Rich Malaysian, poor Malaysian

Abdul Taib Mahmud, the former Chief Minister of Sarawak from 1981-2014 and the current Head of State has never appeared on any international wealth ranking list. Yet according to the Bloomberg Billionaires Index, he presides over a family fortune exceeding US$1 billion. Sarawak is the third poorest state in Malaysia with an average household income that is about half that of Kuala Lumpur and with some of the poorest and most marginalized communities in Malaysia (see previous blog). So when the current Head of State of the third poorest state has amassed a huge fortune, this reads like a clichéd story of a feudal Rajah.

However he is in good company. The total wealth of the richest 40 Malaysians (you don’t need me to list them, just Google) is equivalent to 22% of Malaysia’s total GDP and their share has been increasing continuously. In relative terms, these fine gentlemen (unfortunately there are no women yet amongst their ranks) are in fact much wealthier than the top 40 richest individuals from the US.

The richest 10% of Malaysians take home 32% of the total income of the country while the poorest 10% have to manage with a measly 2%. In terms of wealth ownership (assets, savings, investments), the disparity is even more striking. The top 10% own 40% of the total wealth of Malaysia while the top 20% own 60%. The bottom half of Malaysians own only 14% of the nation’s wealth. The top 1% of Malaysians (our top 40 friends) earn 8% of the total income which is almost equal to what the bottom 25% earn. They also control more than 10% of the nation’s wealth. That has not changed much in the past 25 years.

I can rattle off more boring statistics that pretty much all tell the same story. Malaysia has a problem of persistent income and wealth inequality that will affect its long term growth prospects unless specific measures are taken. Despite overall household incomes increasing on average, the relative income gap between the top 20% (rich) and the bottom 40% (poor) has remain stuck at 7.0 since 1990. The relative income gap between rural and urban households in 2012 is the same as at independence in 1957! The richest state in Malaysia has about 3 times more income than the poorest state. This is of course not to say that there has been no progress. Incomes have increased overall but the rich are getting richer faster than the poor are getting less poor, irrespective of ethnicity. Some states have progressed while others are languishing. Rural households are at risk of being left behind.

We need new policies in place to address the growing gap between rich and poor as we are fast heading towards a divided Malaysia. Not so much by religion or ethnicity as we are being constantly reminded. But by income and wealth distribution and the accompanying access to power and opportunities. Unless the Government gives everyone a hand up without pushing others down or out and making sure no one gets left behind.

Outsiders in their own land

I borrowed this title from a presentation by Colin Nicholas of the Centre for Orang Asli Concerns (COAC) http://www.coac.org.my/. One cannot discuss inclusive growth in Malaysia without highlighting the living conditions of the 18 major Orang Asli communities in Peninsular Malaysia. To begin with, we don’t seem to have any reliable statistics on the Orang Asli population. The MHDR 2013 report indicates that there were an estimated 308,000 Orang Asli in 2010 living mainly in Pahang, Perak, Selangor and Johor. The COAC reports 869 Orang Asli communities with a total population of 178,197 for 2010. The Jabatan Kemajuan Orang Asli, JKOA (formerly the Jabatan Hal Ehwal Orang Asli, JHOA until 2011) which ought to be the authoritative source, provides only a 2006 population estimate of 141,230.

Perhaps it is just evidence of how we as a nation treat the Orang Asli: with paternalistic indifference rooted in ignorance and prejudice. The Orang Asli are not covered under Article 153 of the Constitution that confers special position to the Malays and natives of Sabah and Sarawak. They come under legislation for the protection of aboriginal people under the Aboriginal Peoples Act, 1954.

Without reliable population data poverty estimates are rather meaningless. The 2013 MHDR refers to 2003 data that reveals a poverty rate of 77% of which 35% are hardcore poor. It is unlikely that conditions have improved significantly over the past 10 years. The average life expectancy of an Orang Asli is significantly lower than the national average with higher rates of maternal and child mortality.

Historically, the Orang Asli have been enslaved, converted, coopted into conflict, controlled, patronized, displaced, disempowered and exploited (you have to take these assertions at face value as I do not have hard data). The core of their wellbeing is their ancestral land which gradually and systematically is being denied them. Land already gazetted as Orang Asli reserves has shrunk and land approved but not gazetted has decreased by more than 30%. Conversely, land applied for gazetting but not approved has increased by over 30%.  The Orang Asli are therefore being systematically denied their rightful land through sheer inaction or even complicity of local authorities.

Government programs for the Orang Asli managed by the JKOA/JHOA are the euphemistically termed arranged placement, economic and social development. There is little evidence that these programs have had any significant positive impact on their lives (I hope I am wrong).  An objective assessment of the performance of the JKOA/JHOA would probably merit their shut down. As a footnote, amongst the objectives of the Jabatan Kemajuan Islam Malaysia (JAKIM) is to proselytize to the Orang Asli, following in the long tradition of the Christians and others to save their souls.

The root cause of the Orang Asli’s marginalization is the lack of respect and recognition of their rights to self-determination: where and how they choose to live and their social, economic, cultural and political rights. All Malaysians need to support people like Tijah Yok Chopil of the Jaringan Kampong Orang Asli Semenanjung (Village Network of Peninsular Malaysia Orang Asli) who are struggling to fight for a place for the Orang Asli under the Malaysian sun.

Poverty amidst plenty across the South China Sea

So how are our fellow Malaysians across the South China Sea faring? Let us begin with average household monthly incomes. In 2012, average monthly household incomes in Sabah and Sarawak were about half that of households in Kuala Lumpur. Sabah, with 10% of the Malaysian population, has a poverty rate of 8.1% (based on the official poverty line income which I had discussed in the earlier blog) and is the poorest state in Malaysia. Sarawak is the third poorest state in Malaysia with an official poverty rate of 2.4%. As we all know, both Sabah and Sarawak are extremely wealthy in terms of natural resource endowments and with a relatively small population. So what gives?

Based on 2009 household income statistics for Sabah (Figure 3.17 of the MHDR), the Bajau are the poorest community with a poverty rate of 28%, followed by the Murut (26%) and the Kadazan Dusun Sabah (25%). The Iban, Bidayuh and Melanau are the poorest in Sarawak (about 11%) followed by the Sabah Malays (7%). According to the same source, the Sarawak Malays with a poverty rate of 3.8% fare slightly better than the Malays in Peninsular Malaysia (4.3%). These rates are based on the unrealistic measure of poverty line incomes…so feel free to extrapolate the real figures.

I do not have more recent data but the point to note is that the combined population of the major ethnic minorities in Sabah and Sarawak (who are Bumiputeras) is about 8% of the total Malaysian population and a significant proportion of them are living in poverty. The situation of some of the smaller ethnic minorities is indeed dire. The Penan in Sarawak have a hardcore poverty rate of a shocking 65% while more than 50% of the Kajang are considered as hardcore poor.

The picture that emerges is one of deprivation and marginalization and a failed affirmative action program despite the incredible wealth enjoyed by the top 10% of the population of these states. So how did the affirmative action program for Bumiputeras fail for these communities? Many of these poor, rural, isolated communities do not have access to quality education, social development and job opportunities which hinder their social mobility. To take the Penan as an example, their culture and very identity are under threat and the destruction of their traditional lifestyles and communities through forced assimilation have not been compensated by an equitable share of the revenues from the logging industry. The official response is that despite the best efforts of the Government, these communities are either unable or unwilling to take advantage of the support being provided. That is an unacceptable response. There could be elements of ethnic and religious discrimination in the delivery of the programs which need to be investigated in an objective assessment. Forced assimilation has not worked. There is a need for a new policy that is respectful of the cultural identities of each of these communities and designed and implemented with their direct participation and monitored independently.

That would first require an honest admission by the Federal and State governments and all Malaysians that this is indeed a national problem and not something tucked away across the South China Sea.

Lies, damn lies and poverty statistics

One of the key measures of inclusive growth is the level of poverty and income inequality in Malaysia. By all measures, Malaysia’s efforts in reducing poverty are remarkable and admired by the international community. My parents grew up in poor or even hardcore poor circumstances and I grew up in a poor household. My social mobility was due to my parents living and saving responsibly for their children’s future which was enabled by the Government’s growth policies. So this is not a diatribe against the Government as I am a grateful beneficiary of the growth and poverty reduction policies since the 1970s.

Let us begin with official statistics from the Economic Planning Unit, Prime Minister’s Department, which is the authoritative source for poverty data. Malaysia’s official poverty rate for 2012 is 1.7% based on what is defined as the poverty line income (PLI) which is RM 763 per household of 4.4 persons per month for Peninsular Malaysia (we will discuss Sabah and Sarawak in a separate analysis). What this means is that a household with less than RM 763 per month to pay for food and other basic necessities such as clothing, rent, fuel and utilities, transport and communications, medical expenses, education and recreation is officially poor. Jayanath Appadurai (please refer to blogs by Kamal Salih and Charles Hector) works out that this is about RM5.80 per person per day to meet all the above needs which we all know is completely unrealistic. To be considered as hardcore poor, the same household needs to earn less than RM 430 per month which works out to a ridiculous RM 3.30 per person per day to survive on (the hardcore poverty rate for Malaysia in 2012 was 0.25%).

Let us turn to indirect estimates of poverty which are more realistic. More than a third of Malaysians earn less than RM 1,000 per month and about half earn less than RM 2,000 per month. Assuming a family of 4.4, with both parents working, the total monthly household income of RM 2,000 will enable them to spend about RM 15 per person per day. Selangor has defined the PLI as RM 1,500 per month which works out to around RM 11 per person per day which has led to about one third of the households in the state classified as poor. So a more realistic measure of poverty level income would certainly increase the poverty rate in Malaysia from 1.7% to perhaps between 20 to 30%.

Then there is the question of relative poverty. Relative poverty is measured based on income that is less than half of the median income of all Malaysians which was RM 3,626 for 2012. Based on this measure, the poverty line income increases to RM 1,813 per month which would dramatically increase Malaysia’s poverty rate to over 20%. Even more depressing, relative poverty has increased from 18.9% in 1989 to 20% in 2012 with almost no change for urban households (all data is from the Malaysian Human Development Report, 2013 unless otherwise indicated).

The picture that emerges behind the statistics is rather grim: a significant proportion of Malaysian households are in debt (for housing, appliances, vehicles, education) with very little savings and surviving from day to day. The death or illness of an income earner will quickly slip these families into poverty. The paucity of publicly available and trusted household income data and independent academic analysis hinders an objective, honest discussion on poverty and inequality in Malaysia. This is unfortunate because Malaysia has a great track record on poverty reduction but we need to take a good, hard look at whether we are in denial now.

Inclusive Federal-state relations are not seditious

I was going to focus my second piece on poverty and income inequality. However that has to wait as Awang Selamat’s declaration that it is seditious to discuss greater power-sharing between the Federal and state governments got my attention (Utusan Malaysia, January 4).

This was in response to Zairil Khir Johari’s thought-provoking piece (Malaysian Insider, December 24, 2014) on reviewing the current Federal-state institutional arrangements that led to Awang not only accusing him of sedition but ludicrously questioning his parentage and ethnic identity. As an aside, I admire this young leader (whom I have not met) for being an excellent advocate and champion of inclusive Malaysia.

For Awang's benefit, let me quote from the Malaysia Human Development Report 2013 (which presumably is not seditious!): “Inclusive outcomes undoubtedly require inclusiveness in policymaking and implementation. Inclusive growth corresponds with the balanced participation of the government, the private sector and civil society; higher quality government services; and adequate and efficient delivery of public goods.”

From that perspective, what Zairil was calling for was to review the concept of fiscal federalism which is the optimal allocation of fiscal or public service delivery responsibilities (such as health, housing, education, public transport and sanitation) to the different layers of Government (local, state and federal) and how best to effectively fund these services in a sustainable and equitable manner through public revenue sources (again local, state and federal). Clearly not a call to burn the Federal Constitution as Awang alleges.

In an ideal world, each level of government would raise its own revenue to meet its allocated functions; or get voted out by the electorate if they do not fulfill these functions satisfactorily. State governments in Malaysia are completely at the mercy of the Federal government for the transfer of grants as well as loans and the model of resource allocation is inequitable.  For example, total Federal allocation per capita for the period 1976-2010, for Sabah and Sarawak is about a quarter that for their fellow Malaysians across the South China Sea (MHDR, Fig 11.1, page 239). This is clearly inequitable given the size of Sabah and Sarawak and their development needs. Zairil indicates that the state of Penang contributes 10% of Malaysia’s GDP but gets to spend less than 0.5% of the national budget.

The Malaysian Constitution does provide for state governments to have jurisdiction in areas including public health, drainage and irrigation, fire safety, culture and sports, and housing. The Federal government has usurped many of these functions over the years.  For example, public transport is clearly a candidate for decentralized planning, regulation and service provision which state and local governments can currently only carry out with hands tied behind their backs as they do not have the power to issue licenses and determine service delivery standards.

After 55 years, it is time for Malaysians to demand a more inclusive Federal-State-local relationship in policy making and implementation that cuts across political lines and supports effective, efficient and equitable delivery of public services.

Towards an Inclusive Malaysia

Two unconnected events inspired me to start this blog as a 2015 resolution.

The first ever Malaysia Human Development Report (MHDR) 2013: Redesigning an Inclusive Future, published by the United Nations Development Program (UNDP) was launched in Kuala Lumpur in November 2014. An effort that started in mid-2012, the report was published in January 2014 but the formal launch was inexplicably delayed by a year.  Sadly, what is probably the most comprehensive assessment of the Malaysian development story from 1971-2012 was almost completely ignored by the main stream media. Go figure. You can download the report and view video clips here http://www.mhdr.my/

The other event is the worst floods experienced in Malaysia in recent decades which have left 5 dead and more than a 100,000 mostly poor displaced with damage to property and infrastructure estimated at RM1 billion. Is this a random occurrence or a more systemic climate change phenomenon arising from the development model being pursued by Malaysians? More on this subject in future blogs.

Turning back to the MHDR, this is a well-researched study written by highly respected Malaysian economists:  Kamal Salih and Lee Hwok-Aun from University of Malaya and Muhammed Abdul Khalid from the Khazanah Research Institute. The report draws upon background papers from a veritable Who’s who of eminent Malaysian scholars including one who was charged with sedition in 2014 on an unrelated matter :)  The innovative consultation process involving youth and online dissemination of the report including video clips of Nicol David talking about inclusiveness and her experience visiting an Orang Asli community were very refreshing indeed. Congratulations UNDP!

As Kamal Salih acknowledges at the outset of the report, the team was given access to the largest set of unprocessed data and unpublished statistics from the Government that had not been accessible to non-official entities before. Dare we interpret this as a hopeful sign of increasing openness in sharing information?

But I am digressing. The underlying theme of this report is inclusive growth or the lack thereof in Malaysia. In other words, what would it take for Malaysia to achieve high human development levels and become a more equitable, sustainable and successful nation? The timing and theme of this report could not be better given the current shrill national discourse fractured along ethnic, social, political and religious fault lines. Inclusiveness itself is under attack from some quarters as something undesirable in Malaysia. For one, ethno-centric or religious political entities and agendas may find inclusiveness threatening their very reason to exist. This blog is a small effort to hopefully contribute towards the national dialogue on inclusive Malaysia and provide a forum for respectful and thoughtful exchange of ideas. Happy New Year!