Wednesday, September 17, 2014

The Colour Of Inequality

[Full disclosure: Dr Muhammed is a good friend of mine, so the following commentary should be taken as unbalanced and totally biased. You have been warned]

There’s a new book coming out this weekend on income and wealth inequality in Malaysia, at MPH:


If you’re interested in the dimensions of inequality specific to the Malaysian experience, there are two books you must have on your bookshelf. The first is Shireen Mardziah Hashim’s “Income Inequality and Poverty in Malaysia”, which examines the distribution of income in Malaysia and focusing on the period of the New Economic Policy (1970-1990). It’s a bit on the technical side (i.e. it’s not written for non-economists), but the book has a wealth of data you might not find anywhere else. It also shows how the NEP had at best a peripheral role in East Malaysia.

Dr Muhammed’s book is more general, and covers both income and wealth inequality from ancient times to the present. If I were to contrast the two, I would call Dr Shireen’s book a scholarly work for scholars. Dr Muhammed’s on the other hand, while not lacking in scholarship, is very obviously intended for a very different audience.

In some ways the book echoes Piketty’s “Capital” in approach and structure – not too surprising given his PhD was gained in France. This is a book very specific to our times and tries to address contemporary concerns and criticisms, backed by data and evidence, in a fairly accessible package. More importantly, again like Piketty, it’s really a call to action with an explicit policy agenda for Malaysia.

Some of the data and conclusions will be new to many – I’m not going to quote anything, buy the book if you want the details. While awareness of income inequality among and between Malaysians is fairly widespread, the data on wealth are not. Neither is the level of discrimination in the labour force. There’s also more evidence here that Piketty’s conclusion that inherited wealth plays a major role in perpetuating inequality is a correct one.

There’s always a risk of something like this stoking the fires of social controversy – much of the data in the book would make good political and media fodder. Some of the statements in the book would also make uncomfortable reading both for those in power and in the political opposition.

But to define this work solely on some of its more explosive findings would be to miss the larger point – that inequality transcends race, transcends gender, transcends East and West. We’re all in it, like it or not, and its up to us (all of us) to fix it.


  1. I haven't read the book you mentioned, but from what you have posted, I can imagine that commentators, policy wonks and bloggers will have a field day.

    Let's cut to the chase. How do you divorce wealth from ethnicity in the Malaysian context?

    The realities on the ground are clear.

    Do we blame the Brits for this state of affairs, seeing as how they implemented various measures that set in motion the growth of inequalities down the road?

    More to the point - why hasn't education in Malaysia been the great leveller or an agent to promote upward social mobility?

    Has the education system failed us?

    I'd say that, yes, wealth can be inherited. But wealth can also be grown through patient and diligent application, by acquiring the right education and the right skills and by being able to read trends and grasp opportunities as they arise.

    Which brings us back to the Malaysian education system. Has it prepared school leavers and graduates appropriately, instead of just churning them out and leaving them to fend for themselves.

    What about the role of the government? Is it to be blamed for adopting "free market" and "capitalist" policies that accentuate and perpetuate inequalities?

    I doubt that there are any simplistic answers to these questions, although academics might like to think otherwise!

    1. @bee farseer

      You haven't read the book because it isn't out yet. The launch is supposed to be this Friday (by TDM no less). I got an advanced copy.

      For your other comments:

      1. Is there a race dimension to inequality? Yes there is, but the gap is getting narrower. More importantly, a whole section of the book is devoted to finding out the main drivers of inequality. 90% is between members of a group and not between groups. Translation: income and wealth inequality is a bigger problem between rich Chinese and poor Chinese, and between rich Bumis and poor Bumis, than between Chinese and Bumis. In other words, the class dimension is currently much stronger.

      But there are certain other dimensions to inequality that is firmly rooted in race, e.g. labour market discrimination and regional poverty.

      2. Education has in fact had a large role to play in massively reducing inequality during the period of the NEP. But it appears that such gains have tapered off, as primary and secondary education are now near universal.

      There's a whole global literature devoted to how wealth and income intersects with education outcomes i.e. children of the urban rich are more likely to have more investment in human capital (i.e. education) and thus more likely to succeed in life irrespective of their individual abilities, thus perpetuating a class difference in inequality.

      Another factor, which Dr Muhammed mentioned only in passing but which should have gotten a more extensive treatment is "assortive mating", where people tend to marry within their socio-economic levels. This too perpetuates inequality from class differences.

      3. Your question on wealth inheritance vs wealth accumulation is really about social mobility. There is no available study on social mobility in Malaysia (though not for lack of trying; the data is simply not available), but odds are that social mobility in Malaysia is poor, though probably not as poor as say the US or UK.

      To sum up though - there's more than one aspect to inequality, and the book touches on nearly all of them, even if I gave the impression that inherited wealth was the main thrust. There's much more than that on the chapter on policy conclusions.

    2. You have mentioned "labour market discrimination" and "regional poverty".

      Let's take the latter first. By "regional poverty", I believe that you are referring to Sabah and Sarawak and the "less developed states" in the peninsula (Kelantan, Terengganu and Pahang?).

      50-something years after Merdeka, it is not right that Kelantan, Terengganu and Pahang should be affected by "regional poverty".

      Is this because of a failure in the human resources development in these 3 states? Or a lack of appropriate investments in infrastructure that have discouraged investments in job-producing sectors?

      As for Sabah and Sarawak, the fact that they are both rich in resources should have uplifted their populations out of poverty by now.

      On a side note, are there published Gini coefficients for the states in Malaysia? It would be interesting to compare the Gini coefficient of, say, Penang, against Sabah or Sarawak or Kelantan.

      Next, the issue of "labour market discrimination".

      Let's call a spade a spade's about the Chinese domination of the commercial and business sectors in the country and the Malay domination of the civil service, government bureaucracy and the uniformed services.

      Did this have it's roots in the policies of the British colonial administration and has that been perpetuated ever since?

      If that's the case, the question to ask is why universal education has not provided the means to address this discrimination and inequity?

      It's facile to argue that the rich (of whatever ethnicity) will always have the better of it, because they have the means to provide their children with the best possible education at pre-primary, primary, secondary, post-secondary and tertiary levels.

      I might add a plug here that proficiency in English is an advantage that the rich and their children in Malaysia enjoy.

      If that's the reality, then the government should have acted as the "great leveller" by putting in place the best possible education infrastructure to benefit the poor and the disadvantaged in the country.

      We may look askance at the Singapore system, but there is no denying the fact that they are trying very hard to turn their education system around from a grades-obsessed paper chase to a more holistic experience emphasising life-long learning, continuous re-training and re-skilling and what they call "lifelong meritocracy".

    3. @bee farseer

      I've always considered regional development as something of a bit of a mirage. It's always a hard slog fighting against the power of agglomeration and network externalities.

      That's certainly the case for the Eastern seaboard - human capital development has resulted in a diaspora to the Western seaboard (hence the continued pervasiveness of "balik kampung").

      What we have here is inter-generational mobility, which in the end is probably the best that can be hoped for and a reasonable target to have achieved.

      East Malaysia is different, in that there were no existing centres of agglomeration. The NEP was also less successful in Sabah and Sarawak, because it didn't take into account the difference in socio-economic conditions between East and West (this is covered in Shireen Hashim's book).

      As for natural resources, in economic circles it is far more common to think of natural resources as a curse than a blessing (see here and here).

      The state by state and ethnic Gini time series are available here.

      For labour market discrimination, your spade looks more like a heart :)

      While Chinese dominiation of the private sector and Bumi domination of the public sector is a major issue (both are covered in the book), it isn't the only one. There is also pervasive gender discrimination as well, which is probably more rooted in cultural and institutional barriers than as a holdover from colonial times.

      Even with race-based discrimination, it isn't quite as straightforward as people think it is - Bumi on Bumi discrimination exists as well. And formal education has not proven to be a leveler - that's covered in both the book and the earlier research conducted by Dr Muhammed (which I highlighted here). Wages and income are higher for the Chinese community, even after accounting for qualifications and experience.

      Also, the advantage of upper income households goes beyond the ability to afford higher investment in education, although this is not insignificant (see here for instance). Environment and parental investment matter a great deal too (see here, here and here for a sampling).

      A good education system is a necessary, but not sufficient, condition for addressing inequality. That's why I have consistently advocated universal pre-school education, and more lately parental education as well, which would include teaching of health and nutrition. We need a fully enforced anti-discrimination law, a capital gains tax, and higher taxation overall. There is no silver bullet.

  2. "3. Your question on wealth inheritance vs wealth accumulation is really about social mobility. There is no available study on social mobility in Malaysia (though not for lack of trying; the data is simply not available), but odds are that social mobility in Malaysia is poor, though probably not as poor as say the US or UK."

    how does Malaysia compare to Singapore?


    1. @anon

      1. Shouting isn't going to get you anywhere;

      2. Nobody is denying the reality of the Chinese poor. But that doesn't contradict the data that says Bumi poor are a) more numerous and b) even poorer. If you actually read the book carefully, Dr Muhammed's policy approach is both needs-based and race-based, not race-based alone. The biggest, fastest gains against inequality can actually be made through a concerted effort at addressing non-Malay Bumi poverty on the one hand, and strengthening (non-race based) poverty efforts on the other;

      3. Nobody is denying the brain drain either, but you will need to explain why Singapore has a higher per capita rate of brain drain than Malaysia. The truth is, economic opportunity is a bigger incentive to leave, and much easier if you have marketable skills i.e. it is the children of the rich and middle class who are leaving, both Chinese and Bumi. That reinforces the empirical findings that inequality is primarily class-based, not race-based.

      4. I've seen the stats on executive level staffing at GLCs - it's an approximately 50:50 split between Bumis and Chinese. I'm not sure how you're arriving at the notion that Bumis "control" GLCs;

      5. I've also got the stats on corporate ownership. Chinese ownership continues to be double Bumi ownership, though foreign ownership is increasing. Manufacturing for instance is dominated by foreign firms, and its not even close.

    2. Relax lah why so angry,channel your anger by writing a better book lah... better - instead of USING CAPS THAT IRRITATES READERS on YOUR opinion :)

  4. haha...the nation divided in year 2015 (not 1971) Surprise? Good job Malaysian govt! 1. Stop asking me to channel to other. This is the benefit of internet where facebook also trying to spread the free usage of internet to rural area! 2. Pls go and check the major share holder detail for GLC if you still think 50 50! I am not try to racist, but I am a unhappy Malaysian. Pls don't label me as pendatang!

    1. @anon

      1. I have no idea what you mean. Can you clarify?

      2. I was quoting statistics on executive staff levels, not ownership. Management and senior management of GLCs is 50:50 between Bumis and non-Bumis.

      Out of the major GLICs investing in the local market, only PNB can be said to be Bumi, and to a lesser extent LUTH and LTAT, largely because of the composition of the latter's membership more than anything else. Neither EPF nor Khazanah can be or should be considered Bumi.

      Even with PNB though, the demarcation is not always clear. ASN/ASB unit holders include both non-Muslim Bumis, and Muslim non-Bumis, and about half the unit trusts available from PNB are open to all Malaysians, not just Bumis alone. PNB as a whole comprises just 10% of total corporate ownership; LUTH and LTAT are considerably smaller.

      3. My mother is ethnic Chinese and my wife is ethnic Indian. My father's side of the family has Indian, Chinese and Indonesian blood. I also have non-Malay Bumi relatives. If anybody should be labelled pendatang, it's me.