Friday, July 25, 2014

MP Selayang Speech on Special Parliamentary Session: Debate on the MH17 Tragedy

Special Parliamentary Session: Debate on the MH17 Tragedy

The Honourable Tan Sri Speaker,

On 17 July 2014, flight MH17 from Amsterdam to Kuala Lumpur was believed to have been shot down by a surface to air missile near the Ukrainian Russian border, killing 298 innocent men, women and children. It was murder and a crime against humanity. Shock, grief and anger are felt throughout the world. The whole world condemns this senseless shooting down of MH17. It cannot be forgotten. It cannot be forgiven and it cannot be allowed to happen again.

I extend on behalf of my colleagues from Keadilan and Pakatan Rakyat, our condolences and deepest sympathies to the family members and friends of the passengers and crew of flight MH17.
I acknowledge with gratitude the Honourable Prime Minister’s quiet efforts in obtaining Alexander Borodai’s agreement, the separatist leader having control of the wreckage site, to release 282 bodies to Netherlands and for the bodies of Malaysian citizens to be sent home. It was an audacious move but it produced a good outcome.

I also thank the Australian Government, especially its foreign minister Ms Julie Bishop, for her tireless efforts in obtaining the UN Security Council members’ unanimous approval to her resolution calling for a complete international investigation into the downing of the MH17, demanding the responsible parties to be held to account and for the separatists to refrain from compromising the integrity of the crash site.
Although the UN Security Council has called for a thorough investigation, there are still many challenges and much to be done before the victims of MH17 and their families obtain justice.

Malaysia is entitled to commence an action before the International Court of Justice against those responsible for breaching Article 3 of the Chicago Convention in attacking a civilian aircraft. This will be claim for compensation and damages. Although the compensation will help the victims’ families, money is not an adequate substitute for the lives so cruelly taken away. The perpetrators must answer for their crime. The perpetrators must be given a severe punishment, one that reflects the horrific viciousness and cruelty of their senseless crime.

What the perpetrators committed is a war crime. Under the laws of war, combatants must distinguish between a military and a civilian object. Combatants cannot target civilians. It is a rule of international law that combatants must ensure the target is not a civilian aircraft before attacking it. If those who shot the missile were aware that MH17 was a civilian aircraft they have clearly committed a war crime. They have violated International Humanitarian Law and the Geneva Convention for attacking civilians.

Unfortunately, as Lembah Pantai (Nurul Izzah Anwar) has pointed out, Malaysia is not a signatory to the Rome Statute of the International Criminal Court and therefore not a member of the International Criminal Court (“ICC”) that is empowered to investigate and prosecute crimes against humanity and war crimes.

Malaysia must therefore depend on the UN Security Council to refer the case to the ICC. Malaysia has to call on the 15 UN Security Council members in particular the 5 permanent members to carry out their responsibility by exercising their powers to allow a complete investigation. They must find the political will not to protect or obstruct these criminals from being prosecuted.

Unfortunately, history has shown that politics often come in the way of justice. There have been no less than 40 incidents of civilian air planes having been shot down by military forces but no one has been charged much less convicted.

On 27 July 1955 an Israeli commercial flight was shot down by Bulgaria, all 58 passengers and 7 crew members were killed. Israel’s suit before the International Court of Justice failed because it did not have jurisdiction over Bulgaria which was not a party to the convention.

On 21 February 1973, Israel shot down Arab Airlines Libya carrying 113 passengers of which 108 were killed. No one was charged.

On 1 September 1983, USSR shot down Korean flight KL007. The Soviet Union suppressed evidence and the flight recorder sought by investigators were only released 8 years after the Soviet Union collapsed.
On 3 July 1988, a US warship at the Persian Gulf shot down Iranian Airline flight 655 killing all 290 aboard. The majority of the passengers were on the way to Mecca to perform the Haj. There is evidence to suggest USA failed to take steps to identify the air plane. USA did not admit responsibility although it paid compensation on an “ex-gratia” basis.               

In these circumstances, Malaysia faces a huge challenge to prosecute the perpetrators. I call on the Prime Minister and the Government to stand firm before the two Great Powers, America and Russia in demanding justice for the victims of MH17.

I hope US President Barrack Obama will act in accordance with the words of his speech given in Belgium on 26 March 2014 that the United States will respect and will act together with the small nations to enforce international law. He said:
“And our enduring strength is also reflected in our respect for an international system that protects the rights of both nations and people – a United Nations and a Universal Declaration of Human Rights, international law and the means to enforce these laws. But we also know that those laws are not self-executing. They depend on people and nations of good will continually affirming them…so that majorities cannot simply suppress minorities and big countries cannot simply bully the small”

President Obama was speaking about Russia’s violation of international law regarding Ukraine and the pro-Russian separatists but the violation of international law in the shooting down of MH17 is just as serious if not more. So I hope President Obama will enforce international law against the perpetrators whoever they may be.

I also hope that Russian President Vladimir Putin will also live up to what he said. He said no country should use the MH17 tragedy for their “narrowly selfish political goals” and to provide full co-operation to the experts investigating the tragedy. It is hoped that President Putin will ensure no country will for its own political goal prevent or obstruct the perpetrators of this terrible crime from being brought to justice.

We must ensure this tragedy will not occur again. After the KL007 incident, the international community and ICAO agreed to the Montreal Protocol of 10 May 1984 where pursuant to Article 3 bis States are not to use weapons against civil aircraft in flight. Despite this Protocol, an Air Malawi passenger flight was shot down on 6 November 1987 during the Mozambique civil war, the on US shot down Iranian Air Flight 655 during the Iran-Iraq conflict and on 4 October 2001, a Russian passenger flight with 78 people aboard was shot down by a missile by Ukraine and now MH17. The Montreal Protocol is not sufficient to stop these killings.

The present state of aviation law is insufficient and incomplete to prevent military forces both government and non-government from shooting down civilian aircraft on the ground of national security or self-defense. It is still an era of “might is right.” To destroy a non-threatening civilian aircraft killing innocent passengers and then attempting to justify such a barbaric act by using as an excuse national security is rubbing insult to injustice. There must be a way of preventing such slaughter.    

MH 17 requested Ukrainian Air Traffic Control for permission to climb to 35,000 feet but this was refused and it was directed to maintain its height at 33,000 feet. MH17 was flying over a war zone because everyone from the ICAO to the Ukrainian Air Traffic Controllers thought the combatants did not have the capability to shoot down air planes at this height. All were deadly wrong. If they had known this tragedy would have been avoided.

I suggest a new provision for ICAO to require combatants to declare their military capabilities and to issue a prior warning that the air space is a “no fly zone”. Failure to do so will be a war crime. I suggest Malaysia lead in calling for this change to make the sky a safer place.

The Honourable Prime Minister said this morning “Let us walk together” I answer “We will walk with you to seek the truth and to obtain justice for the victims of MH17” I ask all Malaysians to stand together to bring the criminals to justice and to move as one in making this world a safer place.

I support the motion. Thank you.

William Leong Jee Keen
MP Selayang

23 July 2014

Thursday, April 10, 2014

Passing of GST : Sparing the Rod and Spoiling the BN Government by William Leong Jee Keen Member of Parliament Selayang



On 7th April 2014 with time enough for only 10 MPs on each side to debate, the Goods and Services Tax Bill 2014 was pushed through by a vote of 118 to 81. Malaysians, rich, middle class and poor will from 1st April 2015 pay the same rate of 6% add-on tax on their consumption of goods and services.

Straw man Arguments
The Government relying on their 133 majority offered 2 unconvincing arguments for adopting GST. The first argument is GST will not hurt the people because it replaces the Sales and Services Tax (“SST”) which has higher rates of 10% and 6% respectively. It is a straw man argument. Malaysians will soon painfully discover that this argument is a fallacy. GST is a far more burdensome tax than SST. Unlike SST which is a tax paid at the level of the final production or supply of the service, GST is payable at every level of the supply chain and finally borne by the consumer. GST also applies to many more goods and services than SST. The second argument is that 160 countries have adopted GST and therefore GST must be good. This is a jumping on the bandwagon kind of argument appealing to those with a herd mentality. Those who follow this argument will like the lemmings when they fall off the cliff find out, too late, that the rest of the countries who did not adopt GST or abolished it were right.

Now that parliament has passed GST, I wish to point out three reasons Malaysians should press for GST’s abolition. 5 countries have abolished GST: Vietnam (in the 1970s), Grenada (introduced 1986, dismantled shortly thereafter), Ghana (introduced March 1995, removed two months later), Malta (introduced 1995, removed 1997) and Belize (introduced 1996, removed 1999). [Three of these countries have since reintroduced the tax; Ghana in 1998, Malta and Vietnam in 1999].       

The 1st Reason: GST does not solve the real deficit problem but will make it worse
There is an old saying “spare the rod and spoil the child”. We know it does not apply in Sweden and I offer my sympathies to the Malaysian couple, Shawal Norshal and Azizul Raheem Awalluddin who have been convicted. However, for us in Malaysia, discipline is important. It is more important when it comes to public finances. The Federal Government must exercise fiscal discipline to address the deficit problem. If we allow the Federal Government to raise additional revenue through GST this will undermine the discipline needed to address the real cause of the problem. The real cause of the problem is not insufficient revenue. It is the uncontrolled and runaway operating expenditure. The Edge provided a useful analysis: [1]

In 2012, the Federal Government revenues crossed RM200 billion for the first time but expenditure also for the first time crossed RM250 billion. The Federal Government collected RM207.913 billion, an increase of 12.1% from 2011. Income tax revenue increased by 13.9%, customs duties by 6.4%, petroleum income tax by 22.3%. However, the federal operating expenditure for 2012 was RM207.91275 billion and RM46.932 billion for the development budget. The government has since 1999 been on a spending binge and government finances deteriorated. Although revenue was sufficient to cover operating expenditure it was insufficient to meet the development expenditure needs. The Federal Government had to finance the difference through borrowing. This has resulted in 14 consecutive years of budget deficit which by 2012 had ballooned to RM501.617 billion amounting to 53.50% of GDP.

From 1988 to 1997 the surplus of government revenue to operating expenditure grew every year. It peaked at RM21 billion in 1995. During this period, operating costs were kept in check. From 1970 to 1999 total federal operating expenditure increased from RM2.2 billion to RM45 billion. This is over 30 years. In the 13 years after 1999, operating expenditure has shot up to RM207 billion. The biggest single year increase was 2008 when operating expenditure jumped by 29%.  The total operating expenditure last year rose 13%.
The largest component of the operating expenditure is emoluments with pensions and gratuity, it accounts for 36%. From RM18 billion in 1999, it now stands at more than RM74 billion, growing at a compound rate of 11.5%. In 2008 civil servants’ payroll grew 26% and last year by 20%. Salary increases are permanent and will lead to higher pensions and gratuity payments later.

Subsidies account for 21% of the total operating expenditure. It grew from RM1.1 billion in 1999 to RM44.1 billion in 2013 at a shocking compound growth rate of 33%. In the 28 years from 1970 to 1997 total subsidies exceeded RM1 billion only on three occasions, 1981 to 1983. In contrast, in 2008 subsidies shot up from RM10.6 billion to RM35.2 billion.

From 1999 to 2012, supplies and services grew from RM6.1 billion to RM32 billion. In 1986, the amount was only 2.6 billion. In other words, for the 13 years before 1999, the amount grew 135%.  For the same period of 13 years after 1999, the amount exploded by 425%.

If the expenditure had been put to good use and provided good returns the rising expenditure could have been justified. However, a look at any of the Auditor-General’s Reports for these past 13 years will show the substantial leakages, wastages and corruption. The leakages and wastages is estimated between RM28 billion to RM40 billion a year. Providing the Federal Government with an additional stream of revenue will not solve the fiscal deficit problem. The estimated net revenue generated from the 6% GST is only RM3.87 billion. The deficit problem can only be resolved by instituting cuts in the operating expenditure and ending the leakages, wastages and corruption. Any gain from GST will be undone if the wastage, leakages and corruption continue unchecked. On the same day that GST was being debated the Auditor-General’s 2013 Report was put on the MPs table. It highlighted weaknesses in improper payment, unreasonable delays in completing contracts, unreasonable prices and made 109 recommendations for correction. These recommendations will now gather dust because there is GST to provide the money to carry on the squandering and profligacy. 

With parliament having allowed GST, there will be no incentive to rein in excessive expenditure and the leakages. A government typically prefers to allow higher spending than making the hard decision to cut expenditure. Those supporting GST would typically acquiesce to higher rates of GST from time to time. There is no more toxic economic potion than the mixture of executive need for increased spending, rubber-stamping parliament acquiescence and the adoption of GST. Greece is an example of what can happen. Access to a powerful revenue raiser like VAT could not protect it from financial crisis when it lacked the discipline to cut expenditure. The situation is like the Government is filling up a bucket of water with a hole in it. Parliament instead of asking the Government to patch up the hole gives it a second pipe. The hole will never be repaired. Parliament in sparing the rod is spoiling the BN Government.  

Further, GST will exacerbate rather than solve the problem of too much government borrowing. Barisan Nasional MPs like Jasin argued that Malaysia should adopt GST because 160 countries have done so. Countries that have to be bailed out, as well as those teetering on the edge of fiscal collapse - including Greece, Spain, Portugal, Ireland and Italy - all have GST. Prior to the 1960s, before the introduction of GST, the European countries had debts on a percentage of GDP below that of the United States of America. Since the introduction of GST, the average debt level of these Western European countries is higher than the US debt level. According to IMF, the public debt of USA is 106% of its GDP, Greece – 158%, Spain – 84%, Portugal – 123%, Ireland – 117%, Italy – 126%, Japan – 208% and Singapore – 111%. For all intents and purpose, the experience in Europe confirms Milton Friedman’s famous warning that:

“In the long run government will spend whatever the tax system will raise, plus as much more as it can get away with.”

Based on the experience of the 160 countries GST will not solve the fiscal problems but in fact will make it worse.

The 2nd Reason: GST will lead to harmful effects on the economy
GST will cause consumption to be reduced, lower the GDP and Malaysians will be worse off. GST being a tax on consumption will reduce consumption and lead to a negative effect on the GDP.

At the initial rate of 6%, the impact will be painful but tolerable. However, IMF in its March 2014 Report said that the 6% GST rate is low because it is only a starting point. At 6% it will not have a significant impact on the Government’s revenue and will have to be increased after the tax is operational. IMF said that in fact many countries have increased the GST rates after its introduction.

Based on the experience of the ten largest countries that adopted GST, the average GST rate has risen from 10.7% at inception to 16%, an increase of more than 50%. The average rate of the Organization of Economic Co-operation and Development (OECD) is 18%. The United Kingdom increased to 20% in January 2011.

For GST to generate higher revenue, a combination of base broadening and rate hikes have to be considered. These measures will in turn mean a higher impact on growth. Once the rate is increased it will have a negative impact on the GDP. The increased rates will increase the consumers’ burden through higher consumer prices. As a result private consumption will fall. By increasing prices GST will reduce real wages.

Ernst & Young in a 2010 study “The Macroeconomic Effects of an Add-on Value Added Tax” prepared for the National Retailers Federation of the United States found that an add-on VAT of 10% enacted to reduce the deficit would result in a loss of 850,000 jobs, a loss of US$260 billion in retail spending and a 2% drop in the GDP in the year of enactment.

Malaysia will not suffer such losses but the risk of a significant negative impact is there. GST will kill the golden goose which is private consumption in Malaysia. According to the 2013/2014 Economic Report consumption or domestic demand is the key driver of growth led by private consumption and investments. The Government is relying on private consumption supported by household spending to lead GDP growth. GST will dampen this growth. This is clear following the effect of structural adjustment measures such as subsidy rationalization. The Nielsen Consumer Confidence Index for the 4th Quarter of 2013 dropped 98 points, the lowest in three years. Over a third of the Malaysian consumers surveyed cited the economy as a concern followed by increased in food prices (24%). MIER also reported its Consumer Sentiments Survey and Business Conditions Survey plunged to the lowest in five years. MIER warned that with the emerging weaknesses in consumer spending domestic demand will be affected. Due to the economy facing serious challenges with the slow recovery from   global recession and the unsettling effects of quantitative easing, the effects of subsidy rationalization and implementation of minimum wages, the adoption of GST will be too much of a shock to our system and may very well be the proverbial “final straw”.    

The 3rd Reason: GST will hurt the Lower and Middle Classes
GST is a highly regressive tax, hitting lower and middle classes much harder than wealthy families. GST will put further financial stress on the 56% of Malaysian households whose monthly income is less than RM3,000. GST will result in an increase in the tax burden of the middle-income families. GST-induced price hikes would compel households to search for cheaper goods and services. However, 60% of the Malaysian households will find it difficult to substitute basic necessities and essential services. The Federal Government in an attempt to reduce the regressivity of GST has provided for exemptions and zero-rating for certain basic goods for the poor. However, the World Bank in a paper entitled “Value Added Taxation: Mechanism, Design and Policy Issues” in acknowledging that VAT (GST) is inherently regressive stated that attempts to reduce it though exemptions and zero rates have proven ineffective. It is indeed impossible to do so because one cannot segregate food, goods and services consumed by the poor from those consumed by the rich.

In any event, it appears the Federal Government has not carried out an in-depth study of the foods and services that would reduce the GST burden of the poor. The Federal Government in the list of zero-rated foods included trout, Pacific salmon, Atlantic salmon and Danube salmon, Norway lobster, rock lobster, crayfish and oysters while canned sardines, baked beans and instant noodles are liable for the full tax.

The apparent mismatch in the zero-rated items reveals the Government’s poor sensitivities and lack of knowledge of the people’s needs. The GST regime reminds one of the saying attributed to Marie Antoinette, Queen of Louis XVI of France. Upon being informed that the citizens of France had no bread to eat she replied with “let them eat cake.” The French revolutionaries didn’t think too much of her idea of “People First Performance Now” and put her to the guillotine. What shall we do with ours?

Conclusion
Subsidy rationalization and GST are the chickens coming back to roost for Malaysians. Malaysians have voted BN to rule for 56 consecutive years ignoring their extravagance, recklessness, wastefulness and corruption. The future generations of Malaysians will have to pay for the sins of their fathers and mothers unless we can win over the 47% who retained BN before the next elections. It is hoped that the pinch in their wallet will wake them up.      
          



[1] Against the Wind: Fixing the budget deficit is critical and it requires a political consensus by Tong Kooi Ong and Chan Jian Ming The Edge 20 October 2013

Monday, December 23, 2013

Everybody Wants to Change Malaysia but Nobody Wants to Change Himself



Merdeka Center reported on 22nd December 2013 that Prime Minister Najib’s approval rating of 52% is an all-time low compared to the 65% when he launched the New Economic Model (“NEM”). The NEM was a response to Anwar Ibrahim’s New Economic Agenda replacing affirmative action based on race with one based on needs.

After two pre-election budgets when Christmas came early, the post-election budget has turned Prime Minister Najib Tun Razak from Santa Claus to the Grinch that stole Christmas.

Many (the 51% that voted Pakatan Rakyat) seek solace from the crippling price hikes in the thought that economic hardship will knock some sense into those who retained BN in power (the 43% including the newly minted voters of foreign origins) to mend the error of their ways in the next General Elections. I was also of the same mind until I read the words printed on my son’s T-shirt:

“Everybody wants to change the world but nobody wants to change himself”

This, I discovered, is a quote by Leo Tolstoy, author of “War and Peace” and “Anna Karenina”. His book, “The Kingdom of God Is Within You” and idea of non-violent resistance have been acknowledged by Mohandas Gandhi and Dr Martin Luther King Jr. to have inspired and influenced them in their struggle against oppression.

This quote struck me that no matter how bad the economy is going to be, we are not going to change Malaysia, not the next GE and the GEs to come, if we, Malaysians, do not first change ourselves.  We cannot hope for a multicultural and equitable society, if we do not first get rid of the racial prejudices within us.


We have never been one Malaysia, we have as many different Malaysia as there are ethnic groups, each living separate lives. Each group has no real idea how the others live. Malaysians have been separated and segregated in a manner that discourages peoples of different ethnicity to interact with each other in a meaningful and positive way. Fifty-six years of racial politics has poisoned, dehumanized and desensitized us. We cannot remove BN, if we cannot remove the fear and ignorance UMNO instilled in the 47%.  We cannot remove the fear and ignorance, if we cannot remove the prejudices, preconceptions and preconditions in us. To do so we must firstly know how ethnicity is used, organized and structured by UMNO to mobilize political support. The events this December is instructive.

As leaders of the world gathered in South Africa to pay homage to Nelson Mandela who fought racial discrimination, leaders of UMNO gathered in Malaysia to pay homage to Ketuanan Melayu. The unkindest cut to Nelson Mandela’s memory is the shameless comparison in likening UMNO’s Ketuanan Melayu to Mandela’s struggle against apartheid.  As Tengku Adnan said playing the race card at BN party meetings are normal.
The UMNO General Assembly is the annual tribal gathering for ritual racial diatribe, ethnic histrionics and minority bashing. It is the yearly affirmation of historical legacies of mistrust, the reinforcement of the mentality of victimization and the propping up of feelings of shared deprivation.

UMNO Youth Exco member, Fathul Bari, told delegates there is nothing to worry if people called UMNO racists because “we are only protecting our rights”.  Penang UMNO Bukit Mertajam division chief, Musa Sheikh Fadzir wants the 1Malaysia slogan to be replaced by 1Melayu to teach non-Malays a lesson for ditching BN in the 13th GE. UMNO Youth Chief, Khairy Jamaluddin condemned non-Malay companies for not hiring Malay chief executives.

At last year’s assembly, Tokyo UMNO club representative, Ariff Yassir Zulkafli sang “Lagu Warisan” the lyrics translated to English is as follows:

“A small child plays with fire
A desolate heart burns
Tears, blood and sweat (yet)
His land belongs to outsiders”

It is the signature song of Malay patriots yearning for a return to the Malay motherland free of pendatang. The song became the emotional and psychological high point of the assembly bringing tears to the delegates who joined in spontaneous rendition. But nothing is comparable to Hishamuddin Hussein Onn brandishing his keris to cries from the delegates not to just wave it but to use it.

Dr Lim Teck Ghee has observed that “Lagu Warisan” and the keris waving encapsulates the UMNO mind and mentality in propagating the doctrine of “Blood and Soil” nationalism. Blood and soil nationalism refers to an ideology that focuses on ethnicity based on two factors- descent and homeland.

David A. Lakefield and Donald Rothchild in “Containing Fear: Origins and Management of Ethnic Conflict” said competition for resources lies at the heart of ethnicity. Property rights, jobs, scholarships, educational admissions, language rights, government contracts and development allocations all confer benefits on individuals. All such resources are scarce and thus, become objects of competition. Where ethnicity becomes the basis for identity, group competition becomes a struggle along ethnic lines. Politics matter because the state controls access to scarce resources. Groups that possess political power gain privileged access to goods and benefits. The groups struggling for political power compete on their visions of just, legitimate and appropriate political orders.

 John M. Richardson and Shinjini Sen in “Ethnic Conflict and Economic Development” explained that in a typical scenario, leaders of a dominant ethnic group gain office and then use state institutions to distribute economic and political benefits preferentially to their ethnic brethren. Discrimination against subordinate groups, often portrayed as less deserving human beings, accompanies this preferential treatment. When force is needed to impose discriminatory practices and quell subordinate group resistance, it is exercised by police officers and soldiers recruited almost exclusively from the dominant group, who often view themselves as “ethnic soldiers”. In democracies, a dominant group that is a majority often uses its voting power to entrench discriminatory practices by legal or quasi legal means. When a dominant group is the minority, it typically imposes discriminatory policies by force as in apartheid South Africa.

Historical legacies of mistrust, a mentality of victimization and feelings of shared deprivation make group members more receptive to simplistic appeals from extremist leaders and encourage those vying to be leaders to make such appeals.

Nelson Mandela and FW de Klerk in South Africa have shown how courageous leadership can reduce ethnic tensions. Unfortunately, political leaders in a diverse society more often than not are less courageous. Such political leaders play a divisive role by appealing to ethnic sentiments and use rival groups as scape-goats in order to enhance personal political power and win or retain political office.

Historical legacies of mistrust are used to kindle and stoke present day fires based on memories of “ancient hatreds”. In the Middle East, ethnic differences are traced to biblical times. In Northern Ireland, historical clashes between Protestants and Catholics are relived in annual festivals that often become violent. Sri Lanka school children are reminded of the pivotal clash between Sinhalese Prince Dutugemunu and Tamil King Elaric that re-established Singhalese dominance on the island. For Serbians and Croatians, the incursions into Europe of Ottoman Sultans are a living reality along with the ethnically divisive policies of the Austro-Hungarian Empire and the atrocities instigated by ethnic based regimes.

A victim mentality helps to unite group members behind their leaders and justifies present sacrifices. Moreover, members of a victimized group feel justified in victimizing others. In South Africa, white Afrikaners viewed themselves as victims of British colonialism redeemed by ruling over the inferior Blacks, Indians and Coloreds. In Sri Lanka, Sinhalese majority also viewed themselves as victims. They resented the favorable treatment given to Tamils under colonial rule. In the words of world historian K.M. de Silva, the Sinhalese were a “majority with a minority complex”. This attitude fueled political support for Sinhalese nationalist leaders whose policies convinced many Tamils there was no alternative to secession ending in a disastrous tragedy for all.

Relative deprivation is a perception that due to the historical legacies of mistrust and victimization mentality, the members of the group believe they are not being provided the benefits to which they are justly entitled. Feelings of relative deprivation are intensified not only when benefits including political, religious and language rights as well as economic well-being decline but also when expectations increase. Feelings of deprivation resulting from declining benefits or unrealized expectations will be interpreted as an ethnically motivated injustice. It is this relative deprivation that justifies the ethnically motivated leader to re-establish a “more equitable social-economic order”. In Sri Lanka, both S.W.R.D. and Sirimavo Bandaranaike won democratic elections by appealing to Buddhist-Sinhalese nationalist sentiments and denigrating ethnic Tamils. In the United States, appealing to white racist sentiments is a staple of political campaigning in racially divided Southern states. Similar tactics were used by leaders such as Slobodan Milosevic, of Serbia and General Tudjman of Croatia who won their presidencies by appealing to the most divisive aspects of Serbian and Croatian nationalism.

John M Richardson and Shinjini Sen were referring to Rwanda, Serbia, Croatia, Sri Lanka and Ethiopia but Malaysians will easily recognized the same things are happening in Malaysia.

On 14 September 2013, Prime Minister Najib reversed the NEM following pressure from right wing extremist group Perkasa, to launch the Bumiputra Economic Empowerment Programmes. Najib’s experiment in moderate politics ended when he declared:

“Therefore, the Malays and Bumiputras as the core of the national agenda could not be denied by anybody, indeed, any matter which is national in nature, which does not take into account or neglect the agenda of the Malays and Bumiputras is not fair and just”

“…[for] the support given by Malays and Bumiputras at the 13th General Election recently, today the government decides to make a big shift to implement concrete and total strategies and approaches.”

“... All these we undertake to look after the lot of the Malay and Bumiputra communities, since the past, presently and forever.”

David A. Lake and Donald Rothchild said ethnic conflict is most often caused by collective “fears of the future, lived through the past”. They suggest it is important to reassure the different groups of both their physical and cultural security by demonstrations of respect and confidence building measures. In Malaysia there is no chance of this happening because we are not dealing with just individual racism but also institutional racism.

Administrative officers often are at the very least sympathetic to the UMNO cause. The close relationship between the bureaucracy and the party date back to UMNO’s founding. In the 1955 elections, 80% of the UMNO candidates were former officials of the civil service. Of the seven Malays in Tunku Abdul Rahman’s cabinet, six were former civil servants. Based on complains received, the Birotata Negara civics course train graduates to implement racists and religious discriminating policies. In the Mid-Term Review of the Ninth Malaysia Plan, it is reported that 1,016,749 participants benefitted from the BTN programmes.

Those who viewed the “Listen, Listen, Listen” video will note the majority of the students applauded Suara Wanita 1Malaysia president, Sharifah Zohra Jabeen Syed Shah Miskin’s castigation of Bawani, the lone objector to Sharifah’s arguments. The others, Bawani said, were too fearful to stand up and speak out for their rights.

To counter ethnic politics, right thinking Malaysians must break the chains of fear and ignorance holding back the 47%. Malaysians have to undergo a personal internal reformation. Pakatan Rakyat holding more public rallies and giving speeches will come to naught if Malaysians are unable to make this internal reform. This is the key factor. We have to make this change in order to touch the hearts of those UMNO are holding in their grasp.

Lip-service and fine cosmetic words cannot do it. We must remember “out of the abundance of the heart the mouth speaks”, means that not only our words but our attitudes toward each other must come from our genuine heart-felt feelings. All the talk of wanting our country to change will not happen if our emotions and feelings toward another of a different race are not changed. The most effective and lasting change in racial politics can only take place when we reform in our hearts. It is not our mind that so much needs to change as our heart, to excise the prejudgment, preconceived notions and predisposition we have of another race. There must be a paradigm shift in us. This type of change emerges from an understanding and practice of genuine justice.

Genuine justice is based on fairness. John Rawls in his book “A Theory of Justice” advocated distributive justice to compensate for social and economic inequalities. Thus genuine justice is based on need. Racism on the other hand is nothing but the systemic indifference justified by biological or cultural differences. Since people’s needs differ due to differing socio-historical circumstances, true justice spring from what they need. Oliver Wendell Homes said:

“There is no greater inequality than the equal treatment of unequals”

At the heart of justice is affirmative action based on need. It is based on the principle of redress that undeserved inequalities call for rectification. Since inequalities of birth are undeserved these inequalities must be compensated for. Therefore in order to treat all persons equally and provide genuine equality of opportunity, society must give more attention to those born into or placed in less favourable social-economic positions. It cannot be based on discredited and debunked notions of racial supremacy or inferiority. It is only when Malaysians can get to this point will Malaysia be able to change.

To get to this point requires compassion. Compassion is the counter to racism. At the heart of compassion lies “respect” the process whereby the other person is treated with deference, courtesy and compassion in an endeavour to safeguard the integrity, dignity, value and social worth of the individual. It means treating people they way they want to be treated.

To counter UMNO’s racial politics, Malaysians have to find the compassion to reach out to the less fortunate Malays and Bumiputras especially those in the rural areas and in the interior of Sabah and Sarawak. The best way to unmask the racial lies and clean up bigotry is to show Malaysia is a caring society assisting all irrespective of race or religion. I commend the Rotary Club of Petaling Jaya in organizing a health clinic in Batu Arang village where all residents in need irrespective of race were given free health, dental and eye sight tests. If more follow this example, Malaysians’ long walk to freedom will be one more step closer to its destination.


William Leong Jee Keen
Member of Parliament for Selayang
23 December 2013


    

Monday, October 7, 2013

SUBSIDY RATIONALISATION IS A FAILED NEO-LIBERAL POLICY


SUBSIDY RATIONALISATION IS A FAILED NEO-LIBERAL POLICY

Subsidy Rationalization

The Barisan Nasional GE13 honeymoon came to an abrupt end when Prime Minister Dato Seri Najib Tun Razak announced on 2nd September 2013 an increase by 20 cents of RON 95 and diesel bringing the price to RM2.10 and RM2.00 a liter respectively. The Prime Minister said that subsidy rationalization is back on the table when Budget 2014 is unveiled this coming October. I raise, in the recent parliamentary session, that removing fuel subsidies and providing targeted subsidies such as BR1M is a failed neo-liberal policy. Deputy Finance Minister Datuk Ahmad Maslan in reply repeated that subsidy rationalization is needed to address the fiscal deficit and the Government prefers providing targeted subsidies to the poor through programmes such as BR1M than universal subsidies that benefit the rich. He unfortunately did not respond to the issue that neo-liberal policies had failed.

Some quarters believe the Government is correct to remove subsidies because of increasingly high global market price of petroleum and that targeted cash subsidies is more efeective. Dr Lim Teck Ghee issued a timely reminder that subsidies have an important role to play in providing a safety net to vulnerable groups. He said in pushing for a free market system without due attention to the structural defects of our political economy, proponents of the neo-liberal ideology run the risk of throwing out the baby with the bathwater.[1] I like to add that shifting to targeted cash subsidies does not reduce poverty. Only a redistributive policy can do this. Removing fuel subsidies and providing targeted cash subsidies has its own challenges including problems of identification of the target group, high administrative costs, inflationary effect on prices following fuel increases, increase speculative activities and less market stability. We should learn from the bitter experiences and sufferings of those who implemented the neo-liberal policies by rejecting them.

IMF and World Bank Recommendations

The Government is repeating the International Monetary Fund (“IMF”) and the World Bank arguments for subsidy rationalization. IMF has often said and recently repeated in an article dated January 28 2013, that while fuel subsidies are aimed at protecting consumers, subsidies aggravate fiscal imbalances, crowd-out priority public spending, and depress private investment, including in the energy sector. IMF said that subsidies also distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources. According to IMF, most subsidy benefits are captured by higher-income households reinforcing inequality. Even future generations are affected through the damaging effects of increased energy consumption on global warming.[2]

The Washington Consensus and Neo-Liberal Policies

I have read several articles and comments that because the Government’s subsidy rationalization is adopting IMF and the World Bank policies, subsidy rationalization must therefore be good for Malaysians. It is not necessarily true. In order to understand the impact and effect of the subsidy rationalization policy I have carried out some research on this matter. I like to share this research. I believe it is necessary for Malaysians to understand and know the objectives and policies of IMF, the World Bank, the US Treasury and other institutions in Washington known as “the Washington Consensus” and the experience of those that implemented the neo-liberal policies. I like to share the views of those who believe the Washington Consensus and Neo-Liberal policies are responsible for the poverty and inequality increase in the countries that implemented them. The Washington Consensus forced these governments to implement the neo-liberal policies as part of the conditions for loans given. Critics blame these neo-liberal policies for the misery and dislocation suffered by the unfortunate citizens of these countries.


The term “Washington Consensus” was coined in 1989 by John Williamson. It was introduced in a period when the Keynesian dominance in economic theory and policy had collapsed and neo-liberalism was promoted by Reagan and Thatcher administrations in the US and UK. Williamson summarizes these neo-liberal policy prescriptions in ten propositions:-

1.      The imposition of fiscal discipline;
2.      The redirection of public expenditure priorities towards other fields;
3.      The introduction of tax reforms that would lower marginal rates and broaden the tax base;
4.      The liberalization of interest rate;
5.      A competitive exchange rate;
6.      The liberalization of trade;
7.      The liberalization of inflows of foreign direct investment;
8.      The privatization of state-owned economic enterprises;
9.      The deregulation of economic activities;
10.  The creation of a secure environment for property rights;[3]

The theoretical foundations of these proposals are those advanced by the neo-liberal economic theory. According to this theory, economies are in crisis because of impediments to the free operation of the market. The impediments came from the overinflated interventionist Keynesian state and its expansionary and redistributive policies that deformed market data and signals. The solution, according to the neo-liberal mantra, would be the withdrawal of the state from the economy and the reinstatement of the unhindered operations of the market. Therefore, fiscal discipline should be imposed on public activities and a return to the balanced budgets (as opposed to the Keynesian deficit and expansionary budgets). The now limited public budget expenditure should be directed towards fields that cover its costs (possibly through the imposition of compensation payments) and would support private entrepreneurship instead of paying for public works and redistributive policies. Subsequently, the tax system should be reformed so as not to hit hard business profits and the incomes of the upper strata, which were conceived as the locomotive of the economy. Additionally, the operation of the financial system should be liberated from the state and be left to the free operation of the market forces. Thus, the interest rate should be determined more or less competitively. The withdrawal of the state from the economy required, also, the privatization of all activities and enterprises that were state-owned and directed, the limitation to a minimum of all state regulations and adequate guarantees that there would not be violations of property rights (as it had happened previously with nationalizations).

The second generation neo-liberal theory emphasized the opening of economies, the liberalization of international trade, capital movements and financial activities. Thus protectionist measures had to be abolished and free trade movements had to be secured. Last but not least, international financial transactions and primarily, the exchange rate of the currency had to be set according to market prerogatives and not by state policies.

Neo-Liberal Policies Criticized for Increased Poverty and Inequality

It has been said that many developing nations are in debt and poverty partly due to these policies of IMF and the World Bank. Their programmes have been heavily criticized for many years for resulting in poverty. In addition, for developing or third world countries, there has been an increased dependency on the richer nations. This is despite the IMF and World Bank’s claim that they will reduce poverty. Following neo-liberalism the Washington Consensus spearheaded, Structural Adjustment Policies that were imposed to ensure debt repayment and economic restructuring. However, the way it has happened has required poor countries to reduce spending on things like health, education and development, while debt repayment and other economic policies have been made the priority.[4]

After the first years of implementation of the Washington Consensus policies and reforms there was a growing sense, among friends and foes, that it failed its promises. More specifically, from the late 1990s and onwards, the Washington Consensus was facing major difficulties regarding a number of issues, which were not included in its declared objectives but are crucial for the development process. It was criticized by UNICEF for failing to implement adjustment process with a “human face”, and thus, for causing social upheavals.[5] Additionally, it was criticized for failing to deliver significant advances in performance, let alone development. Several studies argued that its policies led to an increased in poverty and inequality both between developed and developing and less developed economies and within themselves. Additionally, the apparent inability of developing and less developed economies to catch-up the level of growth of the developed ones and, in many cases, the increase of the gap between them were attributed also to the policies instigated by the Washington Consensus.

Neo-Liberal Policies view Poverty and Inequality as of Secondary Order

For almost all critics, Washington Consensus and the inability of the neo-liberal policies to address issues of poverty and inequality lay on its analytical perspective. The Washington Consensus held the view that poverty and inequality were problems of a secondary order, which more or less would have been alleviated once the market was free to operate undisturbed by the impediments, then the free operation of capital, domestically, but mainly internationally will provide all the stimulation and the efficiency necessary for feasible development. Against this market-fundamentalist presumption, most of the critics point out during the last twenty years of the 20th century after implementation of the Washington Consensus neo-liberal policies and structural changes there was a marked increase of poverty and inequality.[6]

Washington Consensus Accepts Shortcomings

The Structural Adjustment Policies were indeed a contraction policy. According to Ali Dini and Victor Lippit, a visiting scholar and professor respectively of the Economics Department of University of California-Riverside, the consequences of these policies were falling capital accumulation due to falling public expenditure and rising poverty mainly due to liberalizing food prices and falling real income.[7] World Bank and IMF in a joint study in 1989 pointed out[8]:

“Declining per capital incomes accompanied by worsening social indicators, particularly sub Saharan Africa and Latin America… Some of the poor did benefit, but many vulnerable groups were hurt by measures associated with adjustment. By the mid-1980s, it became clear that given the time and effort required to turn deeply troubled economies around, it would be morally, politically and economically unacceptable to wait for resumed growth alone to reduce poverty”

In 1990 Michael Camdessus, managing director of IMF, accepted:
“..the recognition that macroeconomic policies can have strong effects on the distribution of income and on social equity and welfare. A responsible adjustment program must take these effects into account, particularly as they impinge on the most vulnerable or disadvantaged groups in society”[9]

IMF and the World Bank thereafter responded to these criticisms by proposing the removal of subsidies with cash subsidies to the targeted poor to compensate for the negative effects of the Structural Adjustment Programmes. Scholars argued that the Structural Adjustment Programmes with cash subsidies to the poor is insufficient and state intervention is necessary to provide public goods including health, education and job creation.

The need for state intervention was confirmed during the 2006 to 2008 world food crisis. People in some developing countries died because of their inability to pay the high food prices due to their fixed nominal income. According to FAO at least 100 million people suffer the risk of hunger. In the words of Josette Sheeran (2008) the head of the UN’s World Food Program:

“This is the new face of hunger… There is food on the shelves but people are priced out of the market. There is vulnerability in urban areas we have not seen before. There are food riots in countries where we have not seen them before”

The world food crisis confirms that markets including food markets have to be governed and state intervention is necessary.

 Legacy of Neo-Liberal Policies and the Arab Spring

On New Year’s Day 2012, Nigeria joined Guinea, Cameroon, Ghana and Chad to remove fuel subsidies in accordance with a directive from the IMF. Much to the dismay of the population of these nations, the prices of fuel and transport nearly tripled over night, causing widespread violence on the streets.[10] Neo-Liberal Policies pushed by the Washington Consensus on Ben Ali of Tunisia and Hosni Mubarak of Egypt stoke the fires of Arab Spring. In both Tunisia and Egypt, the neo-liberal policies of the pre-revolutionary period fueled the social protests. Privatization adopted by Hosni Mubarak threw hundreds of thousands in Egypt out of work into impoverishment. Cuts in public health and education, galloping food-price inflation sparked bread riots in 2008. The lightning rod for the Tunisian revolution was the death of Muhamed Bouaziz- a young man driven to suicide by economic hardship and state harassment. The uprising which followed brought down the dictatorship of Ben Ali.

In August 2012 the Mohammed Morsi government approached the IMF for a US4.8 billion loan. Getting the loan was critical. If Egypt could raise the funds, it would be in a better position to borrow from other sources. IMF calculated Egypt needed at least US 10 to 12 billion to survive another year. With more than 40% of the people living on less than US$2 a day and prices of essential goods had risen by 25% on average a year, IMF insisted on deep cuts to subsidies for fuel and bread. Egyptian workers saw this as a betrayal of the revolution’s demand for “Bread, Freedom and Social Justice” and launched a series of strikes and protests against the subsidy cuts.[11] The rest as they say is history.

Malaysians Must Take Heed

Malaysians must take heed that the Washington Consensus neo-liberal policies have missed the mark. Jeffrey D. Sachs, economist and director of Earth Institute at Columbia University and the United Nations Millennium Project said economists have learned a great deal during the past few years one is the need for good governance[12] and:

“The other major insight is that although the most powerful mechanism for reducing extreme poverty is to encourage overall growth. A rising tide does not necessarily lift all boats. Average income can rise, but if the income is distributed unevenly the poor may benefit little, and pockets of extreme poverty may persist (especially in geographically disadvantaged regions). Moreover, growth is not simply a free-market phenomenon. It requires basic government services: infrastructure, health, education, and scientific and technological innovation. Thus, many recommendations of the past two decades emanating from Washington–that government in low-income countries should cut back on their spending to make room for the private sector-miss the point. Government spending, directed at investment in critical areas, is itself a vital spur to growth, especially if its effects are to reach the poorest of the poor.” 

Malaysians have the good fortune to learn that the neo-liberal experiment has failed and should not repeat the mistakes as Jeffrey Sachs said:

“The whole thing was based on the idea that if you take away the government for the poorest of the poor that somehow these markets will solve the problems… But markets can’t step in and won’t step in when people have nothing. And if you take away help, you leave them to die”

Let’s not throw out the baby with the bathwater.

William Leong Jee Keen
Member of Parliament Selayang

         

  

      




[2] Energy Subsidy reforms- Lessons and Implications; IMF Policy Paper; January 28, 2013 http://www.imf.org/external/np/pp/eng/2013/012813.pdf
[3] Reform, reform the reforms or simply regression? The ‘Washington Consensus’ and its Critics
[4] Structural Adjustment-a Major Cause of Poverty – Global Issues
http://www.globalissues.org/article/3/structural-adjustment-amajor-cause-of-poverty
[5] UNICEF report “Adjustment with a Human Face” 1987
[6] Reform, reform the reforms or simply regression? The ‘Washington Consensus’ and its Critics
[7] Food Subsidies, Growth and Poverty A Critique on Neoliberal Institutional Structure Ali Dini Visiting Scholar at Economics Department of University of California-Riverside and Victor Lippit Professor at Economics Department of University of California-Riverside. http://economics.ucr.edu/repec/ucr/wpaper/09-12.pdf
[8] IMF/World Bank Report quoted from IMF Survey 3 April 1989
[9] Camdessus M “Speech to US Chamber of Commerce 26 March 1990
[10] The IMF and US African Command (AFRICOM) Join Hands in the Plunder of the African Continent by Nile Bowie Global Research 6 January 2012
[11] Mena Solidarity Network menasolidaritynetwork.com http://menasolidaritynetwork.files.wordpress.com/2013/07mena-a5_briefing13_print_web.pdf
[12] Can Extreme Poverty Be Eliminated by Jeffery D. Sachs 2005 Scientific American Inc.