by JEYAKUMAR DEVARAJ
IMAGE/Wikipedia
Your Excellencies, the Honorable Heads of Government of ASEAN Nations, welcome to Malaysia. We in the Parti Sosialis Malaysia wish you have a pleasant and productive summit. We hope it would not be too presumptuous of us to put forward a few observations and suggestions that have a bearing on the main topic of your Summit, which we are told is about creating an inclusive ASEAN that brings benefits to all its citizens, especially those in the poorer half of our populations.
The first point that we would like to put forward is that the “export-led” economic growth model has been superseded by developments in the global economy. Manufacturing jobs have translocated from the advanced Western countries to East Asia and to ASEAN, “hollowing out” the middle classes in the advanced countries of the West. Growth of aggregate demand in the US and the Euro zone has become sluggish and will remain so for the foreseeable future. The strategy of producing cheaply and competing for the US and European market will not work any more.
We need a change of tactics. We need to generate aggregate demand within our own region — in East Asia, in the ASEAN region as well as in the rest of Asia. Only then will our industries have markets and our people jobs. A major component of aggregate demand is the purchasing power in the hands of our own citizens. Obviously if their wages remain low, they will not contribute much to our domestic aggregate demand. We need to raise wages of our workers. But we immediately run into a problem here. For if one of the ASEAN countries unilaterally raises its minimum wage significantly, it runs the risk of losing new FDI to its neighbor. Further, it runs the risk that imports from other ASEAN countries might win over part of the domestic market share of its own factories. So investment, economic growth, and job creation may all be jeopardized.
This is where the ASEAN community comes in. If all ASEAN member states agree to raise minimum wages by 10% from their current levels and do this annually for the next 10 years in all the ASEAN countries, then none of us will be in disadvantageous position with regard to attracting FDI or losing market share of our own markets. And aggregate demand would grow, expanding the market for our manufacturers. It would really be a win-win-win situation — one where even the bottom 40% of our populations will also benefit.
Another important component of aggregate demand is purchases by the government. In Malaysia this is about 20% of the GDP. If we want this component to go up, then obviously we need to increase government revenue. Taking from the consumers via a tax like the GST will not grow the aggregate demand because the GST reduces the purchasing power of the population. It would be akin to taking from the left pocket to put into the right! So the increase of government revenue has to come from increasing corporate taxes. Here again we come up against the risk of capital flight. If one ASEAN country embarks on this alone, then the large businesses might translocate to a neighboring country with lower corporate tax rates. Here again, the ASEAN community can work together to circumvent this possibility. What if all ASEAN countries agree to raise corporate taxes by 1% per year for the next 10 years? That would not put any of us in a comparatively disadvantaged position.
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