Wednesday March 31, 2010
THE New Economic Model (NEM) calls for the formation of clusters of small and medium enterprises (SMEs) within the same location and the transformation of the Malaysian Industrial Development Authority (Mida) into an effective one-stop agency.
“Firms in such clusters are less prone to move to new locations abroad. Those SMEs involved in innovation and technologically advanced production, creating spill-over effects, will receive support from the Government.
“Such new start-ups will need help with specific problems, especially distortions and restrictions in the licensing and regulatory environment.
“To ease such problems, Mida should be empowered to take decisions and coordinate among the many government departments to facilitate start-ups and licensing.
“It must become a real and effective one-stop agency, not only one in name and aspiration,” according to the NEM report.
The report added that providing good infrastructure was not good enough to encourage such firms to move up the value chain.
“At the same time, many firms, especially those engaged in assembly operations, are gradually moving offshore to cheaper regional competitors, as distortions and barriers in Malaysia drive up costs.
“Malaysian industry is otherwise at risk of becoming hollowed out,” the report added.
Government policies will correct the excessive use of foreign labour, which is undermining the country’s goal to achieve a high-income status.
“Up to the late 1990s, inflows of foreign workers served the country well in moving from low to middle income status.
“Since then, Malaysia’s policies on foreign workers have become incoherent and run counter to the national objective of achieving high income status.
“Firms’ obsession with the pursuit of short-term profits makes them focus solely on keeping costs down. This obsession makes them prefer to tap into the large pool of unskilled workers available in neighbouring countries, leading to excessive use of foreign labour in Malaysia,” the report said.
To develop a quality workforce and reducing dependency on foreign labour, NEM proposes to increase local talent over time, re-skill the existing labour force, retain and access global talent, remove labour market distortions that constrain wage growth, and reduce reliance on foreign labour.
This would involve implementing measures that include revamping the education system, upgrading skills of the bottom segment of the Malaysian labour force through continuing education and training, reviewing existing programmes to attract highly-skilled Malaysians overseas to return home, and offering permanent residence for ex-Malaysians and their families, and enforcing equal labour standards for local and foreign labour.
“The last measure would also address international concerns about Malaysia’s poor treatment of foreign workers.
“A more rational system of levies and the utilisation of the proceeds to fund social services for migrant workers would address equity concerns,” the report said.
The NEM also called for the steady removal of subsidies and price controls, accompanied by a rationalisation of tax incentives.
“Removing subsidies and price controls can reduce operating expenditures over time and restore a better balance to fiscal deficits.
“The savings from the removal of subsidies van then fund a social safety net scheme, targeted at beneficiaries from poor households and vulnerable groups.
“This savings can also be applied to a Transformation Fund to help firms displaced by the reforms to adjust to the new market environment.
“Price distortions will be removed as a result, allowing for the restoration of market signals to regularise the demand and supply of products previously controlled,” the NEM report said.