Poverty
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Speech (7) on the Ninth Malaysia Plan
by Lim Kit Siang  
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(Parliament, Monday) :The Plan rightly places great emphasis on the issue of poverty. Chapter 16 in one sense is the center piece. I would like to begin by taking strong issue with the concepts and methodology employed to derive the various Poverty Line Income (PLI) measures and the estimates of poverty incidence. These are fundamentally  flawed, gravely  affect the analysis and conclusions which leads to the advocacy of wrong policies.

The Plan uses the concept of HARDCORE poverty defined as “…. Income less than the food PLI which is based on nutritionally based diet.” (Box 16-2)  The very term “Hardcore” is not in international use. The World Bank and UNDP, two global agencies in the forefront in analyzing poverty, use the concepts of “Absolute” and “Relative” poverty. I find no valid reasons why Malaysia deviates from standard international terminology.

A deeper and more troubling issue concerns the calculation methods used. Box 16.2 indicates that the new PLI is made up of two components - the Food and Non-Food components. The Plan goes on to state that the Food component has been calculated on the basis of the “ … advice of nutritionists , dieticians and medical professionals.” The point to note is that ACTUAL consumption patterns as measured by the Household surveys were ignored and substituted with notional figures on “desirable” calorie values. This then is the measure used in defining the poverty line to estimate the hardcore poor. The impact of this approach grossly affects the PLI and ultimately understates the estimated number of the hardcore poor. This is a very deep flaw. This approach is neither recommended nor used in deriving PLIs.

The second fundamental flaw concerns the unit of analysis to obtain the poverty head count. The recommended and globally accepted unit used in poverty analysis is the INDIVIDUAL. However, the Plan uses the HOUSEHOLD as the unit thus deviating from internationally accepted norms. It is important to take note that households vary in size across the urban-rural and the ethnic dimension. Not taking account of these differences is unprofessional and inexcusable and raises serious questions about the objectivity and integrity of the resulting estimates. The Plan provides no rationale or justification as to why the HOUSEHOLD was chosen over the INDIVIDUAL as the unit of analysis. It is also an indefensible position as the requisite data to analyze was available from the Household Income Expenditure Surveys. It is also important to note that based on earlier similar Surveys the World Bank was able to come up with poverty estimates based on individuals. Those who have an interest are referred to a World Bank Research Paper entitled “INEQUALITY & DETERMINANTS OF EARNINGS IN MALAYSIA”.

The internationally accepted and applied poverty measurement concepts developed by the World Bank are clear and precise.

·        Rural poverty rate is defined as the percentage of the rural population living below the national rural poverty line.

·        Urban poverty rate is the percentage of the urban population living below the national urban poverty line.

·        National poverty rate is the percentage of the population living below the national poverty line. National estimates are based on population-weighted subgroup estimates from household surveys.

·        Population below US$1 a day and population below US$2 a day are the percentages of the population living on less than $1.08 a day and $2.15 a day at 1993 international prices.

I can only conclude that these methodologies were rejected by the EPU in favor of its own definitions and methods with the sole aim  of producing the  “feel good” effects from  low estimates of the poor. This is an insult to the poor in that we are unable to generate true and accurate estimates. I cannot over-emphasis the importance of getting the numbers right as these underpin the needed  policy responses and ultimately the allocation of resources to eradicate  the scourge of poverty from Malaysian society.

According to Table 16-1 we are told that 8.5 and 5.7 percent of all households were poor in 1999 and 2004. These are translated to 409,300 and 311,350 households in overall poverty in the two benchmark years. We not told what this means in terms of the NUMBERS of Malaysians who are poor. Assuming an average household size of 5 persons, it can be estimated that there are approximately 1.6 million Malaysians who fit the Government's own concept. The number in poverty would certainly be much larger had the analysis been done on the basis of a poverty line based on actual consumption pattern of the poor.

Irrespective of the method used, it is clear that significant number of Malaysians continue to live in poverty despite rapid economic growth and sizable allocations for poverty eradication under previous five-year Plans. That absolute poverty remains despite these factors points to policy failures, incompetent implementation and failure of the political will to make adjustments.

The Plan acknowledges the fact that income distribution has worsened with the bottom 40 percent of households receiving 13.5 percent of total income - deteriorating from 14.0% in 2000, whilst the top 20 percent saw an INCREASE in their share from 50.5 percent to 51.2 percent in the same period. Thus, the rich grew richer while the poor became poorer. The overall Gini ratio increased from 0.452 to .0462.  All ethnic groups recorded an increase in the Gini coefficient during the period. The inequality among Bumiputeras was the highest compared with the Chinese and Indians. (Para 16.18)

The 2004 UNDP  Human Development Report reveals that Malaysia has the worst income distribution pattern in this region, with the richest 10 per cent controlling 38.4 per cent of the total income while the poorest 10 per cent has only 1.7 per cent. These data  are sobering and cry out for an explanation.

The Plan largely glosses over the issue and fails to acknowledge that a considerable part of the explanation lies in the disastrous distributional policies that were pursued exemplified by handouts to the corporate sector, cronyism policies, labor/wage policies and a fiscal regime that penalizes consumers and wage earners.

Beyond the rhetoric, it is clear that fundamental policies will continue. It is no consolation to the poor that “…. the distributional agenda will be pursued more fairly through capacity building and raising competitiveness”. No new specific poverty policies are spelt out.

What is proposed is a continuation of failed approaches and programmes.The development allocation for the poverty alleviation prong  under the 9^th Plan is RM4.5 billion as compared to RM7 billion for the restructuring of society prong – which are most telling as to which development goal has the higher priority.

The Plan speaks of reducing income disparities between Bumiputras and the Chinese to a ratio of 1 to 1.150 and that to Indians to 1 to 1.115. The Plan states that key instruments are:

·         Besides poverty eradication, the focus of distributional strategies and programs will on the creation of a bigger and more prosperous Bumiputra middle class through human capital development

·         Through employment restructuring in the private sector, enhanced ownership of corporate asset holdings as well as commercial, residential and intellectual property

The Plan also states: (Para 16.54) “ During the Plan period, more intensified efforts will be made to ensure that the employment pattern at all levels of occupations and in all sectors of the economy reflects the ethnic composition of the population”. It goes on to state that the private sector will be asked to play a greater role in accelerating the advancement of Bumiputra employment and restructuring their employment pattern. It would not be inappropriate to conclude that the regulatory mechanisms now in place would be tightened with perhaps even harsher rules developed and applied.

A close reading of the Plan indicates no specific policies or measures to address the overall income disparities between the bottom 40 percent of households and the top 20 percent. The entire focus appears to be on inter-ethnic distribution.

While it cannot be denied that inter-ethnic distributions must receive the closest attention, there is need to address the overall distribution pattern. Unless these are addressed, there is a clear danger of social alienation, sense of deprivation, and social tensions reflected in a further rising of crime rates and other anti-social behavior. It is incumbent on the Government to address this issue. It cannot and must not be swept under the carpet.

(03/04/2006)