security (Chong and Khong, 2018). Estimates of the living wage for a single adult were RM$2,700 in 2016, with the amount needed increasing for larger households. Similar findings by the Employees Provident Fund (EPF) in collaboration with the Social Wellbeing Research Centre (SWRC) in their Belanjawanku expenditure guide has the monthly living expenses estimated to be RM$1,930 (SWRC 2023). For a single adult in the Klang Valley who owns a car, it is estimated to be RM$2,600 – both figures are well above the minimum statutory amount of RM$1,500.

It needs to be emphasised that half of all workers in Malaysia earned less than RM$2,000 per month in 2021 whence this is only slightly above current statutory minimum wage of RM$1,500 nationwide.

There are 2.2 million workers having less than RM$2,000 in monthly salary despite the implementation of the fully voluntary productivity-linked wage system (PLWS) — introduced in 2007 — and the minimum wage policy. The consequence is that, with consistent inflation and a low take-home wage, Malaysian has a relatively high household debt to GDP in the ASEAN countries.

For capital, the primary purpose of production is not to meet specific human needs or to achieve much social progress, much less to achieve any common prosperity goals. Rather, the overriding objective is to maximize and accumulate profit.

The result is that the capitalist world-system is characterized by perverse forms of production that wields the power to mobilize our collective labour and our planet’s resources for whatever it wants, determining what we produce, under what conditions, and how the surplus we generate shall be used and distributed.

III] PROGRESSIVE WAGE SYSTEM

Though the White Paper on Progressive Wage Policy was tabled on Nov 30 2023, however, the progressive wage policy to be implemented to complement the existing minimum wage policy would possibly see first light only by first half of 2024.

To be implemented by 2024 owing to differences concerning labour market institutions such as the minimum wage as well as collective wage determinant models.

Though the Madani Economy Malaysia aims towards a progressive wage model, this system would require a mandatory minimum increment in wages every year.

Will capital agrees?

To sweeten capital to accept the system, the Economic Ministry has already excite capitalism to adopt a model where government would give rebates and or other incentives thus, again colluding with capital to extract further values from labouring class.

In a progressive wage model like Singapore, there is not only a defined sectoral minimum wage structure, there is also a tripartite negotiation process involving government, industry players and workers’ unions.

Workers’ unions in Malaysia have had been decapitated long ago benefitting the Global North transnational corporations’ monopoly-capital in Free Trade Zones enclaves, (STORM 2021, TNC Labour Exploitation), in collaboration with local compradore capitalists. Under British colonial administration, we have southern India’s  indentured kangani labour who became “orphans of the Empire“, and post-independence when  unionisation was  disfavoured and  disenfranchised.

In Singapore, the progressive wage structure covers lower-wage workers such as those performing cleaning, security, retail, food services and waste management tasks whereas in this country all these selected sectors are already privatised, under government-linked companies (GLCs) or part of public private partnership which is deemed an wholesome hoax enterprise (KS Jomo, November 2023).

Another daunting task is whether capital is willing to set a clear career pathway for wages to rise in tandem with additional training and upskilling, especially among the small manufacturing enterprises (SMEs) which are lowly-funded with higher employment percentage categorised under the low-skill labour employment.

Further, typically, even in Australia, it takes two to three years for such a scheme to be implemented once one sector is identified to be covered by progressive wages. How long would a government cover the various business sectors and tested each progressive wages module or protocol in each enterprise prototype run?

Additional studies from different counties point to various considerations (including inclusiveness to capital-endowment preferences) have to be acceptable by the capital class in the implementation of any progressive wage policy.

Indeed, international experience points to the importance of productivity growth in boosting wages in the long time (ever our performance indicators in the public sector have pointed to surely slack inefficiency). Malaysia has lagged in productivity when compared to many aspirational high-income countries (World Bank 2023).

As an instance, attempting to maintain the edge of competitiveness in the semiconductor value chain is still a challenge for the country. Most of Malaysia’s ICs exports cater to the consumer-grade market indicating its global business sectoral positioning is on the lower end of value chain that does not required high-pay workers nor even an educational ecosystem that focus on advancing technological innovation nor talented indigenous creativeness. In 2018, Malaysia’s R&D expenditure-to-GDP ratio was only 1.08 percent when compared to China’s 2.15% and Taiwan’s 3.35%.

EPILOGUE

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

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 – that’s the reality of a small population that has one-third of labour constituting of low-cost migrant-workers and one-fifth of populace “public employees” living on national operational expenditure year after years.

Thus, it’s not surprising that the national economy is “moderating”.

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.

However, the trust between labour and capital has to be firmed up solidly in fulfillment of a Madani Malaysia under an e-commerce domain (see also STORM January 2023, Digitalisation Capitalism and SMEs) – 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 that are exploited thoroughly through extraction of their surplus values.

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Related Readings and References

The various STORM PAPERS on:

 INDUSTRIALISATION;

PRECARIOUS LABOUR ;

UNION BUSTING;

TRANSNATIONAL CORPORATIONS;

ALIENATION; and

 UNEQUAL EXCHANGE

Smiley supply chain in Asia semiconductor industry

10/11/23

I] INTRODUCTION

In 2022 alone, the Malaysia’s semiconductor exports accounted for approximately 56% of total E&E exports and contributed 22 percent of total national exports, rivalling the combined totals of other ASEAN countries such Thailand, Vietnam, the Philippines and Indonesia, but not Singapore.

Even with the uncertainty associated with global technology cycle and the USA-China trade war, Malaysia’s semiconductor exports – specifically in the 2021-2022 period – the exports of ICs still recorded a robust growth rate of 29 percent, fueled by the demand from China, US and Singapore customers.

Though Malaysia growth outlook is confronted with considerable uncertainty, yet the semiconductor exports had grew from RM$87 billion in 2009 to over RM$193 billion by 2022. The country is vital in the global landscape of semiconductor manufacturing, ranking the top five exporters of semiconductor devices, integrated circuits, and testing and inspection instruments.

Now that Malaysia’s GDP growth would be levelling off by 2024 in the face of slowing external demand, whereof the gross fixed capital formation (GFCF) growth – sustaining around 5.1% in 2023 supported by capital expenditure in both private and public sectors, but likely to decrease to 3.6% by 2024 due to softening of external demand and higher interest rates – the main issue is how the country has to maintain the smiley smile of commodity value chain to sustain continuance in her competitive edge advantages in the semiconductor global market.

II] THE CHALLENGES

The three main factors limiting Malaysia’s steep ascend to the global value chain:

(a) lack of indigenous innovation

(b) low R&D investments

(c) ineffective national educational ecosystem in supporting creativity and talented human resources

Even though Malaysia controls 8% global IC market share, its contribution to the most advanced patents represents only 0.2 percent of the world’s total. In fact, this share has already declined to 0.07 percent during past few years .

Further, majority of patents listed in Malaysia were primarily to use or license the technology to domestic firms for manufacturing.

In 2018, Malaysia’s R&D expenditure-to-GDP ratio was only 1.08 percent compared to China’s (2.15 percent) and Taiwan’s (3.35 percent).

To possess competitive advantages, there is an urgent need to foster indigenous innovation and increasing R&D investments (at a time when development expenditure for national economic development constitutes a mere 25% of budgetary allocation; see theedgemalaysia report below). This task could be executed through increasing absorptive domestic firms, and improving local-foreign linkages through monopoly-capital collaborations to enmesh country’s quest to ascend the highest segments of the semiconductor global value chain as what South Korean and Singapore had done, and what China is trying to surpass Malaysia’s semiconductor design sector.

III] THE BARRIERS

Through soft elements in the ownership of patents, copyrights, brands and logistical systems – typically known as the Intellectual Property Rights – these are routed onto a refreshed monopoly-capital commodity supply chain pathway as in:

There is an upward pressure on both left and right sides of the curve as a resultant outcome from dynamics arising from the growing role of intangible assets in the value chain processes, and also from tighter implementation and control of Intellectual Property Rights. What this means is that the market power of leading firms – the product/service initiators or front-runners – is often enhanced by intellectual monopoly endorsement which is fueled on one part by the dynamic advantages arising from global value chains network externalities, and on the other side, by the increasing returns on intangibles and legally-enforced proprietary control over standards, technologies and brands, as stated by (UNCTAD, The Digital Economy Report 2019: Value Creation and Capture: Implications for Developing Countries).

As such, the surplus value is highest at the R&D design and development phases and in the marketing and post-sales support stages that typically accrued as capital accumulation by Global North monopoly capital.

IMF squeezing poorer nations

1st November 2023

Collective on Geoeconomics

I] INTRODUCTION

In a previous essay, (The New Debt Crisis), we were relating some of the emerging problems of the Global South’s national debts with this introductory exploration:

For more than once, people are waking up to discover that another international debt crisis of enormous proportions looms on the horizon of a scale not seen since the early 1980s, after which Latin America and Africa have had to slog through a “lost decade.” Also, it’s a time when major economists have put forward theories predicting a falling tendency of the rate of profit under capitalism. There is no reason at all why the rate of profit in the economy should fall because of accumulation of capital, (Prabhat Patnaik, 23/07/2023).

Indeed, a paper in the New Political Economy  published online in 30 Mar 2021 by Jason Hickel, Dylan Sullivan and Huzaifa Zoomkawala have contended that wealth drain from the Global South remains a significant feature of the world economy in the post-colonial era; rich countries continue to rely on imperial forms of appropriation to sustain their high levels of income and consumption. The researcher-authors further articulated that the Global North appropriated from the Global South commodities worth US$2.2 trillion in Northern prices that were enough to end extreme poverty 15 times over. Over the 1960–2018 period studied, the value drain from the Global South totalled USD$62 trillion (constant 2011 dollars), or USD$152 trillion when accounting for the Global South countries’ lost growth alone, (see STORM 2021, Unequal exchange under neo-imperialism; Jason Hickel and Dylan Sullivan, Capitalism, Global Poverty and the case for Democratic Socialism).

We take up excerpts of Vijay Prashad‘s discussion from here.

2] THE MOROCCO CONFERENCE

Ahead of the meeting in Morocco, Oxfam issued a  statement  that strongly criticised the IMF and World Bank for ‘returning to Africa for the first time in decades with the same old failed message: cut your spending, sack public service workers, and pay your debts despite the huge human costs’. Oxfam highlighted the economic crisis facing the Global South, pointing out that ‘more than half (57 percent) of the world’s poorest countries, home to 2.4 billion people, are having to cut public spending by a combined $229 billion over the next five years’. On top of this, they showed that ‘low- and low-middle income countries will be forced to pay nearly half a billion dollars every day in interest and debt repayments between now and 2029’. Though the IMF has said that it plans to create ‘social spending floors’ to prevent cuts in government spending on public services, Oxfam’s analysis of 27 IMF loan programmes found that ‘these floors are a smokescreen for more austerity: for every $1 the IMF encouraged governments to spend on public services, it has told them to cut six times more than that through austerity measures’. The fallacy of ‘social spending floors’ has also been demonstrated by Human Rights Watch in its recent report, Bandage on a Bullet Wound: IMF Social Spending Floors and the COVID-19 Pandemic.

In July, the IMF approved a $3 billion stand-by agreement with Pakistan that it claimed would create ‘the space for social and development spending to help the people of Pakistan’. However, the IMF is simply feeding Pakistan the same tired neoliberal package, calling for ‘greater fiscal discipline, a market-determined exchange rate to absorb external pressures, and further progress on reforms related to the energy sector, climate resilience, and the business climate’—all measures that will exacerbate the crisis. To ensure the permanency of these policies, the IMF spoke not only with the government of Caretaker Prime Minister Anwaar-ul-Haq Kakar, but also with former Prime Minister Imran Khan (who was removed from office in 2022 in a move that was encouraged by the United States due to his neutrality on the war in Ukraine). As if this were not enough, through its role facilitating the agreement, the U.S. government  pressured the Pakistani government to supply weapons to Ukraine in secret through the disreputable arms dealer Global Ordnance. This makes an already bad deal even worse.

Thus, protests arise

These protests—from Suriname to Sri Lanka—are the latest cycle in a long history of IMF riots, such as those that began in Lima (Peru) in 1976 and sprung up in Jamaica, Bolivia, Indonesia, and Venezuela in the years that followed. When the IMF riots unfolded Indonesia in 1985, long-time CEO of the Bank of America Tom Clausen was presiding over the World Bank (1981—1986). In remarks that he made five years prior, Clausen encapsulated the attitude of the Bretton Woods institutions towards such popular uprisings,  stating  that ‘When people are desperate, you have revolutions. It’s in our own evident self-interest to see that they are not forced into that. You must keep the patient alive, because otherwise you can’t effect the cure’.

III] THE CLAUSEN CURE

Clausen’s ‘cure’ —privatisation, commodification, and liberalisation — is no longer credible. Popular protests, such as those in Suriname, reflect the broad awareness of the failures of the neoliberal agenda. New agendas are needed that will build upon the following ideas, such as:

1. Cancelling odious debts, namely those taken by undemocratic governments and used against the well-being of the people.
2. Restructuring debt and forcing wealthy bondholders to share the burden of debts that cannot be fully repaid (without wreaking devastating and fatal social  consequences) but from which they benefited for decades.
3. Investigating the failure of multinational corporations to pay their fair share of taxes to poorer nations and establishing laws that prevent forms of theft such as transfer mispricing.
4. Investigating the role of illicit tax havens in allowing elites in the poorer nations to ferret  away the social wealth of their countries in these places and procedures to return that money for public usage.
5. Encouraging the poorer nations to take advantage of new lenders that are not committed to austerity-debt forms of lending, such as the Peoples Bank of China and the New Development Bank.
6. Developing industrial policies that are geared toward creating jobs, lessening the destruction of nature, and progressively adopting renewable energy sources.
7. Implementing progressive taxation (especially on profit) and a living wage in order to ensure fair income for workers as well as wealth distribution.

REFERENCES

IMF 2023 Report on Malaysia

Global South new debt crisis

Destined to Debts

Malaysia Economic Monitoring – lifting drowning rakyat² with the raising tide

2nd November 2023

PROLOGUE

Malaysia’s economy is projected to expand by only 3.9% in 2023 amid subdued external demand but may edge up to 4.3% in 2024, as an anticipated global recovery offset a slowdown in China, according to the World Bank Malaysia Economic Monitor: Raising the Tide, Lifting All Boats.

Malaysia’s GDP growth slowed to 2.9% in Q2 2023. Although domestic demand continued to grow, its pace has moderated, and revenue collection is expected to remain relatively low. Therefore, efficiency improvements in expenditure are crucial, especially to refine the efficacy of subsidy measures for those who need it the most. Though the report recommends a combination of stronger tax collection, reduced blanket subsidies, and more adequate targeted support for those who need it, maybe time to ask whether the structuring institutional reforms for economic development (SIRED) is still sustainable.

The report examines gaps between the rich and poor in Malaysia, where, despite dramatic declines in poverty over the last 50 years and a narrowing of income gaps among ethnic groups, regional disparities in income and human capital outcomes remain significant. Malaysia’s low tax revenues of 12% of GDP, well below the upper-middle-income country (UMIC) average of 18%, leaves less fiscal space for pro-poor and growth-enhancing investments.To increase fiscal space to meet growing spending and investment needs, Malaysia can strengthen its revenue capacity by enhancing general consumption taxes, personal income tax, and health taxes, streamlining corporate tax incentives, expanding capital gains taxes, and exploring other progressive taxes.

The conclusion in Malaysia Madani Budget 2024 is too optimistic, and a reassessment is due.

I] LITTLE LABOUR

Labour is still underpaid; and labour employment has only slightly improved post-Covid pandemic period, with underemployed with unskilled labour still being persistent.

To compound these economic situations, both urban and rural poverty has risen, too; indeed, half a million households still live below the average national poverty line of a monthly income of RM$2589 with the urban poverty rate rising to 4.5% in 2022.

Further, growth of wage in labour is comparatively lower than competitive counties in Southeast Asia, with many workers earning below the “living wage”.

Then, the rate of unemployment among youths has been raising during the last 6 years, too, especially among those without skill-element endowments.

Even with foreign direct investments, the upskilling of labour is not properly mobilised because of the mismatch deficiencies in the public education provision and an inadequate commercial training ecosystem to support, say, the semiconductor industry.

As an instance, despite holding an impressive 8%
share of semiconductors in the global market, Malaysia still lags in advanced pattern development as its integrated circuit (IC) design is only 0.07% within the semiconductor industry.
The country is still stuck in assembly and testing and has not been able to do the
design and development which are long-term structural issues that need to be addressed if the semiconductor industry wants to keep prospering, and benefiting.

World Bank Malaysia
lead economist Dr Apurva Sanghi has cautioned that Malaysia’s semiconductor sector, which contributes nearly 25% of the country’s gross domestic product
(GDP), continues to thrive and play a crucial role in the nation’s economic stability but warned it needs to move up the value chain if it is to continue to benefit in the longer run.

Then, there are 2.2 million workers having less than RM$2,000 in monthly salary despite the implementation of the fully voluntary productivity-linked wage system (PLWS) — introduced in 2007 — and the minimum wage policy. The consequence is that, with consistent inflation and a low take-home wage, Malaysian has a relatively high household debt to GDP in the ASEAN countries.

II] BIG CAPITAL

The country has maintained a high level of operating expenditure (see Madani Malaysia Budget 2024; other aspects on Madani: The Script; the Narrative; TAPAO; the Conversation) where in 2022 almost 60% of the government’s operating expenditure has been related to supporting an inefficient civil service sector in the provision of salaries, pensions and debt service payments which are also on a rising trend.

While Malaysia’s public expenditure is comparable to OECD, there are tremendous challenges because of the high levels of public debts so much so an additional RM$15 billion was allocated to the development expenditure in the last 12th. Malaysia’s Plan, thus constituting 4.0 percent of GDP. Even these development programs have remained fragmented because of the institutional arrangements Federal government made with various stakeholding entities at the State governance level and related government-linked companies (GLCs). Coupled with these ensuing issues are that the already high national debt level limits the government to increase borrowings to fund other developmental projects.

Secondly, with government revenue projected to remain low, but operational expenditure to remain high, this has eventually to further narrowing of Malaysia’s fiscal space which is gradually narrowing since 2012. The current fiscal consolidation would need to blanket a higher revenue collection regime. As often expressed by World Bank through the decades, it is pertinent to address the persistent decline in revenue collection and explore new revenue sources.

Thirdly, with global growth expected to slow over the near term – projected 2.1% in 2023 – what the Madani Malaysia economy needs to be careful about is to focus domestic spending to counterbalance the prevailing world depression.

However, the key downside risks rest with the uncertainty around domestic inflation and the strength of household consumption. Unfortunately, the low-income households have been impacted disproportionately by frequent price increases. Indeed, any further inflation upside may only prompt further monetary tightening that is not conducive to domestic enterprises, and downstream affecting labour and its already declining take-home pays.

III] CONSOLIDATING LABOUR AND CAPITAL

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. 

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 labour power.

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

• Extract super surplus value by lowering the actual level of reproductive costs (through commodity supply chains) and thus, the “necessary working time” share of total working hours.

As at August 2023, there are 97,799 employers undertaking the productivity-linked wage system (PLWS) involving 5.96 million employees, but wages have still not been able to be increased. On a main point, there is this wage compression phenomenon where salaries for non-skilled employees may see increases to meet the minimum wage requirement, but at the expense of semi-skilled and skilled employees, especially younger employees, and those in the executive levels who saw no significant increases in wages during the period.

According to the 1Q2023 formal sector wages report issued by the Department of Statistics Malaysia (DoSM), median monthly wages in March 2023 for citizen with formal employees is RM$2,600, with the number of citizen formal employees amounting to 6.45 million persons. The highest median monthly wages in March 2023 was recorded at only RM$3,500 for formal employees aged 45 to 49 and aged 40 to 44, accounting for nearly 20% of total formal employees. Meanwhile, the age group below 20 years received the lowest median monthly wages amounting to a mere RM$1,500 monthly salary.

Though the White Paper on Progressive Wage Policy was tabled on Nov 30 2023, however, the progressive wage policy to be implemented to complement the existing minimum wage policy would possibly see first light only by first half of 2024.

Coupled with the ineffectiveness of the Industrialisation 4.0 initiative and the decapitation of trade unionism, the exploitation of labour would, henceforth, continues.