Assignment 1 - Malaysian Economics UiTM (Diploma)

ASSIGNMENT 1 - ECO261 (Malaysian Economics)

Question 1

Discuss the New Dimensions of the National Vision Policy in order for Malaysia to shift economy from input driven to knowledge driven.

Economy has done well under the New Economic Policy (NEP) and the National Development Policy (NDP) prescriptions put in place over the years. But with the current challenges of globalization, liberalization and the emergence of the knowledge-based economy, the government has come up with the New Vision Policy (NVP).

One of the compositions of NVP is developing a knowledge-based economy as a strategic move to raise the value added of all economic sectors and optimizing the brain power of the nation. K-economy can be differentiating from production-based economy (P-economy) in three different aspects. First, K-economy focused on knowledge as the driver of the economy growth. This knowledge can increase the production capacity of the other factors’ of production. Second, K-economy encompassed both qualitative and quantitative changes which focus on investments in intangibles such as human-capital, R&D capacity, customers’ database, brand name and reputation. There are also three rationales for the transition to K-economy. First, reliance on accumulation of manufactured goods and the export of traditional goods will be insufficient to generate growth in future. Second, the development of IT resulted in the involvement of global electronic business such as e-commerce. This growth of e-commerce will give an impact on economy especially domestic economy. Third, the knowledge driven technology can result in increasing return to scale as new business takes into account knowledge as driver of growth.

The declining marginal productivity of its capital prompts the vision of moving to a knowledge-based economy by Malaysia. One would like to mention that Malaysia’s past growth was made possible by large capital investment in its economy. Briefly, if capital therefore is constantly flowing into the Malaysian economy for investment, overtime, the economy would keep growing but at a certain optimum, diminishing returns on capital invested would take place, according to the diminishing marginal productivity economic model.[i] In the case of Malaysia, this was reflected in its increasing incremental capital output ratios. Moving to the knowledge-based economy is the best way to increase productivity. This includes improvement of technology, know-how, innovation, superior management techniques, gains from specialization, and increased efficiency to mention a few. Innovation leads to the creation of intellectual property and intellectual property will be, in a knowledge economy, the hall mark of competitiveness.[ii]

The vision to move Malaysia from a production-based economy to a knowledge-based one would require a substantial amount of a knowledgeable workforce to fuel Malaysia’s sustainable growth and foster its competitiveness as it prepares itself to become a developed nation by the year 2020. The policy thrust to expand the supply of highly skilled and knowledge manpower to support the development of a knowledge-based economy. Malaysia knows that knowledge workers are important in its efforts to move to knowledge-based economy. According to Peter Drucker, knowledge workers are those whose work primarily required the up of mental power rather than muscle power (Zidle, 1998). All knowledge workers use their brains more rather than their brawn and that they combine both the tacit and the codified aspects of knowledge to unlock value for their organizations. It must expand opportunities in education and training. They must also be imbued with entrepreneurial skills. It can be concluded that the concept of a K-economy revolves around knowledge and information as the important contributors to economic growth and development.[iii]

If Malaysia is to prosper and survive in the knowledge-based economy era, access to quality education must be made available to all of its races. Thus, Malaysians of all races and religion has an important role to play in helping the country attain its vision of a developed nation status in the year 2020. Finally, having access to education and training opportunities alone are not enough to develop the requisite knowledge manpower to fuel the Malaysian economy in its move to a knowledge-based economy. Attention must also be paid to increase the effectiveness and efficiency of the education and training delivery system. These education and training should also touch on areas that instill in students skills such as effective communication, management and supervisory skills. Courses that teach the acquisition of skills in the area of new technologies should also be encouraged.

For Malaysia to benefit from the knowledge-based economy, it must first develop the requisite physical infrastructure, which is necessary and needed to support knowledge-based industries as well as activities related to such an economy. They must also begin to promote an information technology (IT) culture among its populace. Specific policies and programmers must be set up by the government to introduce new software and hardware and bring the Malaysian people up to date with technology and developing in IT industry.

Question 2

Explain the achievements of the New Economic Policy (NEP) 1971-1990.

The NEP which comprised five-year development plans was implemented from the Second to the Fifth Malaysia Plans covering a period of about twenty years. The overriding objective of the NEP was national unity which is a situation where in which all Malaysians have willingly accepted that loyalty and dedication to the nation override all other objectives. National unity is of utmost important for development in Malaysia. It is a situation in which all Malaysians have willingly accepted that loyalty and dedication to the nation override all other objectives. After the May 13 tragedy, the policy makers in Malaysia were of the view that national unity can be achieved under two-pronged strategies. First, it can be achieved by reducing absolute poverty with the intention of eventually eradicating it, regardless of race. Second, restructuring society that is to correct economic imbalances so as to reduce and eventually eliminate the identification of race with economic function.

There are many achievements of the NEP that had been achieved by government within twenty years which is from the year 1971 until year 1990. The achievements are:

Increase in GDP

For period (1971-1990), Malaysia’s real GDP growth averaged 7.1 percent annually. In the 60s, it averaged 5.2 percent. The GDP grew from RM22.2 billion in 1971 to RM79 billion in 1990. Corresponding to that, per capita GNP grew by about 8 times from RM1,109 to RM8,856 (US$860 to US$3,406). In spite of the increased incomes, the annual inflation rate remained low.[iv]

Decrease in poverty

The incident of poverty in rural areas had been reduced from 58.7 per cent to 19.3 per cent and that in urban areas from 21.3 per cent to 7.3 per cent respectively over the period. Among the races, the incidence of poverty was reduced for Bumiputera, Chinese and Indians between years 1970 to 1990. Overall the incidence of poverty in Malaysia had been reduced from 42.4 per cent in 1976 to 17.1 per cent in 1990.

Fairer distribution of income

Not only incomes of all races had increased but also urban-rural incomes. The mean monthly income of rural households increased from RM319 to RM1,541 over the period for the urban households. The income gap between the Chinese and the Malays had narrowed because of improved rural income and the emergence of a sizeable middle class Malay which resulted in a noticeable improvement in income distribution among them.

Increased employment opportunities

The economic rapid growth and the accompanying emphasis given to the creation of job resulted in a doubling of employment from about 3.4 million in 1970 to 6.7 million in 1990. The unemployment rate dropped from 7.7 per cent in 1970 to 5.1 per cent in 1990.

Change of economic structure

The economic structure had been changed from one dominated by the services and agriculture sectors to manufacturing sectors. Those remaining in the primary sector were mostly involved in modern agriculture activities by using the better appliances.

Improved quality of life

The various programmes which aim to improve the quality living of the poor in urban and rural areas had been successful. In 1990, life expectancy of both males and females had increased because of having healthy life style, infant mortality rates had decrease because of many parent are tend to work especially women, primary school enrollment had increased, teacher-pupil ratio as well as doctor-population ratio had also improved because of present of highly technology on appliances used by the doctors.

References:

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[i] Abdulai, D. (2004). Can Malaysia transit into the K-Economy? Selangor: Pelanduk  Publications.

[ii]  Chandra, A., & Khanijo, M. K. (2009). Knowledge Economy. New Delhi: SAGE Publications India.

[iii]  Abdulai, D. N. (2001). Malaysia and the K-Economy. Selangor: Pelanduk Publlications.

[iv] Lehar, H. (2008). The Malaysian Economy: Past and Present. Selangor: University Publication Centre (UPENA).


Prepared By:
Syahida Abd Aziz (2011)
UiTM Perlis