Public policy musn't be pro-market, says Jomo

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KUALA LUMPUR: Government policy must steer clear of advocating a "pro-market philosophy" but remain countercyclical instead, prominent economist Prof Jomo Kwame Sundaram, better known as K S Jomo, said on Monday, June 14.

"The current philosophy advocated is that we must be pro-market as if the market cannot do anything wrong. You actually need to counter the effect of the market, not follow the market," Jomo said at a lunchtime briefing in parliament organised by PKR's parliamentary research unit.

"The market can be a wonderful hand maiden but it will never be a good master," he said, quoting an economic adage earlier in his lecture.

Jomo said the government needed to effectively use the "carrot and stick" approach, putting in place regulation to protect public interest while encouraging private investments in the desired sectors.

"I can't speak for the private sector. You'll have to ask the private sector why they are not interested in investing here.

"Frankly, I'm not so concerned about foreign investors but the domestic investors, why are they not investing?" said the assistant secretary-general for Economic Development in the United Nations' Department of Economic and Social Affairs (UN-DESA).

Jomo, 58, stressed that it was domestic investment and not foreign direct investment which would be crucial in spurring the Malaysian economy as foreign investment tended to follow domestic investments.

"The government's investments play an important role to encourage private sector investment but what has happened in Malaysia is that public investments became the sole hope for economic activity. This is the main reason why the targeted 10% per capita growth will not be achieved," he said.

Speaking to reporters later, Jomo said most of the affirmative action objectives under the New Economic Policy (NEP) had been achieved, except for the targeted 30% bumiputera equity ownership.

This, Jomo said, was the result of bumiputera shareholders selling off their equity for profits thus diluting bumiputera holding in equities.

"You have a situation where your measure of what it is to bring about Malay progress is a measure which is bound to fail because of the policies which are implemented.

"So if you keep on telling them that these shares are for bumiputera and you can go ahead and sell them, there is no incentive to hold on to them and it will continue to be so," said the economist.

Jomo argued that the 30% bumiputera equity target would have been achieved "a long time ago" if the shares were held by Permodalan Nasional Bhd (PNB) or a similar institution.

According to Jomo, bumiputera equity rose very rapidly from 2.4% in 1970 to about 18% in the early 1980s and hovered between 19.1% in 1985 and 21.9% in 2008.

He also noted that foreign equity holding in the country stood at about 41.4% in 2008 while the original NEP target for foreigners was fixed at 30%.

"How come nobody gets excited about that? Malaysians are fighting among themselves and quite happy to let foreigners benefit from it.

"I think we really have to get our priorities right. Malaysia does not benefit from one part of society benefiting at the expense of another part of society," Jomo said, quoting the saying that "the rising tide should lift all ships".

He also pointed out that the income disparities between the major races — Chinese, Indian and Malay — had been narrowing since the 1970s.

Jomo asked if the two major proposals found in the 10th Malaysia Plan and the New Economic Model, namely redistributing wealth based on needs and putting greater emphasis on merit, were "merely rhetoric or a strong commitment".

"The question right now is: Is the BN (Barisan Nasional) government behind this? You might actually have this situation where the Pakatan Rakyat is more in favour of this than the BN. I have met a few government ministers; I have not heard any of them support it besides the prime minister," Jomo said.

Calling 1998 to 2008 "the lost decade", Jomo warned that the country's aspiration to be a developed country by 2020 will fail to materialise "if we continue dreaming".