ON April 3, as Covid-19 was spreading around the world, Cyclone Harold made landfall in Vanuatu, a small island state in the middle of the Pacific Ocean. With its economy that is heavily dependent on tourism already suffering, relief efforts were made difficult as resources were dedicated to combating Covid-19.
The twin crisis in Vanuatu is yet another example that demonstrates we are entering an age of crises. Moving forward, resilience needs to be the imperative of development. Societies that have the ability to bounce back will likely be those that will flourish.
As economic recovery plans are being drawn up, the question is, do we rescue our economy to how it was, or do we reset it towards a more resilient path? Malaysia, being an exceptionally open economy, has benefited greatly from globalisation.
However, this also leaves us exposed, with external shocks contributing to previous economic crises. During Covid-19, the impact of plummeting oil prices, which make up about 20 per cent of total government revenue, has significantly reduced public coffers and made fiscal planning more challenging as it is based on fluctuating oil prices.
The export-oriented model of the manufacturing industry is also at risk, with manufacturing sales falling by three per cent in March. As an outcome, negative social impacts have been sorely felt, with more than 600,000 people reported to be unemployed.
Paradoxically, those that benefit least from the global economy, such as daily wage earners, farmers and informal workers, are some of the most impacted. Added to the above, failure to prevent environmental damage will increase the risk of communities that are most vulnerable to its impacts.
Does this mean we need to move towards a model to degrow and deglobalise the economy? No, as a small and open developing economy, we need to continue to trade with other nations and grow economically. Nonetheless, firstly, we need to reset our development goal.
Economic growth, often pursued narrowly through increasing the gross domestic product, as well as the pursuit of globalisation, should be understood as a means to an end, rather than an end in itself. The goal of development should be broader to encompass all social, economic and environmental objectives, such as those identified in the Sustainable Development Goals.
Secondly, there is a need to focus on building the resilience of local economies — both rural and urban. Covid-19 has demonstrated the impacts that could have been mitigated through the combination of a robust social protection system and economic activities that are resilient to external shocks.
For example, if agricultural lands in rural areas were utilised to provide subsistence agriculture instead of being idle or designated for cash crops, large parts of the rural population would be food secure during the pandemic.
Harvard University Professor Dani Rodrik pointed out that more open economies spend more to compensate against the risk of external shocks. Open economies, such as Sweden’s and the Netherlands’, spend 22.3 per cent and 26.7 per cent of their GDPs on social protection.
Malaysia, with our regional peers Singapore spending 4.2 per cent and Vietnam 6.3 per cent, has room to increase at 3.8 per cent.
Thirdly, strong and adaptive institutions are required to address crises. It is worth highlighting that Malaysia has responded relatively well to previous crises. This has been attributed to a combination of a strong institutional capacity and the presence of state-owned enterprises that are able to maintain some control over the economy.
In light of the emerging and complex challenges that we face, these institutions will need to play a role to align itself to broader development goals. In times of crisis, alternative models such as doughnut economics have emerged as a solution to the conventional model.
While they offer useful ideas, Malaysia needs to develop in its own mould and based on its own characteristics. In the quest for resilience, the common characteristic required is the ability to adapt to change. As John Maynard Keynes, who spearheaded a revolution in economic thinking during the Great Depression, professed, “the difficulty lies not so much in developing new ideas as in escaping from old ones”.
This article first appeared in the New Straits Times on 19 May 2020
