Tuesday, April 26, 2005

Financing Social Welfare

I read with interest of a government minister’s statement a month ago that in the 9th Malaysian Plan, there will be welfare payment for the elderly, the sick and the poor. While there is a plan and the desire to help the people in need, the bill still has to be passed in parliament and passed into law. Late in a question and answer session in parliament, Deputy Minister Chew Mei Fun said that there are help available for single mothers in the form of micro loans. I still cannot figure out how much are these welfare payment, in ringgit terms, and how will the help reach to those in need? Do we expect the old people and the single mothers to find their way to the offices of Jabatan Kebajikan Masyarakat, filled up pages of forms and counter signed by ketua kampung? Well, that is my expectation of how things work in Malaysia. I would suggest that officers of JKM to be more proactive, visit villages and find out who are we missing out. After all some of these people have difficulty going to town. I would also suggest that the welfare payment depends how the needs of the household concerned; how many children or dependants in the household and what kind of expenses they incur.

The big question remains, how are we going to finance this plan without going into large fiscal deficit?
Simple, and it can be summarized into three words; taxes, surcharge and/or monetary expansion. In Malaysia’s situation, where any increase in taxes or imposition of surcharge is unpalatable to the voters, printing money has always been the solution taken by the government. Different country has their own way of financing their social welfare.

New Zealand, Australia and Britain – direct from taxes; income and corporate taxes are raised to a level that covers the financial obligation of the country. Depending on the total number of the pensioners, single parents, sickness beneficiaries and unemployed, welfare portion of national budget could be as high as 20%.
USA – surcharge on income taxes; a form of social insurance whereby those who work pay a portion of their income in addition to income tax.
Iran – monetary expansion, put it simply, by printing money. This would normally be the case of countries without large tax base.
Japan – investment income; savings from previous decades are salted away and invested to earn income. These incomes are used to finance social welfare payment.

It would not be advisable these days to print money at a rate more than natural economic growth rate of the country lest inflation would become unmanageable. When you see a country with very high inflation rate, there is a sure tell tale sign of large budget deficit being covered by printing money.
In case of Malaysia, where the tax base is not so large, and investment income is still low, the only responsible way of financing social welfare would be by money from taxes. There may not necessarily be any increase in taxes, if government income exceeds spending by a wide margin – budget surplus. In the next few years there could be budget surpluses after consumption taxes (sales tax, value added tax (VAT) or a form of goods and services tax) being phased in 2007.

Friday, April 22, 2005

Labour Shortage Exposes Inefficiencies in the Economy.

Lets face it; we are a country of immigrants. Most of us can trace back our roots from other than the Malay Peninsula. Even our some of our Royal families have roots from other parts of Malay Archipelago; Selangor royal family traces back its history from the Bugis of Sulawesi and the Negri Sembilan royal family from Sumatera. Even Parameswara was not born in Malacca.
Unfortunately for the latest group of immigrants, things are not so rosy, they are treated with disdain, reserved those jobs that the locals don’t want, the lowest possible wages and for those without valid permit, being called with four letter word – PATI, short for pendatang asing tanpa izin.
You would see most of these immigrants in the city working in all sorts of jobs – from construction to cleaning offices. The wages they get have always been among the lowest, about RM300 to RM500 a month. Small wonder that most of them couldn’t afford to rent a room. Their willingness to accept low wages acts as anchor to the general wage level; employer could simply make local worker redundant and then subcontract the work to a local company who tendered the lowest cost for the job. Incidentally these subcontracting companies employ foreign workers who get low wages.
Just drive a little bit further from the suburbs of KL to Puchong, Meru or Johan Setia outside Klang, you will see where ordinary factory workers lives – wooden houses, jam packed and Spartan. These are the areas where most new immigrants live. Rent is much cheaper, and they are among their own people. Achehnese, Javanese, Madurese, Bengali, Champa and perhaps a dozen other groups separated by their mother tongues. These immigrant workers work in factories, supermarkets and restaurants by day. Some of the more enterprising ones set up small businesses by night, as traders at night markets supplementing their meagre income.
Without doubt the country benefit tremendously from hard working and enterprising immigrants – they provide endless supply of cheap labour and their small businesses keep inflation low. It is well known among locals that immigrant traders will offer deep discounts on their goods and services.
Most Malaysians resign to the immigrants competitive nature by upskilling themselves and not competing for jobs that have become the domain of the new immigrants. Malaysian youths do the best they could, attend tertiary institutions, get certified and look for jobs with higher pay.
Who could live on RM500 a month these days?

When some smart policymaker in Putrajaya says that its time to crack down on illegal foreign workers, he or she might not have the slightest idea this would expose a serious flaw in the Malaysian economy. That is some sectors of the economy does not reinvest some of the profits to improve efficiency – hence uses a lot of unskilled cheap labour to survive. Or was the crackdown a deliberate policy?

Let me give some examples of inefficient sectors.
Restaurants – most ordinary restaurant in Malaysia you still have the luxury of full service, waiter taking order, etc and the price of roti canai is still 60sen each. Did you notice that when you go to McDonald or KFC you would have to stand in queues to get your food and pay at the counter straightaway?
Agriculture – big operations run by listed companies may have thousands of hectares in its management. Most of them are efficient, but they still pay low wages to their workers, because they can and foreign workers make the bulk of their workforce. When the illegal foreign workers left, no local want to work for them because of low wages, and they cant afford to pay more. Now we know that they are inefficient as well. The smallholders, where their land size is about one or two hectares, its simply too small and uneconomic. Farmers would send their children to the cities to look for other jobs. This is okay if farmer is still able to work on the land to produce food. But when he is old, the children would have their own lives and jobs in the cities, the land would become fallow and neglected, and we starting to feel the effect in the form of higher food prices – fruits and vegetables. This is what is happening in most kampungs.
Retail sector – go to any shop and department store, you would be chased by sales assistants or house detectives, either all Malaysians are thieves or they have nothing to do. Wouldn’t they be better be employed elsewhere? Hypermarkets help shake up this sector, but more efficiency could be achieved by facilitating online business for smaller players.
Service sector – some service sector are inefficient, just go to the bank to withdraw money or make bank draft and you would find out after long queues, endless forms and two levels of approval. Government sector is bad in this regard; no one at the front counter is empowered to do anything, rules change every now and again, the penchant for endless forms and endless higher-level approvals. I still cannot figure out why we have to change our identity card twice for the past 10 years. New Zealanders and Australians don’t have identity cards, only driver’s licence if they need to drive. Our justice system needs reform, at least make it more accessible, credible and speedy.

Imagine the savings that we could have made if some of these sectors are efficient, some excess labour would be redirected and better employed elsewhere. Efficient sector and industries would be able to offer better wages for its workers.
We would suggest that the government NOT to bring in more guest workers from Indonesia, Pakistan or any other countries. Let the mechanics of free labour market decide how best to use our scarce resources, in this case – labour. If any firm believes that labour is cheap in Indonesia or Pakistan, let them set up factories there. Importing workers from these countries means that we are depriving them of their labour and exporting inflation (foreign workers send remittance home, which increase demand in their home country while production stay flat, hence prices increase). What these countries really need is investment.
A genuine shortage of labour would normally be followed by wage rises, and more people would enter the labour market. Some inefficient industries would cease operation or invest more in capital-intensive machinery to increase productivity. In our recent history, economic boom is followed by rampant influx of guest workers (legal or illegal). Employers manage to keep prices down by employing foreign workers. Local workers missed out on the fruits of expanding economy could have provided – higher wages.
Whether these foreign workers are genuinely cheap is open to investigation. I remember a few years ago when I was working at a new department store on Puchong. There were more than enough local applicants for the sales assistant jobs, which paid RM500 a month. Yet my bosses brought in 30 Bangladeshi men who didn’t speak Malay or English to work as sales assistants. These guest workers need housing, food and transport to work as well as the initial cost of airfare from Dacca. Does it make sense? Not to me.
I still believe that foreign workers are more expensive than local workers. Look at the recent example on Harakahdaily.net where there is an advertisement for maid that cost RM2950 for the first 3 month paid upfront. Just imagine that, the maid has to endure 3 month without pay, yet the agency reap commission. Ethical?
In my experience living in the West, I have never met people who employ full time maid in their household; some employ part time home help, who are paid on hourly basis. Notice the term here, home-helper instead of maid. Most people would rather spend quality time with their spouse and children and do things with them, household chores included.
In the economic sense, does employing a maid economically efficient? Not in my view, it would make more sense if one of the parent either husband or wife stay at home and be a full time mother/father, building a lasting and meaningful relationship with their children. Employing a full time maid for RM500 a month to do household chores and keeping an eye on the children is just a waste of human resources, that maid would contribute more to the economy working at a factory. The same could be said of employing foreign workers to do menial jobs.
Why don’t we invest some money in capital intensive and efficient machinery to replace workers?
Noor Yahaya Hamzah
Http//: nooryahaya.blogspot.com
Email: nooryahaya@yahoo.com

Sunday, April 17, 2005

Foreign Workers; The Right Solution to Solve Labour Woes?

We are a country of great contrast; we have thousands of unemployed in the country, including over 80,000 graduates and over 320,000 non-graduates, yet some sectors of the economy are clamouring for workers-agriculture, construction, manufacturing and services industry. After the recent repatriation of the illegal immigrants, the labour crunch become worse, and now the government has arrangement with Pakistan to bring in over 100,000 Pakistanis to work here.
What is wrong with the local unemployed? Is it because those jobs that are being filled by foreigners are 3D jobs? Dirty, dangerous and demeaning, and I shall add another D, hard work. I beg to differ in this regard.
My experience living in free market society taught me this; given enough monetary reward, people will do almost anything, 3D jobs included. In Western countries, those highly paid jobs are in fishing industry, long haul transportations (those big trucks that transport goods interstate), police and fire department. Of course, some popular artists and singers are highly paid too (don’t envy Siti Nurhaliza, she’s worth her pay, even at RM50 per concert). Ask yourself, how much you would be able to get working as general labourer, waiter or construction worker. If you are working as a corporate manager or high flyer in the city, you might be able to get RM5,000-10,000 easily. Our MPs have minimum salary or RM18,000 a month, and yet they still complain of being broke. If the figure above is not right, forgive my ignorance.
Let me make it clear here, that some employers draw fat salaries, yet when it comes to paying reasonable wages for their employees, they balk. Construction workers earns on average about RM50-80 a day, on daily basis with no holiday pay or paid sick leave. Cleaner, security guard, sales assistant, factory worker and kitchen hand earn about RM300-700 a month depending on location and generosity of the employer. Its small wonder that not many people willing to do those jobs.

Instead of bringing in foreign workers to ease our domestic labour woes, we should let the market runs its course; with unemployment rate below NAIRU (non accelerating inflation rate of unemployment), a shortage of labour, would be followed by increase in wages and inflation. When the wage rate is high enough, more people would enter workforce and our labour problem would be solved. Those 80,000 graduates and 320,000 non-graduates would be happy to work for reasonable wages. In my opinion, our labour shortage is just that, transitional unemployment because with low wages, the unemployed would keep on looking for better jobs. Its about time that low earning Malaysians get a better deal, increase in real wages and better living standard. If the wages are high enough, some employer might invest more money in labour replacing machinery instead, hence reducing labour demand, and increasing labour productivity at the same time. Let just admit it, we are not a cheap labour economy any longer.
In my opinion, the government is doing a disservice to its constituency, the average low income wage earners by bringing in thousands of foreign workers, limiting the wage growth and postponing the country shift into more productive and efficient economy. It’s about time that the ordinary Malaysians get their fair share of our economic progress.
In this regard, we shall call on employers to invest in capital intensive and labour saving production. Importing cheap labour from Indonesia, Pakistan, Bangladesh would slow this shift into higher productivity economy.