Every five years, the Malaysian government publishes a new development plan. It identifies priority economic areas, sets goals and discusses ways to achieve them over the next five years. We are now on the Twelfth Plan, which was unveiled last week. As Alifah Zainuddin pointed out in The Diplomat, much of the content is ambitious, interspersed with buzzwords like “whole-of-government approach” and references to “industrial revolution 4.0”. The growth envisioned is invariably sustainable, inclusive and holistic, and the statements are often too vague to be meaningful.
Documents like this are best read as some sort of general philosophical statement about where the government wants the economy to go over the next five years. And the twelfth plan is pretty clear: it wants to increase wages, consumption and private investment, close development gaps between regions, increase productivity, improve connectivity (physical and digital), invest in human capital and move to higher value-added manufacturing such as aerospace and pharmaceuticals. It all sounds good. In fact, that’s basically what every middle-income economy tries to do all the time. The hardest part is doing it.
The twelfth plan contains benchmarks to be achieved by 2025, such as annual GDP growth of at least 4.5%. Like all of these projections, these are essentially guesswork and whether or not they are realized has as much to do with luck as it does with politics. But if we dig into some of the more detailed proposals, the plan reveals some interesting things about the structure of Malaysia’s political economy and how policymakers hope it evolves in the years to come.
The plan identifies four main “policy drivers” that will push the economy towards the desired structural changes: developing human capital, adopting new technologies, improving connectivity and infrastructure, and strengthening public service. As far as I know, the utility aspect seems pretty straightforward and go-anywhere, so I’m going to focus on the first three.
Generally speaking, the government wants a national labor pool with a level of skill and education that can generate higher wages and attract investment in high-tech and high-value-added industries. They want to lift the economy out of over-reliance on commodity exports as well as low productivity and labor-intensive manufacturing. This will, in theory, transfer a larger share of the GDP to the workers and thus stimulate the consumption and the private investment which is the real objective of all this.
However, improving the skills of the workforce and investing in education are notoriously sensitive policy goals. Exactly what skills are needed in a competitive workforce these days? How to measure school results? What role should foreign workers play in this mix? What is a fair wage for a particular skill and who determines it? There are no single, objectively correct answers to any of these questions, and it is therefore not surprising that the Twelfth Plan does not really offer any.
In addition to investing in human capital, other policy drivers focus on more tangible things like faster adoption of technology and investment in connectivity. They are more traditional engines of growth, easier to conceptualize and results easier to measure. This part of the plan is to expand broadband access, invest more in R&D (especially technologies with commercial potential), improve transport infrastructure and logistics, and make e-commerce a more central element. economy.
My reading of the Twelfth Plan is that Malaysian policymakers want to rebalance the economy by avoiding export-led growth, with a larger share of GDP going to wages and consumption, and with a bigger role for private investment. To achieve this, they invoke somewhat vague ideas about technology, the digital economy and improving the skills of the workforce. Meanwhile, much of the plan still focuses on improving logistics and transportation networks that are squarely aimed at making commerce more efficient. There is nothing wrong with that, with trade being an essential part of any robust economy, but the real thing to watch out for is not so much the bag of ideas and benchmarks thrown into the plan, but rather the way whose competing ambitions are balanced over the next five years.