Approaching 2020 – Major Trends that will Impact Malaysian Business

Although I am usually chary about cutting and pasting swatches of works by others, since it is boring (but not plagiarising - there is no plagiarism if you acknowledge the original author - but there will be copyright issues if you copy wholesale, meaning, the entire body of work), this being a Saturday, I thought a quickie would be in order!

Dr M's speech in the Perdana Leadership Foundation lecture entitled Approaching 2020 – Major Trends that will Impact Malaysian Business contains strategic thoughts that I want to highlight. These thoughts and observations are germane to the future development of Malaysia. Here are extracts from that speech. I have added captions to bunch specific issues together:

2. Trends are things that you can observe happening now but can be expected to progress into the future. By extrapolation one should be able to predict fairly accurately the changes that trends would have on things, on peace and war, on fashion, on morality, on politics and on business.

Workforce, training, skills and and English medium
10. Our workers must be highly qualified and be trained in higher skills. The workers we would need must be able to handle and service automatic machines, not just assemble things. We will learn to design and produce some of these machines.

11. Training of the workers must be done at specialised training centres. Computer programmes will be needed to do this.

12. What all these means is the business of specialised education and training would become big business. The training centres would also cater for foreign students if we use English as a teaching medium.

13. Malaysia cannot any longer offer itself as a cheap labour country. But the chances are our highly trained workers would still cost less than similarly trained workers in the developed countries. This may mean a shifting of some middle range hi-tech industries to Malaysia.

14. Our advantage today is still the ability to take instructions in simple English. But there will be a spread of English language capabilities in China, Vietnam and other competitors of ours.

15. Accordingly our advantages seem likely to be eroded not only because others are acquiring working knowledge of English but we ourselves would probably downgrade learning of English.

16. I hope that the teaching of science and mathematics in English would continue. But I am not sure. If the decision is made not to, then the hi-tech industries are going to bypass us.

Transport and infrastructure
18. When we decided to build KLIA, we looked at the demand in a hundred years’ time. Getting a piece of land near the city for a large enough airport capable of future expansion is not easy. When we built Subang we projected 400,000 passengers per annum. But by 1990 it was handling 11.0 million passengers. There was no way we could expand there. We started looking around but we were handling 18.0 million passengers before we found a suitable piece of land.

20. Malaysia has the best system of expressways and roads in south East Asia. But still they are clogged. We need to build more and more.

21. I think we need to change our approach. Instead of building roads we should improve mass public transportation. It is unfortunate that the government decided not to implement the project for double-tracking and electrification of the north-south railways. Had this been implemented we can take off much of the heavy traffic from the highways and there would be less cars clogging the roads as more people travel on medium speed express trains. Now the government may be forced to reconsider this railway project but the cost would be more than double. The longer we delay the higher the cost. Worse still the greater would be the need.

22. We are putting some half a million motor vehicles on the road every year. The decisions to reduce the price of cars lead to more vehicles clogging the roads, stuck in traffic jams and going nowhere.

23. Building more roads is not the answer. We should see more railway lines.

24. Business depends a lot on ground transportation. Road transport will become more and more costly as the price of oil will never go back to the old levels.

25. Look at it in whatever way, the answer would still be improved and more extensive network of railway lines. Presently our railway lines run north / south. We need to have more east / west lines also.

Tourism
29. Tourism. It is estimated that by 2020, 200.0 million Chinese will be going abroad.

30. India would be another source for tourists. Also in large numbers.

31. We have some problems with tourists from these two countries disappearing. But if the government will not be nasty, the tour operators, hoteliers and other service industries should see a great deal of prosperity.

32. Provided that we handle tourists well we would be welcoming 35 million foreign tourists in 2020, one per head of population. Those in the business should prepare for the influx.

33. So far I have talked about the domestic and relatively controllable side of business and the economy. The foreign side will be more difficult to manage as we have little control over it.

Regulating international trading
40. Trying to tackle the increases in price one by one will not work. We may be able to handle oil prices through greater fuel efficiency but what about the other raw materials; what about food?

41. We believe in a free market; in supply and demand determining prices. But markets can be manipulated and shortages can be created. In fact today huge quantities of goods can be traded without the goods really existing. This was what happened when currency trading was allowed. The total trade in currency was very many times more than the total value of world trade. Similarly the total volume of oil traded would be more than the total amount of oil produced or consumed. Seems that the trade in nothing is worth more than the trade in something.

42. We have forgotten why we promoted free markets and free trade.

43. The systems we created were for our own good but they have now become the systems we must sustain even if they destroy us. Something is wrong here.

44. All systems and ideologies were good until rogues see ways to abuse them for their own benefit or profit. This is what we are seeing happening to the free market. It is being abused simply because governments have abdicated their responsibility to prevent crimes in business and punish rogue businessmen. If we are going to benefit from the free market and free trade, governments will have to go back to regulating them.

45. Then people will say that the market and trade would no longer be free. But actually despite trade being free, it is not really free. We still cannot trade in certain goods, arms and dangerous chemicals for example. We still have to fill forms and submit to examinations by a host of officials. We still have to pay tax or if not we have to prove that our goods are not taxable.

Higher wage cost and competitiveness
56. In the meantime we should look into adjusting and managing a high-cost economic environment domestically.

57. There are in the world today high cost countries and low cost countries. Generally the developed countries are high cost countries. Still they are competitive and their standards of living are without exception higher than in low-cost countries.

62. ... despite there being more of us, despite our higher cost of living, our standard of living has actually improved.

63. There is something to be learnt here. Can we speed up the process of increasing income, increasing our cost of production and yet remain competitive? I think we can.

64. We talk of the wage price spiral and we are afraid that this might happen to us if we raise wages. We fear that cost of production would increase as wages increase and we would not be competitive. We would not be able to attract investments whether from domestic sources or foreign. But let us work out the percentage that wages constitute in the total cost.

66. Think. Malaysian costs are already higher than 30 years ago, higher than those in other ASEAN countries except Singapore. Still we are attractive. One of the greatest assets we had was political stability and consistency in government policies. There were other things which made Malaysia attractive. If we improve on these assets, the increase in costs (not just of labour but transport and materials) will not make us any less attractive or our products less competitive.

67. We must also remember that the pressure of increasing prices will be felt by our competing neighbours as well. They too will have to increase their cost of production. So our cost will not be, comparatively speaking, so high as to make us totally uncompetitive.

68. But consider the effect of increased income all round. There will be more money to purchase goods and services. However unions must not increase their demands when wages are already being increased. Instead they should cooperate in improving productivity. In the end they will gain more.

69. I never liked the low wages paid our wage-earners. It restricts their purchase of goods and services. If their purchasing power is increased then retail businesses especially, would enjoy greater sale. More would be spent on leisure. Other businesses such as transportation would prosper. And government would earn more income also.

70. I don’t often admire Singapore or what it does. But when Singapore gained independence it carried out a programme of steadily increasing wages every year. Some businesses and industries left Singapore but the efficiency of Singapore’s authoritarian government retained many of the investors and industries. We sometimes wonder why investors go to Singapore when they could come to low-cost Malaysia. I think you know why.

71. I think we should systematically raise wages. If we manage wage increases carefully enough, the wage price spiral would not be too damaging. In time it would settle and we would adjust to a high cost environment while our living standards also improve. Even our poor people will be less poor.

72. When people generally earn more money, they spend more money and somebody will make a profit and the government will collect more taxes. The so-called mega projects contributed much towards the growth of Malaysia’s economy and increased living standards all round.

73. There is a lot of talk today about the increasing cost of doing business but no talk about managing and adjusting to a high cost economy. Certainly there is no talk about deliberately increasing and managing cost. Yet unconsciously this was what we have been doing all these years. And we have been successful at it. Otherwise with our higher cost we would be poorer than our low-cost competitors. But we know we are more prosperous than them.

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Dr M's speech contains strategic thinking on how Malaysia's economy should be planned and, I think it warrants serious consideration.