Vision 2020 betrayed: Whither Malaysia?

Jomo K S

In three weeks, the year 2020 will end. Incredibly, it has been a year largely devoid of any serious discussion of Vision 2020, its significance, and the lessons its achievements and failures offer for the future. The philosopher Santayana warned, “Those who cannot remember the past are condemned to repeat it.” Hegel had observed earlier that history repeats itself, to which Marx added, “the first time as tragedy, the second time as farce”.

In February 1991, then Prime Minister Tun Mahathir articulated a bold vision for the future of Malaysia in three decades, branded Vision 2020, soon after the New Economic Policy’s (NEP) Outline Perspective Plan for 1971-1990 ended.

Thirty years later, instead of realising its promise of perfect vision, 2020 will soon end differently. The reality today is quite different, with the blame game continuing over what went wrong.

Many agree that 2020 unexpectedly became l’anno di vivere pericoloso, Sukarno’s ‘year of living dangerously’. But worse, it has been a disastrous year for most of the world for various reasons, Elizabeth II’s annus horribilis.

Vision and hope

Nevertheless, Vision 2020 offered a visionary commitment, comparable to Tun Razak’s Rukunegara and NEP two decades earlier in 1971 after May 1969. Razak sought to promote ‘national unity’ -- by ‘eradicating poverty’ and ‘restructuring society’ to eliminate the identification of race with economic function.

Vision 2020 aspired for a psychologically liberated, liberal, mature, ethical, tolerant, democratic, scientific, developed, industrialised, prosperous, progressive, caring, economically just, united and civilised Malaysian bangsa (nation).

This was soon accompanied by the notion of Melayu Baru, asserting a new self-confident Malay in ‘bangsa Malaysia’ rid of ketuanan Melayu’s supremacist racist pretensions.

Vision 2020’s forward-looking vision was elaborated by three now departed Malay intellectuals at the Institute of Strategic and International Studies (ISIS), namely Director-General Noordin Sopiee, economist Ismail Salleh and political sociologist Rustam Sani.

Long preoccupied with nation-building, Rustam was the son of radical nationalist politician, Ahmad Boestamam, who helped craft the 1947 Perlembagaan Rakyat. Vision 2020 sought a bangsa Malaysia (Malaysian nation), just as the People’s Constitution envisaged a bangsa Melayu, defined by patriotism, not ethnic genealogy or religion.

Vision lost

The project was abandoned early, arguably due to the 1997-1998 financial crisis and the ensuing Mahathir-Anwar political fallout. However, although abandoned soon after birth, Vision 2020’s promise, and the dreams it generated, however briefly, suggest all is not lost.

Unfortunately, the country has not had a real debate over what happened to Vision 2020. This progressive national vision sought to go beyond the divisive dominant interpretation of the NEP which effectively undermined its own declared objective of forging national unity.

In 1986, Mahathir began economic, educational and cultural liberalisation, following the economic downturn and political challenges of the mid-1980s. Ketuanan Melayu was coined, almost in reaction, to boost the political comeback of an ambitious, erstwhile Razak aide, detained without trial for half a decade after his untimely passing in January 1976.

Capturing public policy and its interpretations, ruling party politicians and their business ‘cronies’ undermined prospects for improved inter-ethnic relations by invoking ethno-populist ‘victimhood’ to secure ketuanan Melayu privilege.

Like Trump’s beleaguered whites, Hitler’s Aryan nation and Afrikaner-driven apartheid (against ‘Anglo’ dominance and the ‘Black’ threat), ketuanan ideology is legitimised by invoking such ostensibly racial ‘victimhood’.

Ironically, for example, South Africa’s NEP-inspired ‘Black economic empowerment’ (BEE) was reimported as ‘Bumiputera economic empowerment’ to emulate creating Black billionaires despite the continuing sorry lot of most Africans there a quarter century later.

Vision betrayed

Although many consider Vision 2020 to have been Mahathir’s finest, statesman-like moment, rising above the divisive legacy of NEP implementation, privatisation and the 1980s’ UMNO factional splits, Mahathir has hardly mentioned it in his recent political comeback, for reasons best known to himself.

Mahathir successfully courted Pakatan Harapan (PH) leaders to take its helm before its May 2018 election victory. His campaign portrayed him as an old general coming out of retirement to save a nation hijacked by Najib and his mainly UMNO enablers.

However, despite wishful thinking by some enthusiasts, he did not abandon his ethno-populist politics. Wise and patient, he seemed to work well with most, within and outside PH, keeping his new partners in check.

No longer master of the moment, he expected his closest allies to let him lead a government of national unity as indispensable leader. But they seized the moment, hoping to capture the mantle of ‘Malay-Muslim unity’ from the well-funded Najib-Hadi ‘bromance’.

Meanwhile, some DAP leaders’ behaviour, seemingly insensitive to declining public support for PH, only seemed to confirm the ‘Malay-Muslim’ opposition’s ‘bogeyman’ caricature of their party. Thus, PH’s popular legitimacy, especially of its Malay leadership, was undermined by their conduct, enabling Bersatu’s February palace coup.

Dreams of a nation

The major political tendencies in Malaysia invoking ethno-populist agendas have inevitably torn the already divided nation apart, even while vehemently claiming otherwise.

While most post-colonial societies still struggle to overcome colonial legacies, ethno-populism employs pseudo-nationalist rhetoric for narrower, often reactionary agendas. By undermining national resolve, they enhance the influence of foreign interests and ideologies.

Yet, there is still potential in Vision 2020’s promise of a modern, industrialised, developed and united Malaysian nation. Despite responding to ethno-populism in Malaysia, Vision 2020, like its predecessors, also has the potential of transcending it. Such are the dialectics of history.

Hence, the latent progressive nationalism of the Rukunegara, NEP and Vision 2020 is still relevant, but remains largely unrealised. In 2020, the COVID-19 pandemic has unleashed much disruption, but this remains potentially creative, but only if wisely steered.

This will most certainly not involve a return to ‘business as usual’, or even a ‘new normal’. We will only emerge stronger as a nation if we can pull together, instead of working at cross-purposes for dubious short-term political advantage and personal economic gain.

The pandemic has emphasised the need for an ‘all of government’ approach, involving the ‘whole of society’, not only to contain and overcome COVID-19 contagion, but also to build the Malaysia promised three decades ago by Vision 2020, and half a century ago, by the Rukunegara and the NEP.

The audacity of hope

Is the nation condemned to wallow in more contemporary variations of the same old ‘ethno-populist’ travesty? Is Malaysia condemned to keep replaying the same tragic charade, albeit with new casts and stage designs? Or can we still salvage our national future from this sham?

Malaysian politicians’ ambitions and greed -- encouraged by ethno-populism the world over invoking identity politics a la Trump -- seem to have conspired for Malaysia’s ‘perfect storm’. But Malaysian politics of the last year is exposing the self-serving hypocrisy of all ethno-populisms.

But unlike in 1971, or even 1991, now, there is no shared alternative national project on offer to fill the vacuum post-2020 beyond recycling ethno-populist slogans spiced with buzzwords from Washington, London and Davos.

Emerging generational and gender differences in attitudes and priorities have opened cracks allowing occasional beams of light to inspire hope as we grope our way forward in this darkness, unaided, if not actually impeded by politicians and other would-be leaders.

Jomo K S was an economics professor and United Nations Assistant Secretary-General for Economic Development.

Urgently needed deficit financing no excuse for more fiscal abuse

Jomo Kwame Sundaram and Anis Chowdhury

KUALA LUMPUR and SYDNEY: Fiscal and monetary measures needed to fight the economic downturn, largely due to COVID-19 policy responses, require more government accountability and discipline to minimise abuse. Such measures should ensure relief for the vulnerable, prevent recessions from becoming depressions, and restore progress.

They should help the most helpless, especially in the informal sector and casual employment. Efforts should also seek to accelerate structural transformation towards the Sustainable Development Goals (SDGs). Progress was already falling behind before the pandemic, e.g., on mitigating global warming.

Unconventional measures

The pandemic and policy responses have created a most unusual situation, demanding extraordinary policy responses to mitigate threats to livelihoods and incomes. Bold initiatives are needed to overcome obstacles to sustainable development.

Unconventional solutions need to be considered as the conventional wisdom is part of the problem, especially since the neoliberal counter-revolution against Keynesian and development economics four decades ago.

In recent decades, counter-cyclical fiscal policies over business cycles have been replaced by annually ‘balanced budgets’ and ‘fiscal consolidation’. This has involved spending cuts for public, including social services, and social protection more broadly.

Taxation has become more regressive, with lower direct tax rates, on wealth as well as corporate and personal income, as indirect taxation, mainly on consumption, has grown. Such tax reforms and regressive government spending have worsened inequality.

Deficit financing inflationary?

Publics often presume that governments tax first in order to spend. In practice, they usually spend first, and then tax. Government spending typically requires more borrowing and debt, traditionally by selling bonds and other securities, including to the central bank.

Selling government treasury bonds to the central bank increases money supply, unless the monetary authority correspondingly reduces its other liabilities. Neoliberal critics insist that increasing money supply, popularly referred to by the media as ‘printing money’, must inevitably worsen inflation.

However, there is overwhelming empirical evidence to the contrary as the US Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan greatly increased money supply over the last decade. They mainly did so by buying private securities, and getting commercial banks to lend more at lower interest rates.

As such unconventional monetary policies, including ‘quantitative easing’ (QE), in the last decade did not raise prices, there is no reason to presume that central banks buying treasury bonds – to pay for relief, recovery and building a better future – will be inflationary.

Deficit spending ineffective?

Governments can also borrow from the public, e.g., by selling bonds to them. But according to neoliberal beliefs, borrowing from the public will raise the interest rate, ‘crowding out’ private borrowers who cannot afford the higher ‘costs of borrowing’. Hence, they claim, investments will fall, slowing growth.

But for Keynesians, government spending is not inflationary when economic resources are not fully employed or utilised, i.e., as long as there is idle excess capacity, e.g., unemployment.

Keynesians also reject the neoliberal claim that public investment will ‘crowd out’ such private spending. Keynesians stress that economic stagnation discourages private investment. By boosting demand and sales, government spending increases private profits and investment.

Declining private spending or demand thus requires government spending to boost aggregate demand. Government spending on infrastructure, health and education also improves productivity, and hence profitability, offsetting higher borrowing costs. Thus, government spending serves to ‘crowd-in’, not ‘crowd-out’ private investment.

Incoherent, unsupported objections

The ‘Ricardian equivalence’ objection is very different, claiming that when governments borrow, people spend less, in anticipation of higher taxes. This supposedly undermines the intent of greater government spending to raise aggregate demand. But again, there is no strong supporting evidence for this effect.

This argument is not only quite different from the earlier ‘crowding out’ and inflation objections, but also implies that the three neoliberal arguments against deficit financing are mutually contradictory and cannot be coherently sustained.

In contrast, the International Monetary Fund (IMF) found that “debt-financed projects could have large output effects without increasing the debt-to-GDP ratio, if clearly identified infrastructure needs are met through efficient investment”, accelerating recovery from the global financial crisis (GFC).

Similarly, in response to the pandemic induced recessions, the IMF argues that “increasing public investment … could help revive economic activity from the sharpest and deepest global economic collapse in contemporary history”.

‘Sound finance’, fiscal rules

Unfortunately, expansionary fiscal policies are often abused by ‘short-termist’ governments of the day, little concerned about the long- and even medium-term consequences of increased spending, borrowing and debt.

In response, neoliberals invoke ostensible ‘sound finance’ principles. Sound finance seems desirable when spending abuse, wastage and leakages are widespread. However, it has become a pretext for dogmatically opposing bold fiscal measures, however much needed. Neoliberals want fiscal rules to straight-jacket governments, obliging the authorities to balance budgets annually or keep fiscal deficits minimal. Many advocate independent fiscal boards, akin to politically unaccountable ‘independent’ central banks, ostensibly to minimise political influence on government budgetary decisions.

Even when fiscal rules or boards allow some flexibility in times of crisis, or in response to severe shocks, biases towards ‘fiscal consolidation’ and pro-cyclicality run deep, undermining development efforts. Hence, fiscal rules typically hinder, rather than help development.

Counter-cyclical, developmental ‘functional finance’

Instead, ‘functional finance’, proposed by Abba Lerner to mitigate prejudice against fiscal policy activism, is needed. Government spending and taxation policy should instead be consistent with counter-cyclical and developmental fiscal needs.

This was recognised by the Development Committee of the World Bank and IMF in Fiscal Policy for Growth and Development: An Interim Report which observed:

“the problem of fiscal policy design is a reflection of the choice of the fiscal deficit as the policy target. The fiscal deficit is a useful indicator …, but it offers little indication of longer term effects on government assets or on economic growth… There is clearly a need for fiscal policy to incorporate…the likely impact of the level and composition of expenditure and taxation on long-term growth while also maintaining a focus on indicators essential for economic stabilization”.

Oppose abuse, not more spending

Poorly accountable governments often take advantage of real, exaggerated or imagined crises to pursue macroeconomic policies to secure regime survival and to benefit politically well-connected cronies and financial supporters.

Undoubtedly, much better governance, transparency and accountability are needed to minimise the likely immediate and longer-term harm due to ‘leakages’ and abuses associated with increased borrowing and spending.

There has to be much greater discipline and stricter scrutiny of government borrowings, spending and debt, as well as of government-guaranteed liabilities. Consistently counter-cyclical fiscal policy over the course of business cycles provides useful guidance.

Publics and their political representatives, especially in developing countries, must develop more effective modes of disciplining fiscal policy conduct to ensure space for responsible counter-cyclical and developmental spending. However, that task should not block the efforts urgently needed to finance relief, recovery and sustainable development.

Central banks must support governments’ fiscal stimulus packages for relief, recovery and building a better future. This requires complementary fiscal and monetary policies working in tandem for sustainable development.

Related IPS commentaries

1. “Fight Pandemic, Not Windmills of the Mind”, 28 July 2020. https://www.ipsnews.net/2020/07/fight-pandemic-not-windmills-mind/

2. “Reviving the Economy, Creating the ‘New Normal’”, 16 June 2020. http://www.ipsnews.net/2020/06/reviving-economy-creating-new-normal/

3. “Use Stimulus Packages for Longer Term Progress”, 18 March 2020. https://www.ipsnews.net/2020/03/use-stimulus-packages-longer-term-progress/

4. “Expansionary fiscal consolidation myth”, 11 August 2016. http://www.ipsnews.net/2016/08/expansionary-fiscal-consolidation-myth/

5. “Rethinking Fiscal Policy for Global Recovery”, 23 June 2016. http://www.ipsnews.net/2016/06/rethinking-fiscal-policy-for-global-recovery/

Unconventional measures for extraordinary times no excuse for more abuse

Jomo K. S.

Fiscal and monetary measures needed to fight the economic downturn, due to the COVID-19 pandemic and policy response measures, require greater government accountability and discipline to ensure success by minimising abuse besides improving contagion containment measures.

Such measures should prioritise providing relief to the vulnerable, prevent the recession from becoming a depression, and restore progress. They must help the most vulnerable, especially those in the informal sector and casual employment, restore aggregate demand and accelerate productive investments, technological progress and output growth.

Unconventional solutions need to be considered for implementation as conventional wisdom is part of the problem. This is an extraordinary situation, requiring unconventional policy responses to mitigate the loss of livelihoods and incomes, often due to disruptions caused by government policy responses to the pandemic.

With the neoliberal counter-revolution against Keynesian economics and development policy from four decades ago, counter-cyclical fiscal policies have been eschewed in favour of annually ‘balanced budgets’ and ‘fiscal consolidation’.

Meanwhile, there are widespread concerns that bolder expansionary fiscal policies are likely to be abused by typically short-termist governments of the day, tempted by macroeconomic (ethno-)populism, and unconcerned about the medium- and long-term consequences of increased spending, borrowing and debt.

Only much better governance, transparency and accountability can minimise harm due to likely ‘leakages’ and abuses associated with increased government borrowing and spending. Such fiscal policies typically involve governments borrowing, especially by selling bonds and other securities, including to central banks.

Publics often presume that governments tax first in order to spend. In fact, they usually spend first, and then tax. Poorly accountable governments often take advantage of real, exaggerated or imagined crises to pursue more populist macroeconomic policies to secure regime survival and benefit the politically well-connected.

Helicopter money

One recent controversy is over ‘printing money’ to finance such measures instead of via increased government debt or borrowing. For Keynesians, printing money is not inflationary when economic resources are not fully employed or utilised.

Monetary authorities in the West enabled or ‘nudged’ commercial banks to lend more at lower interest rates without fear of raising prices. Hence, unconventional monetary policies, including ‘quantitative easing’, in the last decade were not inflationary.

The term ‘helicopter money’ was originally used by Milton Friedman over half a century ago as a ‘thought experiment’ to consider the consequences of a one-time increase in money supply.

However, the term is now used to refer to increasing money supply by various means, ostensibly to catalyse economic growth. Some advocates invoke modern monetary theory (MMT) to claim that governments can indefinitely increase fiat money supply (quantitative easing) without any adverse consequences such as inflation.

In developed economies, easy money due to such measures has actually accelerated wealth accumulation by a privileged few, although economic growth remained modest. Real wages have gone down despite full employment before the pandemic. Thus, printing money, especially in the US and UK, has helped the rich more than others.

Very importantly, developing countries do not enjoy the degrees of freedom enjoyed by developed economies in terms of monetary policy sometimes termed to the ‘exorbitant privilege’. Hence, simply emulating quantitative easing (QE) is likely to have different consequences in developing countries, including so-called ‘emerging market’ economies.

Counter-cyclical fiscal policy

Successive Malaysian governments since the turn of the century have abandoned the consistently counter-cyclical fiscal policy of the 1990s under former Prime Minister Mahathir Mohamad and then Finance Minister Anwar Ibrahim.

Before the 1997-1998 Asian financial crisis, the government ran budget surpluses when the economy was booming with industrialisation accelerating from the late 1980s. This changed with the 1998 Budget, announced by Anwar in October 1997, following the downturn following the currency crises.

Since then, counter-cyclical fiscal policy discipline has been lost, especially after the economy recovered in the new century. Subsequent governments have borrowed increasingly, even raising the self-imposed, announced official public debt limit.

Meanwhile, the government set up special purpose vehicles, especially for infrastructure projects heavily reliant on borrowed funds. These government-guaranteed liabilities were not reported to Parliament at all until very recently.

Neither were they seriously reviewed by the Auditor-General’s office or the Public Accounts Committee. Worryingly, many such projects will never pay for themselves, but have been means to unaccountably access foreign finances.

For instance, the actual East Coast Rail Link (ECRL) project costs are believed by industry insiders to be less than a quarter of what Malaysians were asked to pay for it, even before considering deferred interest and other costs.

But it is not the contractors from China who will get most of what Malaysians will have to pay for the ECRL boondoggle for decades to come, but rather the Malaysian and other enablers.

In the Malaysian Budget for 2021, some spending items, previously deemed current or operational expenditure, are now categorised as development or capital spending. This may enhance the illusion of fiscal balance by ensuring that at least operating expenditure is covered by revenue.

There has to be much stricter scrutiny of government debt, borrowing and spending as well as government-guaranteed liabilities. Unfortunately, Malaysia’s political economy seems likely to continue to conspire against improved transparency, accountability and commitment to sustainable development.