Gdp May Shrink 5 But It Doesn T Mean We Are All Doomed

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Many of the articles in the business section of the newspapers are full of foreboding – the gross domestic product (GDP) is going to shrink by so much in country A, first quarter growth is dismal in country B, Malaysian exports are slumping, retrenchments going on in several major airlines, extremely low occupancy rate in hotels, slump in cars sales, glut in oil market, tankers waiting off Singapore harbour, net outflow of funds from the KLSE, etc
Yes, it is quite clear to impartial observers that the world is heading towards a serious recession. It is not going to be “V” shaped, with a sharp recovery to previous levels by the 3rd quarter of this year
The requirement for social distancing even after the relaxation of the movement control order (MCO), the tight restrictions on international travel and the disruption of consumer demand all over the world mean that most economies will have to splutter along for a while, and that some sectors (aviation, tourism, hotels) will have to go into hibernation until the Covid-19 pandemic can be brought under control – by an effective vaccine, or by effective treatment. That may take 24 months
But this does not mean we are all doomed. Not necessarily. Come on, surely a middle-income country like Malaysia can produce enough food to feed all its 32 million people on a long-term basis
Even if the GDP shrinks 5%, 10% or even 15%, surely we can ensure that all the health needs of our people are met. Surely we can arrange matters such that no family is evicted because they cannot pay house rent. And we can certainly provide electricity, water, rubbish disposal and other basic services for the whole population
Why can’t we do all of the above even if our GDP shrinks a few percentage points? The basic infrastructure – the roads, the clinics and hospitals, the power generation capacity, the water treatment plants – are all already there
We just have to manage these assets and use them to ensure that no Malaysian family is deprived of their basic requirements. It is eminently do-able. But it can’t be left to the market
Private businesses will not take the steps that are required – they are constituted on the profit motive, and they do not have the access to funds on the scale that is required
Private businesses might be able to play a part in the rehabilitation of the national economy (and they should be allowed to), but they certainly cannot initiate or drive it. Our government has to provide the leadership
One crucial step that we have to take in Malaysia is to ensure income support for the two to three million workers who are going to lose their jobs over the next few months
An unemployment benefit schemeThe production of basic goods — food, healthcare, utilities — in sufficient amounts is very important, but of itself, not enough. We also need to put in place a mechanism that ensures that all families can avail themselves of these basic requirements
In the current system, people earn an income which they then use to buy the things that they need from the market
But we are now looking at a situation where perhaps 20-30% of Malaysian workers are going to be retrenched, and perhaps half of the small businesses are going to fold up
There are 6.5 million workers contributing to the Employees Provident Fund (EPF) and another two million or so workers who are in the informal sector. We also have one million micro-businesses
We need an unemployment benefit scheme that ensures that all those without jobs will get a minimum income so that their families’ basic needs can be met
The two provisions that we now have in Malaysia to support retrenched workers are not sturdy enough
The first derives from a regulation under the Employment Act. That prescribes a one-off payment (by the employer) that is dependent on the length of service. A worker with four years’ service will get a total compensation equivalent to two months’ wages. That will not sustain him for long. Also, firms that go bankrupt will not even pay out this meagre benefit
The second, the Employment Insurance Scheme (which is managed by Socso) will pay out 80% of the basic wage for the first month after retrenchment, 50% for the second month, 40% for the third and fourth months and 30% for the fifth and sixth months, whereupon it ceases. The EIS does not cover the two million workers in the informal sector
Nor does it cover the one million micro-businesses which open stalls at roadsides, the pasar malam and food courts
These two schemes do not provide sufficient protection, given the level and length of unemployment we are probably going to see. That is why we need to urgently enact an Unemployment Benefit legislation
I would urge the people who are against the introduction of an unemployment benefits scheme to think it through carefully
First of all, the people who are going to become unemployed are not in that situation because they do not want to work or because they are lazy. The economic system has failed. It is not by choice, nor is it their fault
Second, the provision of this unemployment benefit will help the economy recover. The increase in consumer demand will deepen the domestic market and enable more businesses to turn a profit and keep afloat
Third, if such a scheme is not implemented, families will go hungry. That’s morally reprehensible and will lead to resentment and anger — food riots and disruption of public order might ensue. People will not tolerate seeing their children go hungry
Fourth, handling the current crisis on the basis of compassion and solidarity will flesh out the concept of “Shared Prosperity” and will play a big role in creating a more cohesive, tolerant and unified nation. It will make us stronger going forward
An unemployment benefit scheme would be a smart investment for all of us
Where will the money come from?That is a fair question. Our federal government debt is already RM750 billion, and we are now paying RM32 billion per year as interest on this debt
If we borrow more from the financial markets, our debt burden will become even more onerous. But there is another way for the government to raise the funds required. Several countries are already doing it — selling government securities to their own central banks
Indonesia, Australia and New Zealand have all used this modality to raise funds in the past one month. They term it “monetisation of debt” – suppose it sounds better than “printing extra money for the government”. But it can work
Let’s say we set the unemployment benefit at RM1,000 per month. To support two million unemployed workers, the payout would be RM2 billion per month
That money will be spent by these families to buy basic foodstuffs and groceries. This will encourage our farmers to produce more of these food commodities, create business for the factories involved in processing of these commodities, create opportunities for the transportation chain as well as the retail outlets
It will generate income for the entire supply chain and this will create job opportunities. By pumping in this RM2 billion, we would have prevented severe hardship in the families of the workers affected, prevented social upheavals and radicalisation of our youth, as well as begun regenerating our faltering economy
Downsides?There are some economists who argue that this injection of money will lead to an increase in imports, which may result in too much ringgit in the international markets
This will lead to a downward pressure on the ringgit. If the ringgit deteriorates in value, the cost of importing essential items like certain foodstuffs (rice and wheat) and medicines, machine parts, etc, will go up
These economists do have a point, but it is unlikely that families on a budget of RM1,000 are going to spend that much on imported goods
Most of the RM2 billion will be spent on basic foods that are produced locally
New indices for performance needed.We are in a “new normal”. The grow-at-all-cost consumerist economy has been brought to a shuddering stop by a virus
We have been forced to slow down markedly. The indices we used to assess the performance of the national economy – rate of GDP growth, volume of foreign direct investment (FDI), growth in exports and the stock exchange composite indices – are no longer relevant in the new normal that we are in now
We need to develop a new set of indices to assess performance of an economy. I would suggest that the extent to which the basic needs of all members of society are met should be a major index that we use to assess our performance
Food security would be another important parameter. The enhancement of a sense of national solidarity and unity would be yet another
The effectiveness of measures taken to undo environmental damage should also be one of the parameters we use to gauge our success in this new normal
The corona virus has forced us to do something that we would have never ourselves done on this scale. It has forced us to stop our mad rush and take a look at what we, as a society hold to be important. It has presented us with the opportunity to reconsider our priorities
It has given us the option of a reset button. Future generations looking back at 2020 will recognise it as a significant inflection point in humanity’s trajectory
A point pregnant with the possibilities of striking out in new directions, of building a more equitable and sustainable society. I really hope they won’t shake their heads and say “And those idiots blew it!”Dr Jeyakumar Devaraj is Parti Sosialis Malaysia (PSM) chairman. - FMT

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