Malaysians are frustrated to find out that the federal government is going to “import” another 1.5 million migrant workers from Bangladesh. But the question is, why are we angry only now? This is not a new issue – why didn’t we object against the government in the early 1990s when the then Prime Minister, Dr. Mahathir Mohammad opened the floodgate for the exodus of Indonesian migrant workers into our country?
The answer is simple and straightforward.
Then, in the 1990s, our economy was still fairly healthy. There were some structural problems but it did not hinder our economic performance as a whole. But times have changed. Today, we can no longer compete with China, the world’s factory, or even Vietnam, the world’s shop floor, especially over the cost of labour. They are where we were in the 1990s. Alas, we have passed the golden era of manufacturing boom.
We lost the best chance to move up the value chain in manufacturing sector. We were too complacent in the sea of abundant cheap labour supply and did not empower our industry to move away from labour intensive to tech-driven and value-added production.
We are now in a race to the bottom. Many Indonesians are no longer interested to work in Malaysia. The government has no other option but to look for other sources of cheap labours.
You may ask, “What went wrong?” “ Can we impose higher wages now and move away from this vicious circle of low-wage and low-skill migrant worker?”
Our missed opportunity during The Roaring 90s
To answer the question, please allow me to repeat our success story before the 1997 financial crisis to understand what we have done wrong.
Throughout the roaring 90s, Malaysia was one of the Southeast Asian countries which attracted foreign capital inflow. Our Kuala Lumpur Stock Exchange was once the busiest market in Southeast Asia. From CEOs to retirees and housewives, everyone was talking about the stock market. Dr. Mahathir started his massive privatization and industrial policy with almost bottomless financial resources provided by our national cash cow, Petronas.
By not using domestic capital, the money we save in banks, the Mahathir government did not enforce the strict export requirements like what happened in South Korea and Japan. Mahathir’s “Look East Policy” did not look into the depth of their industrial policy. We develop our national automobile industry and heavy industry with a lot of money, but all failed to compete internationally. We learnt everything from Japan and Korea, but we did not learn the most important thing, their discipline, more specifically and most importantly, export discipline.
Export discipline is the core value of South Korean and Japanese industrial policies. It enabled them to develop into a strong industrial and manufacturing country today. The Japanese and South Korean governments did not hesitate to punish their domestic conglomerates that failed to hit export targets. The usual outcome would be loan being curtailed, acquisition or merger with other companies.
However, we did not enforce export discipline in Malaysia. While we produce national car, we do not care if its specs are able to compete in the global market as long as Malaysians will buy it at an exorbitant price. Proton failed, Perwaja failed, our infant industrial policy failed, but there is always somebody to bail them out, so long as Petronas is there.
Since it is not the money from our pocket, a lot of us just did not care.
Where did our money go?
We had money. There was abundant saving due to our prudent Asian culture and the new wealth from our industrialisation. And there was foreign capital inflow. But you may ask, “Where did our money go?”
Unfortunately, our money did not really go into industrialisation and Research and Development (R & D).
We may blame businesses for not providing higher wages and prefer to employ migrant workers at low wages. But the real reason is they either do not have enough capital to up the value chain or rather spend their money in sectors that can get higher profit faster.
Under a normal and healthy industrial environment, entrepreneurs can either use the company’s saving or bank loan to implement automation on their production process. However, by putting all your profit into automation is a risky decision. Usually, they take up bank loans. However, our Malaysian commercial banks are not interested in lending to all these productivity expansion projects at all.
Besides that, entrepreneurs also find that production without export discipline is not sustainable for them. Instead of putting money into automation or productivity expansion, they prefer to jump on the bandwagon to speculate in stock market, real estate and etc.. They may actually get better return on investment than productivity expansion in the short term. That was what happened in 1990s stock market and now happening in real estate market.
In fact, the year before the 1997 Asian Financial Crisis, commercial banking loans to mining, agriculture, manufacturing, and gas and water supply sectors were merely 25% of all approved loans. 20 years later, loans to these was reduced even further to about 11.73% of all approved lending.
At the peak of the real property market boom between 2013 and 2014, loans to these sectors were merely 8.88% and 9.09% respectively.
So, where did our money go?
Partly due to our own Asian version of the American Dream – homeownership – but partly due to the federal government’s “bread and circuses” fiscal and monetary policy, and partly due to the government’s agenda to enrich crony contractors and AP holders, our money has mostly gone into buying houses and cars. In the years following the 1997 Financial Crisis, commercial banking loans to house and vehicle mortgages were in the region of 50-60% of total approved loan.
In an extreme contrast, South Korean government did not even allow its citizens to take overseas holidays during the early days of the country’s industrialization era; no credit went into speculation or unproductive economic activities.
What does all this mean?
The industry’s race to the bottom
When there is no money going into productive sectors, there will be little or no technological upgrades and R & D activities. Thus, our industry continues to stay at the bottom of the value chain, which usually means labour-intensive, low-profit margin and low-skill economic activities. Hence, the continual dependence on cheap labour for survival.
Consequently, our tertiary-educated labour force found the wage level so unattractively low that they cannot even pay back their study loan. As such, they either go overseas to look for better job opportunity or work at least two jobs to make ends meet. In such situation, there is no such thing as work commitment, these workers will constantly look for higher pay and better job vacancies.
Who to blame?
A lot of employers, especially SMEs, are also victims of our government’s failed policy. They were not able to secure credit to upgrade their factories and technologies. I have been receiving requests from my constituents asking for help to secure bank loans for their businesses. Our commercial banks are just not interested to help local businesses. They are more interested to pump it into property and household credit market.
Why are they not interested to help domestic businesses? It is because our local businesses are not tech-driven. The government is just not helping them in R&D and export. Given that even the foundation of all industries, the heavy industry, has failed and eventually received government’s bailout, what can other smaller players in the country expect? They do not have the network and access to financial resources from either government or commercial banks and if they fail, they will go bankrupt.
The issue of migrant worker is not about race or skin colour; it is all about our Malaysian economy. We have to stop blaming the victims of our failed national industrial policy. Neither SME/I employers nor the local graduates are the root cause of the migrant workers issue. The real culprits are those who have access to our money but did not use it wisely. We, the people, should demand a change, a fundamental change in our national development policy to drive our destiny away from this race to bottom.