Enabling, Enriching And Empowering Labour To Escape The Middle-Income Trap Towards A High-Income Economy.

Speech by DAP Secretary-General, MP For Bagan Chief Minister of Penang Lim Guan Eng at the DAP Labour Colloquium in Ipoh on 3 October,2015.

Only a resilient and dynamic local workforce can liberate our nation from the shackles of the middle income trap to address income inequality and through a rising tide achieve high-income economy status. A resilient and dynamic local workforce must be productive and equipped with the necessary skills to face the challenges of globalisation.

DAP believes that this can only be achieved through the 3Es of enabling, empowering and enriching the workforce. I am therefore honoured by the invitation extended by DAP National Vice-Chair M. Kulasegaran to be part of this Labour colloquium that aims to address one of the key issues of social justice which is the empowerment of Malaysian workforce.

In Malaysia, the power of workers to organize and form unions has been watered down with amendments in the Trade Unions Act. Trade unions are seen as obstacles to economic growth rather than co-equal partners in the development of the nation.

The power of the labour movement has been further weakened by the influx of millions of unskilled foreign workers, both legal and illegal, into the country. This has not only reduced the earning capacity of Malaysian workers, especially those at the bottom 40%, but also caused the erosion of unique local skills, working practices and culture.

We are losing our unique identity as Malaysians as a result of this uncontrolled inflow of foreign workers which affects various sectors of the economy including the tourism industry.

I would like to share my experience in Penang when the state Government made the decision to ban foreigners from being employed as main cooks at hawker stalls in order to retain Penang’s unique local taste and flavours. Penang tourism is built on our street food, the best in the world. We can ill-afford to lose the unique Penang taste from foreigner street cooks.

Street hawkers used to be for the poor who work themselves. However many have prospered in Penang until they employ foreigners, some even to help in the cooking. This would have a negative impact not only in the quality but may even result in a loss when the foreign workers are required to return home again after 5 years.

So whilst they can help out in hawker stalls, they can not cook. Hawkers were given a one year grace period between starting 1st of January 2015 to enable them to adjust to the new ruling which would be effective on 1st of January 2016. Hawkers may not get their licenses renewed if these criteria are not met. From a survey that was conducted, 86% agreed with the Penang municipal council’s decision with only 14% rejected the idea. A sticker bearing the tagline “Penang food is the best” will be given to outlets complying with this policy.

Another example of prioritizing locals in Penang is the employment of Malaysian garbage collectors at a salary of at least RM1,500 a month at the Seberang Prai Municipal Council. The Council had privatised garbage collection and under our open tender system had saved costs by up to 55%.

However all the private contractors could not fulfil our requirement of employing local workers with the excuse that only foreign workers were willing to work in the 3D jobs that were dirty, difficult and dangerous. We decided to test that out by taking back these services by employing Malaysians. We had 10 times more applicants than the 2,500 positions available which shows that locals are willing to work in these so-called 3D jobs if they felt that the compensation was attractive.

Yes the cost has gone up by RM30 million or more than 40% but we are feeding 2,500 families and not some foreign worker, who can do as good a job.

It takes a strong and honest government not to be subservient to big business and to come up with policies that will benefit the common people. The policies of my government in Penang recognizes the importance of local human capital development so that Penangites can benefit from the growth in the tourism sector in the state.

I propose that this policy of hiring Malaysians first needs to be extended to all jobs in Malaysia. The current preference of employing foreigners for local jobs has gone out of control to the extent of many jobs which can be done by locals have been taken over by foreigners.

In this current economic climate, our over reliance on foreign workers also has an additional negative consequence. The repatriation of the income of foreign workers back to their home countries of up to RM60 billion annually means a continued outflow of funds from the country which leads to more pressure being put on an already weakened ringgit.

In addition, there should be initiatives to create a Human Capital Development Index in the business sector in order to measure the level of development of the Malaysian workforce. There has been a lot of analysis on the performance of business entities in the stock market but scant attention has been paid to the practice of development of human capital and development among business enterprises. For example, there has been frequent audits on business compliance for ISO Certification but there is no specific Human Resource Development audit in order to gauge the state of Human Capital Development in Malaysia. The Human Resource Department should be upgraded from merely an administrative department so that it can play a more prominent role of Human Capital Development of the nation. Companies should be certified yearly by agencies on their efforts to enhance Human Capital Development.

The labour workforce must face up to the challenges of globalisation through upskilling and training. They must be enabled with rights and responsibilities. To do that we have to grant them freedom, freedom of equal opportunity. freedom to be the best they want to be and realise their potential.

Penang have invested heavily in talent, especially as a center of excellence for science and technology at all levels. The Penang Future Foundation Scholarship scheme with a contribution of RM 40 million, where talented Malaysians are given scholarships based on merit. The only condition is that these scholars serve their bond in Penang for a stated period either in the public or the private sector.

Not resting on our laurels, today, the Penang government is donating RM2 million to launch Malaysia’s first German Dual Vocational Training Programme on 1 September 2015 after 3 years of hard work. This German vocational training is unique because students study and work in the factories at the same time. As the fees are paid by the state government, the students have the benefit of an allowance of RM900 monthly by the participating companies. In other words, the students are paid to study. The sponsorship is open to all companies located in Penang, whether multinational corporations (MNCs) and small and medium entities (SMEs), who send their Malaysian employees for the German Dual Vocational Training Programme.

The German Dual Vocational Training Programme is a valuable upskilling programme that is much sought after. An average of 23% of German trainees in the training occupations have university entrance qualifications. In some training occupations – such as bank clerk or IT specialist – the percentage of people with university entrance qualifications is even as high as 50 to 60%. In other words in Germany, you may need a university degree to qualify for training.

Talent is universal but opportunity is not. The state government hopes this initiative will provide our talents with the opportunity. We are willing to invest in the future by investing in education. Only when we invest in the future, can we win the future.

All these initiatives requires as a pre-condition the government to have funds for such investment. Penang has proven that running a clean government can gain you more funds.

When we first took over in 2008, our first order of priority was to prove that a clean government can perform better than a corrupt government. We have to deliver on basic services. To do that we have to be able transform the civil service. That is our CAT governance based on Competency, Accountability and Transparency. Hence, while financial scandals and Malaysia have become almost synonymous, Penang is proud to maintain its unblemished record.

One of the first things we implemented was, believe or not, an open competitive tender system. All this while, government procurement in Malaysia has been notoriously opaque, with those with “political cables” favoured over genuine contractors. By making our tender process completely online and accessible to everyone, we replaced political cables with computer cables, thus ensuring there was no avenue for corruption to take place.

Because public officials in Malaysia are known to enrich themselves and their relatives, we also took a strong stand against the scourge of nepotism and cronyism by institutionalising periodical public asset declarations for all elected representatives in Penang, including the Chief Minister. In addition to that, we also expressly forbade all elected representatives and their family members from having any business links with the government.

We have been commended by the annual Auditor-General Reports as the most financially efficient state government and even praised by Transparency International, the first time that any state or federal government in Malaysian history has been so lauded.

All these measures resulted in our cash reserves increasing by 50% and our debt has been reduced by 90%. We recorded budget surpluses for every year since we took power in 2008. From 2008 to 2013, our total surpluses came up to RM453 million, from which we have spent RM287 on social welfare programmes to help the needy and other vulnerable groups within the state. In fact our RM453 million accumulated surpluses over 6 years far exceeded the surpluses accumulated over the previous 50 years from 1957-2007 under the previous BN government of RM373 million.

These welfare programmes has reduced poverty to near zero levels. The poverty line indicator is RM790 monthly per household. All households earning below RM790 monthly will be given unconditional cash transfers until they reach RM790 monthly. For instance if your monthly household income is RM600, you will get RM190 every month.

As a direct result of these programmes, we were able to reduce our Gini Coefficient, which is the measure of income inequality, by 11% over a period of 3 years, from 0.42 in 2009 to 0.37 in 2012. Of course, we have exceeded our targeted minimum wage of RM1100 monthly by ensuring that all state government staff earn this minimum amount. This is enriching the people to ensure that the fruits of economic success are also distributed to all.

Thanks to our CAT model of governance, international investment has increased. From 2008 to 2014, we managed to attract RM48.2 billion worth of investments, which is 93% higher than the RM24.9 billion invested on a similar 6 year period from 2001 to 2007.

We recorded GDP growth of 7.4% in 2014 in Penang; and the 11th Malaysia Plan estimates Penang’s GDP growth this year to be equally robust at 6.2%. We also have full employment with Penang recording the historic low 1.2% unemployment rate last year. Or a shortage of 20,000 workers. Such good employment market is translated to households in Penang enjoying household income growth of 7.6% annually between 2012 and 2014.

Penang would have been a high-income economy this year if not for the fact the ringgit dropped 30% in value due to the RM 42 billion 1MDB financial scandal and RM2.6 billion donation scandal involving the Prime Minister. The performance of the ringgit, which has dropped by 28% over the past one year to over 4.3 to 1 US dollar. This effectively means that Malaysians are poorer by 28% in US dollar terms.

Penang has paid the price by dropping back to middle-income status when we are supposed to graduate to high-income economy this year. The World Economic Forum Human Capital Report defined a high-income economy as one whose Gross Domestic Product or GDP per capita reaches USD$12,467 or RM 40,841 based on the exchange rate of RM3.27 for USD$1.(based on early 2014 exchange rates)

Instead of RM40,841 as the benchmark to achieve high-income status, the 28% drop in the ringgit means that the benchmark has been increased to RM52,000. Penang was expected to achieve a GDP per capita of RM42,251 based on a population of 1,681,922 people and a GDP of RM71,063 million by this year 2015. Penang’s GDP per capita of RM42,251 would have exceeded the benchmark of RM40,841 to become a high-income economy.

However, based on the current exchange rate of a 28% drop in the value of the ringgit, Penang’s 2015 estimated GDP per capita of RM42,251 is still far off from the new revised high-income benchmark of RM52.000. This goes to show the cost to Penangites in terms of price inflation due to the drop in the ringgit, but also Penang missing out from being a high-income economy.

Conclusion :- Establishing Institutions.
By adhering to rule of law and establishing institutions we ensure that our legacy lives on based on rules and not rule by men. Not only does this ensure freedom but also that freedom works! For instance when we took power in 2008, we had zero fish farms reared on sea. Now 7 years later, it is a RM1 billion ringgit industry with over 300 fish farms on the sea.

Much as I would love to claim credit, this amazing transformation was done without spending a single cent but merely dependant on reinventing government. The past government benefiting its cronies had only singled out only one or two chosen individuals were given thousands of hectares of sea areas, which they then sub-let to genuine operators under the classic rentier system.

We stopped the corrupt practice and gave only to owner-operated fish farms up to a maximum of 8,000 square meters each. Further we instituted the check list system where approval must be given if all the boxes were ticked. And the outcome of approval must be given within 3 months. This is how a billion ringgit fish farm industry was born out of nothing at all.

The issue of managing labour relations as well as human capital development in this country is complex and ever evolving. We can only effectively deal with these issues with visionary and decisive leadership, by working with all the relevant stakeholders and with policies which prioritize the welfare of the common people rather than for a small number of people. I once again would like to congratulate the DAP for organizing this labour colloquium and I wish all the delegates a productive and fruitful time of discussion and debate.

Lim Guan Eng