Malaysia - not running fast enoughKJ John, MalaysiakiniNov 6, 2007 Recently, the Minister of Finance II assured the nation that weremain not only competitive but are also the recipient of qualityforeign direct investments (FDI), and have the ability to sustain ourgrowth above the 5 percent level.Nevertheless, after attending a recent DAP fund-raising dinner as aguest, I heard an almost divergent and different story about thestate of the economy.Which is the true storyline? How can we be competitive anduncompetitive at the same time?I am going to quote Tony Pua, the economic advisor to theDAP, and then each of us can undertake our own research and decidewho is telling the truth. Most of the statistics used are fromsecondary sources and can therefore be verified. So, here goes.In 1966, according to Pua, the GDP per capita of South Korea wasabout 30 percent that of Malaysia at US$130. But last year, SouthKorea's GDP per capita was three times more than that of Malaysia atUS$16,421, while Malaysia's was at US$5,040. In exactly 40 years howcould South Korea overtake us? What is Korea doing that we are not?What makes Korea move so fast when they too were hit by the EastAsian financial crisis?Was not Korea also one of our Look East countries? Have not almostall our planners and economists been there to learn from them? Didthey not visit us in the early 1960s to learn community development?Was not their Saemaul Undong Programme the upgraded version of thecommunity development programmes? How then could we fall behind sotragically?The answer lies in one word: knowledge. They have been able toutilise knowledge to create value. They use what our nationalconsultant, Professor Chan Kim, calls value innovation in his BlueOcean Strategy.In fact this was the central thesis of the Second Industrial MasterPlan of 1996-2005: move up the value chain or face the effects ofpoor value added. Rather unfortunately, 10 years after the IMP2 waslaunched, I can say that our industrial development strategy haslargely ignored the role of value innovation; being stuck with theolder paradigm of growth we call value-added growth from FDIinvestments.One solitary fact can confirm this reality of the older paradigm: weare still highly dependent on poor quality foreign labour to maintainour industrial growth and the manufacturing industry.The evidence of such labour intensive investments are evident fromanother two set of figures: Malaysia had FDI worth more than US$7billion in 1996 whereas, in 2006, it was only US$5 billion. Comparethis with both quantity and quality of FDI into Singapore: US$9billion in 1996 and US$24 billion in 2006.What is even more important is that Singapore is now an entirelyservices-type knowledge economy and is even off-loading their lowerend investments into our so-called Southern Economic Region. Do weeven understand what is really happening in the globalised newknowledge economy?Neighbours doing betterWhen we compare Malaysia with Thailand, the story becomes evenclearer. In 1996, Thailand had only about US$2 billion worth of FDI.In 2006, while we are hovering about US$6 billion, Thailand hadnearly US$10 billion worth of FDI. Yes, almost double the amount ofinvestments than Malaysia had. Thailand is about the same level asMalaysia in terms of the level of sophistication of industrialisation.But, I suspect they are able to do it without the kind and quality offoreign workers, as they have adequate supply of workers and are ableto move up the value chain. They also have a more liberal regulatoryinvestment environment than Malaysia. Today, Thailand is theregion's capital for the automotive industry, even though we startedwith a lot of noise and domestic investment.I dare not look at the FDI figures for Vietnam but seriously suspectthat if they have not overtaken us they will do so in the not sodistant future; simply because their labour and land costs are muchlower. We should not even think about Indonesia; for, as theirpolitical stability improves, their investments in oil palm andmanufacturing might help them overtake us.Where are our sources to finance and sustain our current level ofeconomic growth? Pua's answer is "from lottery money"! What hemeans is our oil and gas reserves; our Nature-given lottery. Or,simply put, from our own Global 100 Company - our national asset andsource of development funding. He says the current contribution ofPetronas to development funding is about RM53.7 billion or 46.8percent of the revenue sources.This, according to Pua is an unprecedented level of internaldevelopment funding whereas the original level of Petronas funding in2004 was only 25 percent, when Pak Lah Administration took over. Puaanticipates that Petronas' oil resources should run out by 2010 andasks the question: then what?Is this then wise and prudent development? And is our developmentexpenditure going towards value innovation? Will these monies, whichare the sources of all the so-called ECERs, going to create value orsimply only value-add to existing operations, thereby eroding thecompetitiveness of our economy?An even more pertinent question is: are the ECER sources of wealthcreation or really a one-off wealth distribution process viainfrastructure development, as the Multimedia Super Corridor has become?Bloated civil serviceThe most damning figures that Pua reflected upon were that the costof operating and developing the nation has dramatically jumped fromRM45.6 billion in 1998 to a potential RM128.9 billion in 2008; a 218percent increase over the last 10 years. [Note that the numbersquoted are purely 'operating expenditure' and doesn't actuallyinclude 'development expenditure']Another way to look at these figures is that this is the cost of the9th Malaysia Plan development. Even if we factor in inflation of anaverage of 3-4 percent, the 218 percent is not justifiable. Unless wecan say that development under Pak Lah is more pronounced than thatunder Dr Mahathir Mohamad, we have no logical explanation.Pua gave a tongue-in-cheek answer to this query: "We are buyingexpensive screw drivers and screwing ourselves up!" He was referringto the 2006 Auditor-General's Report which highlighted screwed upways of buying and paying for screw-drivers which appear to beillegitimised ways of stealing public funds through incompetent andcorrupt purchasing processes.To my mind, the real crooks are senior government servants (ascontrolling officers) who spent the budget without legitimateauthority. Surely both the Public Accounts Committee and the Anti-Corruption Agency could find out the whats and the whys, but is therereal political will to do so? It is definitely easier to go out andcatch the ikan bilis and make a big show of it.What do we then conclude about bad governance of this nation and itsresources? Words like integrity, honesty, and accountability, ringhollow when there is a serious lack of leadership integrity.Leadership integrity is upheld only when the leaders of anyorganisation say what they mean and actually mean what they say. Thenthey need do go out and do it.To reflect on poor governance, we only need to reflect on the size ofthe public services. Malaysia has the highest per capita publicservices in the region with about 4.68 percent, with Japan ournearest rival at about 3 percent. Every other country has a lower percapita of public servants.With a 35 percent increase in salaries for some ranks, is it unfairfor the population to expect good public services delivery? Instead,what we get one-eyed public service which selectively bulliesunsuspecting communities; protects the real crooks; destroyslegitimate places of worship; and condones the building of illegalones. I see a monstrosity in my neighbourhood, which was the rape ofa legitimate and legal playground, all in the name of religion anddevelopment.We see selective persecution and the closing of one eye when it suitsthe Little Emperors. In the meantime, the country loses itscompetitiveness; and slowly but surely loses its capacity for growth.Wake up Malaysia!