LETTER FROM THE RAKYAT:
TRAVELLING through downtown Cancun, my friend Joshua and I, constantly stumble upon Mexican quartets that sing from one restaurant to another. My personal favourite is this specific rendition of Michael Buble’s Sway in Spanish. Our constant meetings with quartets led to a conversation about the culture of tipping and an estimation of how much these musicians make; we were cheap tourists.
But after seeing one of the quartets driving a taxi home, I felt that I should have empathise better; one of them was a taxi driver by day and a singer by night. He is working really hard with two jobs and taking the famous politician (Datuk) Ahmad Maslan’s advice. Although I think Malaysia has better political stability and economy, Mexico is a developing country like Malaysia; at least from the perspective of my travel, the country is more developed than the media perceives it.
Thus, it begs the question of how much the Malaysian work force can do better than the amigos I met in my travels. From the reaction on social media regarding the comments made by our politicians, I deduce that Malaysians demand a better quality of living. Hence, in this writing, I will attempt to answer why wages have not risen with the cost of living and, subsequently, have caused many Malaysians to suffer with the idea of more hours at work or a second job.
Before doing so, I want to address the rising cost of living. To clarify, I am speaking from a long-term economic perspective. There are current economic factors to explain the harsh economic conditions right now, but I want to address rising cost of living slightly independent of them. Consequently my short answer here is: consistent government spending spurs price inflation.
From an economic perspective, if government spending is coupled with an inelastic supply, the increased demand will increase price. Since Mahathir’s administration, Malaysia has been growing at a fast rate through consistent government spending. This spending extends to building industries, subsidising commodities, and managing scarce resources.
While some of the spending is what we expect from a government, these initiatives involve long-term contracts and borrowings, which may lead to higher price levels. The government is now responsible for servicing huge amount of debt and interest payments with, previously before the GST, one of the weakest tax revenue streams globally. I am aware that a lot of the government spending since 2008 was efforts to deal with the global financial crisis.
I commend the government in its efforts as we were barely hit by the crisis in comparison to our western partners. However, the consensus now, and I agree, is that we should not run with a risky budget deficit for too long. Hence, the government introduced GST and rationalised subsidies to reduce our deficits. This also played a huge role in raising price levels recently.
Here lie rooms for criticism against the previous government spending choices. I do not agree entirely with all government spending or the steps towards making those expenditures. But I think government spending is somewhat reflective of what the citizens voted for (mind you that Malaysians are deeply polarised in what they want). While 1MDB may be a long-standing scandal, one of its purposes was to consolidate IPPs in Malaysia and reduce the cost of electricity, which is what voters asked for.
Furthermore, I must emphasise that a lot of people, both poor and rich, benefited (though the degree to which group benefits more is debatable) from government spending. For example, the new MRT expansion project involved more than 30 companies (including 4 major tenders) to improve the connectivity of the Greater KL Area. Property prices rising significantly for landowners around the railways stations indicate an estimated wealth/benefit for landowners from the project. Despite the potential room for debate, I stress that the development through excessive government spending will inevitably raise price levels in the future.
But the question left unanswered now is why wages are not keeping up with rising prices? To answer such a question I will first refer to Karl Marx’s words, “wages equals to the product of his labour”, which are the founding blocks of labour theory. The economic theory suggests that wages are determined by the marginal physical product — in simpler terms productivity. In my opinion, Malaysians have not been as productive in comparison to the developed countries that we aspire to follow.
Statistics from OECD and Malaysia Productivity Corporation reports sadly agree with me; Malaysian labour productivity in the service sector shows no growth from 1993-2005 despite being the largest contributor to our economy. In 2005, our productivity levels are half that of South Korea and 10% of Japan. For the period of 2006-2010, labour productivity growth averages out at 2.8%. Labour productivity growth has been consistently below 2% after 2010 until 2014 where it recently rose to 3.5%. To put things in perspective, Malaysian labour productivity levels are half that of the Singapore, United Kingdom, Australia, and Hong Kong respectively, it is almost one-third of the level of productivity in the United States. Consequently, what do Malaysian firms make their employees do to achieve higher productivity? They make you work longer hours — just like Uncle Maslan’s advice.
The big misconception that Paul Krugman clarified in his writing “Ricardo’s Difficult Idea”, is that productivity increase in a company does not necessarily lead to an increase in the level of wages in the company. Malaysia may fare well in a few sectors like manufacturing and oil production, but the entire national labour market determines wages — meaning that wages are likely determined by the supply and demand of labour in the whole country. Hypothetically, if an audit firm in Malaysia achieves the level of productivity of the same type of firm in Australia or the United States, the level of wages of the company in Malaysia are likely still half/a third of the level of wages of the similar company in their respective country.
This idea is excluding the exchange rates. In fact, as a recent member of an unemployed fresh graduate in the United States, I can attest to that idea having applied to a professional service firm in Malaysia that offers approximately RM 36,000 a year and the same firm in the United States, which offers approximately US$73,000 a year for the same position. Unfortunately, I was not officially offered for the position in the States.
But as an aspiring individual (like many other Malaysians), I don’t think that working more hours is the solution to low wages in our country. Personally, I think we just have to be more creative in what we do in order to increase productivity. We do not need another hipster café, a burger stall or a Vape store. The United States for instance is not productive by relying on common trends to increase productivity; they strive to have their products change and innovate industries.
Let’s just think about it. Most of the software or content online is made by the United States, which incidentally mean that every time a person goes online from their phone/computer procrastinating in Malaysia, they are highly likely to contribute to the United States’ productivity. Likewise in Japan, Toyota Production System is a model for many manufacturing factories in the world, which means many cars or products, though not built by Toyota, contributes to Japan’s productivity. Now aggregate these ideas across multiple industries and you’ll have wages like that of a developed country.
I think we should move forward and aspire to be the “Wawasan 2020” that we dream and demand for. I understand that the economic conditions are tough and price levels have surged significantly. But I plea to all Malaysians to look at the issue at hand seriously rather than complaining or making fun of politicians online; because evidently, wages are low not because of any specific individual or party.
It is low because collectively, Malaysians are not as productive as we aspire to be. Therefore, let’s start by making businesses creative enough to challenge industries, especially with the small-medium enterprises (SMEs). I also encourage individuals to find creative ways to be more efficient and productive in their work. If not, we’ll be deprived of hours for leisure because we’re stuck with a second job.
FARQANI MOHD NOOR