Role of Economic Think Tanks in Promoting Good Public Policy to Enable Malaysia to Harness the Digital Economy at National Young Economic Summit

Tunku Dato’ Seri Zain Al-’Abidin ibni Tuanku Muhriz

20 January 2018
University of Malaya

Assalamu’alaikum dan selamat pagi
Pertama sekali saya ingin mengucapkan tahniah kepada Persatuan Ekonomi Universiti Malaya (PEKUMA) atas anjuran acara ini.
Secondly, I’d like to express how happy I am that IDEAS is able to support today’s event.
Introduce IDEAS

The Institute for Democracy and Economic Affairs is a policy research institute established in 2010 on four main principles: the rule of law, limited government, free markets and individual liberty and responsibility. We believe these principles were championed by our first Prime Minister Tunku Abdul Rahman through his many actions and speeches. Our mission is to improve the understanding and acceptance of such timeless principles through research and advocacy, and apply them to public policy today.

Think tanks like IDEAS aim to add value by influencing public opinion so society moves in a more informed direction. In democracies such as Malaysia it truly important that the general public remains well informed about new developments. Through various publications and events, think tanks like IDEAS create awareness about issues that may exist and how they may be dealt with.

Of course, different think tanks have different perspectives, ideologies or political sympathies. Hence why a healthy civil society, freedom of expression and intellectual autonomy in universities such as this one are so important in creating platforms where these issues can be further discussed.

What is the digital economy?

Today, we are living in the age of the digital economy, in which the Internet and mobile connectivity have resulted in increased interconnectedness of people, organisations and machines. This reality represents much more than just youngsters being glued to their devices – we are now able to double production capacity without adding a single watt of energy consumption, to simplify steps in business supply chains to save time and money, and even save lives with wireless monitoring of medical patients.

Demand for digital skills are now on the rise, with two-thirds of all occupations requiring a medium or high level of digital skills, indicating how much technological advancements have impacted the labour market which I’m sure some of you will enter very soon.

ASEAN

Although a 2016 study by Temasek and Google suggested that six ASEAN economies – Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam – will create the fastest growing Internet region in the world, with an estimated 480 million users by 2020, 2017 was dubbed the “Year of the Internet Economy” for Malaysia, and rightly so.

We have led the region in the e-commerce market – which is currently worth US$1.3 billion – and made history by launching the world’s first digital free-trade zone. The DFTZ is expected to create 60,000 jobs and generate US$65 billion in trade value by 2025.

Last year, the e-commerce market contributed to 18.2% of GDP, and the 2018 Budget highlighted this industry to be its main driver for Malaysia to become a fully developed digital economy, with RM1 billion being dedicated to improving broadband connectivity.

Digital security

The wide range of smart devices that are now available in Malaysia has also resulted in a rapid growth in digital banking. Malaysia holds one of the highest penetration rates in Southeast Asia, with 14.6 million online banking subscribers – equating to a 49% penetration rate. In 2016, the Asian Institute of Finance found that only 11% of Malaysian consumers had yet to try online banking.

However, the same report had established that 58% of consumers found the potential lack of privacy concerning, and 53% were worried about the possibility of others gaining access to their personal data.

Via with these statistics we find that the public have come to realise the threats that come with technological evolution. With the rise of technology-enabled innovation, particularly in financial services, a multitude of cyber-security risks are also being introduced. Safeguards such as a comprehensive framework and necessary regulations to counter cyberattacks and other criminal activities are vital in ensuring confidence in the financial sector and to allow for the continuous development of the industry.

The Asian Institute of Finance report provided various recommendations on how to further evolve the digital banking market. This report stated that digital banking is crucial for future success, and called for more proactivity in modernising the financial sector. Banks were encouraged to create a larger social media presence to better engage with their consumer market, particularly amongst millennials.

And in the Malaysia Economic Monitor of December 2017, the World Bank Group had stressed that moving forward, responsible financial access should also be an important theme. As financial services become more accessible, it is important that effective market conduct and consumer protection regulations are used to protect consumers from excessive risk. Financial literacy programmes must reflect the changing landscapes and the management of potential risks of financial exclusion as risk profiling and risk management tools become more sophisticated.

Automation leading to uneven trends in job growth and wages

The digital economy and the automation of certain processes have resulted in a hollowing out and polarisation of employment and wage distribution. High-digital and low-digital level occupations have seen huge job and wage growth. However, a much lower growth in middle-digital level occupations involving office-administrative and education occupations have been much slower.

This reflects the different ways digital technology shapes the demand for workers. Computerisation strongly complements the non-routine, creative problem-solving tasks of highly-skilled workers whilst directly substituting the repetitive tasks found in many middle-skilled, middle-digital occupations. The increasing growth of low-digital occupations can be seen as a reflection of the shift of work into face-to-face personal service occupations being demanded by well-compensated high-digital consumers. These jobs are difficult to automate and rely heavily on flexible interpersonal communication and direct physical proximity.

The Metropolitan Policy Program of Brookings Institution, a think tank based in Washington DC, published a paper in late 2017 addressing this concern. While acknowledging the creation of higher productivity and pay in many industries, their paper “Digitalization and the American Workforce” also showed the contribution of digitalisation in pay disparities. The paper provided three main recommendations, all of which called for a collective effort from firms, industry associations, educational institutions and governments.

Loss of jobs

Studies by the OECD have shown that less than 10% of workers are at risk of being completely replaced by machines, but 25% are in jobs where a high percentage of tasks (50-70%) could be automated. This is especially notable when taking into account that only 56% of the adult population have limited or no ICT skills.

To seize the benefits of technological change, economies need ICT specialists. These skills enable innovation in a digital economy to flourish, as well as support the infrastructure that firms, governments and commerce rely on.

The issue of protectionism

In an economy of rapid technological advancements, it is expected that those who are unable to adapt to the changing demands of the labour market will end up structurally unemployed. To combat this, it is understandable that many markets may look towards protectionist policies in order to protect certain industries from becoming obsolete. However, we at IDEAS say that this will only come at the cost of another more efficient industry.

In our policy paper “Capitalism in Asia”, we argue that market deregulation unleashes creative destruction. Innovation creates new industries to replace the old, with huge investments to apply new technologies to further push economic growth. This would stimulate demand from consumers, translating into new jobs, rising income and greater purchasing power throughout communities.

While a free market capitalist economy cannot make everyone “equal”, it is the greatest engine of progress for the world’s poor and middle class, by giving everyone an equal opportunity to better their standard of living. Excessive government interventions to reduce inequality are only a short-term solution, and discourage long-term growth as individuals and firms become reliant on government support.

The Centre for Public Policy Studies also recommends industrial protection policies be removed, particularly in the automobile and steel production sectors. Such policies have discouraged efficient operations and perpetuated rent-seeking behaviour within these industries. The government’s system of affirmative action is also criticised, with CPPS calling for greater equality of opportunity.

Conclude

Ladies and gentlemen:

If you look at our economic history since Merdeka, you will appreciate how an open free trade economy has lifted millions out of poverty. And if you look further back, you will see how the glorious Sultanate of Malacca also benefitted from having more competitive policies than its neighbours.

Today, the digital age ushers in with its new challenges, but also paves the way to creating an advanced society with expectations to achieve a high-income nation status as early as 2020. Therefore, public policies should regulate the market effectively, but not control it. It is only with the liberalisation of markets that Malaysia will be able to achieve its full potential in terms of innovation and technological advancements.

I hope you will enjoy discussing these issues throughout the summit.

Thank you.

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