Inclusive national development needed to stop brain drain and capital flight, says economist

An economist has called for an “inclusive national development” plan to counter the brain drain and lack of foreign direct investment (FDI) pushed by race-based politics, which have hampered the country’s development.

President of the Jeffrey Cheah Institute of Southeast Asia, Professor Woo Wing Thye (pic), said the country’s share of global FDI plummetted in early 2001 after China became the member of the World Trade Organisation (WTO) which guaranteed it access to the European and American markets.

“It is like a bathtub with water. Water is leaking because of capital flight and brain drain pushed by the race-based policies.

“And what has been keeping the bathtub full was the FDI. So once the FDI stopped coming in, our growth fell,” he said in a podcast interview with BFM Radio yesterday.

He said Malaysia has not grown very much over the past 20 years compared with the 20 years prior to that.

“You can see in 1994, the Malaysian standard of living was 30% that of the United States level. That was 1994. Today, it is still at 30% of the US level.

“Basically we have not closed the gap between us and America in the last 20 years. Compare that with the 20 years before 1994. We had gone from roughly 17-18% of US living standards up to 30%,” he added.

He said Malaysia had tried to respond to the low development rate by bringing in cheap labour to remain competitive instead of producing more high-value goods.

“That was not a viable strategy. That cannot work and it has not worked,” he noted.

How could Umno be pushed further into transforming itself towards an inclusive national mobilisation agenda because if they don’t do it, the people that would replace them would do it – Professor Woo Wing Thye

“Clearly, we must start changing ourselves so that we can sell to the Chinese the high value-added components they need in order to assemble the products for the final export market.

“For Malaysia, given our headstart in manufacturing and the IT industry, we should be moving up the value-added ladder so that we will make high-value components to be shipped to China,” said Woo.

However, the brain drain has exhausted the country of people with high quality technical skills needed to do this in order to compete with China.

“A World Bank study shows that 20% of the people who go to Malaysian universities migrate out of Malaysia and most of them go to Singapore. So clearly these people like to be home. They go to a place that is so like home and close as well.

“So I think that we easily can have them stay here. What we need now is to mobilise the country fully across the races for national development.

The New Economic Policy, Woo said, has produced a set of “dynamic, confident, innovative” Malay middle class.

“The middle income trap for us comes from failure to mobilise the entire country for the mission of national development,” he added.

When asked if Malaysia was in need of a political change right from the top to create a new economic direction, Woo said political competition was also important to see progress.

“Economists believe that well-regulated competition is the best mechanism to ensure progress. But what we are seeing is a self-correction happening in Malaysia.

“The lower economic growth in Malaysia has meant that the government has now less political power to buy off people who object to its policies. So the slower economic growth is what’s been causing the unraveling of the usual politics in the country,” he said.

The next step was to practise inclusive national mobilisation in the development plan, he said, adding that if the ruling Umno was not going to do it, their competition would.

“How could Umno be pushed further into transforming itself towards an inclusive national mobilisation agenda because if they don’t do it, the people that would replace them would do it,” Woo said.

“I really don’t care who wins. What I want them to do is to enact the programme for inclusive national mobilisation for common prosperity,” he added. – March 27, 2014.

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