Poverty Issues in Malaysia's Economic Development

Tun Dr Mahathir Mohamad

Royal Prof Ungku Ai !ecture
March "#$ "#%&
Summary:
Historic overview of Malaysia's economic development
Malaysia's early leaders chose a pragmatic approach to development, than strictly abiding to
socialism or capitalism. This was based on their aim to eradicate poverty
Poverty eradication was implemented through industrialiation. Malaysia encouraged
foreign direct investment and created a business!friendly environment
"n the second phase of Malaysia's development, the goal was higher standards of living. The
government invested in education to improve s#ills of the wor# force
Malaysia has been successful at development. $radication of poverty has maintained
Malaysia's stability and thus, economic growth
However, economic disparity is necessary and desirable because the government generates
ta%es from the rich, which are then used to help create opportunities for the poor
&ffirmative action based on race is 'ustified because poverty is racialied
$conomic growth (a bigger ca#e) benefits everybody regardless of race
*ull +otes:
"f we loo# bac# to time of independence, Malaysia was a poor country (believes that ,-.
could have been below poverty)
/hen countries gained independence, they had to ma#e a choice about how to manage their
economy
"n Malaysia, there was conflict between the capitalists and socialists
Many who led the country to independence were influenced by socialism 0because1 they had
no lin#s with capitalists
Socialism sounds good because it's about e2uality ! everyone wants e2uality with coloniers
Malaysia had a choice to become capitalist or socialist
3eaders had little e%perience with managing ideologies, but they entirely re'ected
communist ideologies
*ortunately, they decided to be pragmatists than be guided by ideologies
They decided to borrow from capitalists and socialists
So, in Malaysia, there are state!enterprises and , year plans which were socialist in nature,
but people are allowed to ma#e money with the condition they are ta%ed
This saved us because, one is tied to ideologies, even when one is hurting, one must stic# to
them
This is seen in the world today. Socialist and communist countries have given up
4omments that in 5ussia, wealth leveled down, rather than leveled ! everyone ended up
e2ually poor
Socialist countries have many problems because they are chained by the ideology of
e2uality all the way through
6r Mahathir believes 7we7 did what could be done 0in terms of developing Malaysia at the
time1
8ur early leaders were focused on poverty eradication since "ndependence
04ompared to other post!colonial countries1, this was 2uite special because the trend usually
was that when new leaders gained power, they tended to enrich themselves 0at the cost of the
people1
*irstly, the new leaders decided to attend to land hunger 0demand for land1 in Malaya. The
hunger arose because land and agriculture were the only sources of wealth
So, government decided to open land for settlement through programs such as *$36&
However, they soon ran out of land, so they decided to create 'obs instead
$arly leaders decided that we should industrialie as industrialiation created more 'obs per
acre
The 2uestion was, how do we industrialie9
Malaysia had problems because we had no capital, #nowledge, management schemes and
did not #now the mar#et
There was an attempt at import substitution, but often with import substitution, there is a
cost penalty (products cost more to produce locally vs. imports) and produce poor 2uality
goods
The government struc# upon the idea of foreign direct investments to create 'obs
:nder the *6" strategy, the government was to give up ta%es and land in order to be foreign
business friendly
This approach was so successful, that Malaysia even ran short of wor#ers. ;ut, it did
achieve the goal of creating 'obs
The second phase of the attempt to eradicate poverty was now to ensure higher standards of
living
The government spent money on establishing educational institutions
6r Mahathir pointed out that when he was studying in Singapore, he was only at a 7college7
as under the ;ritish, no universities had been established in Malaya
/e decided that the people must have higher s#ills and better education
&s more were getting education, we saw them getting better 'obs
*or e%ample, with the *$36& scheme, settlers had a reasonably good life
;ut when their children received better education, they gained even better income as
professionals
So, one can see there is progress in the development of Malaysia, but also a correcting of
imbalances
Poverty is a great destabiliing force
"f one loo#s at the history of $uropean industrial countries, the industries were started by the
rich
This resulted in great disparity which wor#ers felt unhappy about. Then came the idea of
socialism, which argued that wor#ers deserved an e2ual portion of the profits. /or#ers
formed unions and used the threat of stri#es as their weapon
3ater, wor#ers decided that it was not enough to have more pay, but wanted to control the
means of production. So they became violent and #illed lots of rich people
/e thought one of the reasons of the <=>= riots was disparity ! which was amplied by the
fact that the disparity was between indigenous and non!indigenous Malaysians
So, the government decided to reduce poverty. So, we tried to upgrade the poor
The government spent money on education and gave out a lot of scholarships. People were
educated to a high level
The audience may wonder why in Malaysia, where there are ? races and other tribes, we are
relatively stable
The reason is, at least, we give hope to poor people to live as rich people
6r Mahathir believes that Malaysia has succeeded far more than any other country at
eradicating poverty
There must be some #ind of discrimination for the poor, and in this country it is for the
indigenous
/e decided in this country, it shouldn't be ta#ing away riches away from the rich to give to
the poor
This is what happened in 5ussia. They impoverished the rich, enriched the poor. "t too#
5ussia @- years to see this was wrong
8ur way is by growing the economy. /hen the economic 7ca#e7 grows, your slice grows
too
/e grew economic ca#e so much that people who were poor at one time, are now rich.
Many professionals now are the sons and daughters of poor people
$verybody en'oys a higher standard of living
+on!indigenous have benefited from a bigger slice of the ca#e as well
+on!indigenous already had ?-. 0of economic share1, and e%pected to grow only to A-. .
So, they needed to grow less
"ndigenous were only B. and needed to 'ump to ?-.. This was a big big catch up
Poverty can be defined as not having enough food, shelter. This is absolute poverty
"n a wealthy country, poverty is defined by certain level of wealth in comparison to the rich
There will be tension between rich and poor, and in the case of Malaysia it is racialied
/e wanted to reduce identification of race with economic function.
To a certain e%tent, we have been successful. 5ecently, some &frica people as#ed him for
advice on how to be stable
He told them, they 0these &fricans1 don't understand democracy. Some parties win, some
have to lose. "n a democracy, one can't win all the time and shouldn't become violent when
they don't
Poverty can only be eradicated through stability and economic growth
*or a country with such diversity, Malaysia is more stable than many countries whose
citiens are of the same race and religion
/e re'ected ideology and were pragmatic. /e do what gives results
CD&
<. & *rench Phd student as#ed how 6r Mahathir viewed the situation of the corporatiation of
public education, referring specifically to a recent increase in tuition fees by ,-. (" could not
understand if he was referring to universities in *rance or Malaysia).
6r Mahathir answered that he was not aware of this issue. He commented that &merican
universities such as Harvard do not have financials problem because there is a sense of gratefulness.
*ormer students donate to their alma mater. "n Malaysia this is not so, what's more, some don't even
pay bac# their study loans. People are a bit selfish. $specially for Muslims, one should be syu#ur.
The basis of eradication of poverty is about the 2uality of people. *or e%ample, if they should #now
how to be grateful.
B. Haris "brahim 2uoted a <==< article by 6r Mahathir on /awasan B-B- and discussed several
statistics on Malaysia's economy. He pointed out when using 5ME-- as the baseline for the poverty
level inde%, Malaysia's poverty was only about >., but when one used 5M<E--, it 'umped to ?-..
He also argued that Malaysia's income ine2uality has remained the same since <=E-s, where the top
and bottom B-. have the same levels of comparative wealth. However, the top <. has gained more
in wealth. Thus, he posed ? 2uestions to 6r Mahathir:
i. Has he driven at night through F3 to see who lives on the streets9
ii. /hat went wrong with his grand plan (/awasan B-B-)9
iii. "s he prepared to ta#e responsibility and apologie to the poor and marginalied9
6r Mahathir responded that if one loo#s at statistics, one will feel marginalied. 7/e can use this to
arouse hatred for the rich7, he warned. He e%plained that rich people are useful. Malaysia had a
policy to help the rich and were business!friendly because the government gets BE. of their profits.
"f there were no rich, who would the government ta%9 he as#ed. He e%plained that in communist
countries, the people confiscated means of production, but found when they produced goods, no one
could afford them because the wor#ers themselves were poor. "f you do the mathematics in the
proper way, you will find 'ustification for disparity, he advised. However, the disparity should not
be too big. "f there are no rich, the government will not ma#e money. 6r Mahathir is convinced that
his approach is better because it's not tied to any ideology which is why his administration decided
to privatie many government functions. He cited the e%ample of Tele#om which gained 5MB.B
billion in profit within B years after privatiation. 3astly he as#ed in reference to Haris' last
2uestion, apologie to whom9
?. & :FM student 2uestioned if Malaysia's notion of development was /estern!centric9
6r Mahathir e%plained that there were many models of development. His government had adopted
the 3oo# $ast Policy, so he did not thin# it was accurate to say Malaysia's development was based
on a /estern system. He also asserted that Malaysia had retained certain $astern characteristics.
Tabung Ha'i was an e%ample of blending /estern and $astern approaches. The fund was a
brainchild of Prof :ng#u &i who had the idea that putting money into an investment fund which
would enable more people perform the Ha'.
A. & student as#ed if 6r Mahathir thought Prime Minister 6ato Sri Mohd +a'ib was doing enough
to tac#le ine2uality, intraracial and interracial, given Malaysia's current G"+" of A>.B, as published
by the /orld ;an#. He also 2uestioned if the government becomes more corporatied, would this
lead to crony capitalism. *inally, he 2uestioned if the implementation of GST is 'ustified given the
higher costs of living and middle!income trap Malaysians are facing.
6r Mahathir believes that when Malaysia was newly independent, income ine2uality was very big,
and the government has largely corrected that. He believes there must be ine2uality, because if
everybody is rich, everybody is poor. He gave the e%ample, that if one wanted a driver, one could
not pay the driver the same as oneself. To mitigate the disparity though, the rich must be ta%ed to
provide for the poor. This is the reality of life, he stated. 8ne cannot pay people e2ually for une2ual
wor#.
/hen we started affirmative action, some people obviously benefited, 6r Mahathir said. However,
he 2uestioned if it could lead to crony capitalism. He argued that it was a waste to help people who
had no capacity to succeed, and remar#ed that whoever became successful was then labeled as one
of his cronies. He e%pressed that if one did not want crony capitalism, everybody had to be poor. He
2uestioned why there was anything wrong with being rich and complained that people were carried
away by ideologies.
"n respect to the third 2uestion, 6r Mahathir answered that he was not an economist and did not
understand what was meant by the middle income trap. He commented that one had to ma#e a
choice and that if one wanted to do better, one had to wor# harder.
,. & +igerian Ph6 student praised 6r Mahathir for his leadership and commented that he was of the
opinion that Malaysia is already developed. He as#ed 6r Mahathir to comment on +igeria's
development progress.
6r Mahathir answered that many &frican countries were rich in resources, and at the time of their
independence, some were even more developed than Malaysia at the time. "n &frica, he said, there
was a willingness to adhere to systems such as democracy. However, when a political party lost,
they created instability. He commented that +igeria was unstable which was why no one wanted to
invest there. Malaysia found a way to remain stable.
>. & female student re2uested 6r Mahathir to comment on sustainable development and limits to
growth.
6r Mahathir believes that social problems will be with humanity no matter what and we have to
learn to be more tolerant. He has observed that there are now +G8s who want to replace the
government. He also remar#ed that government policy plays a role in regulating growth and
protecting the environment. The current government has decided that they want pollution free cars,
but these will be imported, he critisied. He suggested that if a little less environment could be
accepted, and local production of our needs encouraged, we could achieve the same target. "t would
be slower, but cheaper, he summaried.