Reproduction: Social Welfare Article

A plea was made at the peak of the Oil Crises in 2008 for a new Social Welfare Policy for Malaysia primarily to mitigate the hardship of Malaysians in the lower socio-economic groups from the oil price shock, though other macroeconomic considerations feature prominently as well.

While a few of the assumptions of the writer have clearly changed due to circumstances brought on by the subsequent global economic crises and the collapse of commodity prices, the central plank of social welfare as good public policy holds. If anything, the economic downturn makes such policy rethink all the more pressing. Nations in the Asian region, Singapore, China and Taiwan(China)have all beefed up welfare aid to the economically depressed. Australia on top of its institutionalised super-generous social security , was the first to give out handouts as a driving component of its stimulus package. A second handout is being given out around Easter, benefiting those with incomes of AU$100k per annum and below.

A fresh boost to social welfare in Malaysia, however weak comparative to neighbours, should be on the agenda.

Indeed a measure of the quality of public policy of any nation is the quality of its safety net provisions for the vulnerably disadvantaged. Social security would present a humanising side to mitigate the avariciousness of the unfettered free market.

In today's Malaysian Insider blog comment to an article "Malaysia to push economic reform", Professor Chan Chee Khoon of the Science University of Malaysia has timely called on government to address the wages and incomes issue, and institute minimum wage to spur aggregate demand.

This writer believes that social security is an essential policy tool to boost domestic demand, reduce petty crime, building of truly caring society and other desirable social objectives.

In the "Islamic Welfare State" of PAS, and Khalid Ibrahim's "Merakyatkan Ekonomi", one hopes the first seeds are now been sown which will in time bloom into a decent
Social Security system for Malaysia.

Francis Ngu


TEXT OF REPRODUCED ARTICLE
DR. FRANCIS NGU CALLS FOR MAJOR SOCIAL WELFARE POLICY INITIATIVE.

SUMMARY:

The abandonment of subsidy for fuel and even other subsidies will lead to severe and multi-sectoral repercussions yet to be fully realized, including stagflation, increased unemployment, social unrest, manifold increase in poverty and poverty related crime. At this crucial juncture, a long term social welfare policy programme should be put up, even belatedly, to mitigate quite disastrous spin-offs from the controversial policy of abandoning fuel and other subsidies. The implemention of a social welfare policy is proposed here as a major prong of a social justice reform programme, and to mitigate the effects of local and international economic slow down.

FULL TEXT:

In the midst of social anger and large and small protest actions of various groups, it is incumbent upon social welfare NGOs, political workers, scholars, professionals, leaders in the business and civil service, and legislators to begin an urgent debate and discussion on the medium and long-term socio-economic impact of a possible doubling of petrol price in the near term to around RM4 per litre.

Considering that fuel price would have risen 3-4 fold over a medium length period of 5-10 years, if the pump price approaches RM 4, and all the other essential goods see price rises to compound, the purchasing power of the Malaysian consumer will fast evaporate.

This is well understood and painfully felt by the public at large. The anticipated dive in consumer and investment confidence, and the drop in GDP is reflected in the opening bells of the KLSE on the morning of June 5th.

The concurrent effort in wages reform in the private sector, even though feeble, and the need to scale down foreign labour, add to the difficulties of various business sectors. Job creation will slow down, unemployment will worsen.

All taken together, a stark scenario of rapid inflation and slowed growth, in Malaysia and overseas, sets the ground for the worsening of poverty and increase in the poverty rate towards levels of 1970s, if not earlier. In its wake, social unrest and poverty related crimes. Without political will for reform, poverty eradication will be thrown into the ever distant future.

There is no doubt that Malaysia is facing a severe crisis, which, to the lower socio-economic groups, is far more severe than the 1997, Asian Financial Crisis.

Yet, ironically, the crisis to the average consumer, may not have to be so severe, or there need not even have to be a crisis at all ! This is because we are also in an unprecedented commodities boom! The export price of petrol has increased 10 fold from under US $20 to US $ 140 ! CPO is the mother of all golden crops now at some RM 3500 per tonne.

It only points to the fact that the nation’s wealth distributive mechanisms have failed miserably. The GINI index has risen steadily to 0.47.

For some 2 decades, government has resisted any notion of meaningful wage reform, including a minimum wage as a start. A systematic social welfare net has been denied to the lower socio-economic groups, even during the 1997 Asian Financial Crises. Such an institutionalised social safety net is not mentioned even as we face paying the full price of fuel on world markets.

The promoters of the denial mentality paint a glowing picture of pristine economic health against a fictitiously low unemployment and poverty rate.

The most prosperous nations of the world have poverty rates of 10-12 % against Malaysia’s poverty rates of 2-3 %. Unemployment rates of 4-5 % only occur in intolerably booming western economies. The claim that Malaysia has one of the lowest prices for fuel and essential goods should at least be balanced by the fact that wages in those other high cost countries are 5-15 times Malaysian wages. Again, in those high cost countries, annual income of RM 150K and below is considered low income in public policy debates; an annual income of RM 50K may already entitle a family to receive welfare assistance. The monthly social welfare payment to a poor family overseas may be 4-5 times the starting wage of a professional in us “lucky” Malaysia!

When we face the reality of prices in a globalised world, when subsidies are being dismantled, it is hoped that the denial and feel-good mentality will fade away. Otherwise, there can be no meaningful debate on public policy.

It is hoped that meaningful public policy debate will lead to meaningful public policy within the short term. We are now moving painfully away from a distorted market economy with multiple subsidies, but we are faced with a market economy where eventual removal of price controls is leading to inflation at a pace threatening the livelihood of many. Nearly all the first world free-market economies have solid social welfare systems put in place 50-100 years ago, both as a principal of social justice and also as an essential policy to safeguard social stability.

A Malaysian Social Welfare System must be set up soonest, and should be running before any further price rises in fuel and further removal of other subsidies. The compensation to vehicle owners is a queer cabinate invention, which does not address the rising cost of living for all consumers, especially the poorest who obviously may not even own a motor vehicle. A long-term social welfare programme must proceed alongside a more vigorous wage reform drive in the private sector and regulation of foreign labour. Personal tax cuts and refunds by significant elevation of the lower thresholds should also be considered.

Welfare as a social policy principle.
When the livelihood of a large segment of society is threatened to a level affecting social stability, the arguement for and against individual charity vs institutionalized charity becomes academic and should be put aside. The basic dignity of living is too serious a matter to be left to charitable whims of individuals, but must be effectively addressed by institutionalized welfare. Individual and community charity initiatives continue to grow ever stronger in countries with matured social welfare protection.

In these countries too, there is no proof of generalized economic malaise as a result. Fine tuned welfare programmes are nowadays tied together with skills re-training and with employment search for the healthy unemployed.

Social welfare recognizes the right of citizen to have a basic dignity of living and belonging to society, something so important to social peace and cohesiveness. It is further an instrument for providing a level playing field for all, and for individuals and families to realize their full potential. Human creativity and initiative may be suppressed and trapped by grinding poverty.

Last but not least, social welfare is an integral part of the programme of major political parties promoting people’s welfare using different terms such as social justice, democratic socialism, welfare state and others. It is now more apparent than ever before that a dose of welfarism is needed to survive the disaster caused in part by the globalised and ailing free market.

Social welfare is affordable. Although Malaysia is a mid-range developing country, the present commodities prices boom alone enables Malaysia to put in place a robust social welfare programme soonest. The present petrol price rise is saving the nation of a massive “subsidy”, which is really increased profit to Petronas. When the pump price is floated at international market prices, the profit increase to Petronas is RM 50 billion, more if world crude rises further. All other subsidies, if finally withdrawn, is estimated to save government another RM 50-80 billion. All leakages of subsidies, and to undeserving sectors, would have been plugged.

Certainly, much of the RM 50 billion or RM 100 billion earned by Petronas or saved by government, should be set aside for economic investment, especially public transport infrastructure. It is immediately obvious that even 10% of either sum is sufficient to launch the programme, 25 % of either will establish a good programme and 50% will send all the street protestors praising the government. Thus welfare aid is institutionalized at a level consistent with the economic strength of the nation.

Social welfare payments may be implemented within months.
Emergency Implementation.
Should it be necessary to reduce public panic, emergency implementation may be necessary, with all the pitfalls fully realized.
With the progress in electronic banking, there should not be difficulty to effect payment to all IC card holders with a bank account. Payment to minors should be through parents.
Payments to the poorest of the poor without bank accounts, may have to be separately dealt with, as well with some Sarawakians with no IC cards. Without means testing, this may mean a significant leakage to the small wealthy segment of society; however it should be a tolerable price to pay for staving off social unrest.

Long term Implementation.
Fine tuned long term programs will have to be based on Legislative Framework, Means Testing, Welfare Fraud Detection and Judicial Sanctions. If we can embark on space age ambitions and mega-projects, can we not establish an efficient and effective implementation network nation wide for social welfare within 1-2 years?

Social welfare to mitigate economic slow-down.
Malaysia is said to have negotiated its way out of the 1997 crisis by pump-priming the economy by spending on infrastructure, among other measures. The economic slow down this time round is dictated by rising cost of production and severely damaged consumer and investor confidence and anticipated dipping of export demand for manufactured goods. Tourism and related services may also be affected. A social welfare system spending of RM 20-30 billion alongside infrastructure spending will help maintain domestic retail and services demand and restore part of the business confidence.

Thus a social welfare system is justifiable in terms of public policy, affordable , technically feasible and even economically sound.