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MEASURING how well we are doing economically as a nation is hard. How do we sum up how the 32 million people in our country have fared?
Annual gross domestic product or GDP (a measure of all that has been produced in the country in ringgit terms) is often used. In 2015 our GDP was RM1.2 trillion (lower than China’s and Indonesia’s) or RM38,412 per person (higher than both those countries’), which means that after taking into account their much larger population, Malaysia is better-off than China or Indonesia. Yet clearly every man, woman, child and infant in Malaysia did not earn RM38,412 in 2015. Useful as GDP per person is in some contexts, as a measure of economic well-being of the people it leaves a lot to be desired.
Concentrating on the average income per person belies the fact that the vast majority of us do not live alone – we live in a household with others. A Malaysian household has 4.3 people on average: 43% of us live in a household of 4 or 5 people, 36% in a household of 6 people or more, and 2.0% of us live solitarily.
We should therefore be looking at how well households are doing rather than at GDP per person.
A better measure is median household income or the half-way mark of household incomes. This too has been rising, for example it rose from RM3,626 in 2012 to RM4,585 in 2014, which means that half of all households in 2014 had a monthly income of this or higher. The percentage of households that earn less than RM2,000 a month has also been falling and the percentage of households that earn more than that has been increasing.
Urban households, rural households
Of course, not every household has had a rise in income. Some will certainly have seen their incomes stagnate, if not fall, but the data as a whole clearly points to an overall increase in household incomes.
Urban households are generally better-off than rural ones, and households headed by a woman (essentially single-mother households) are the worst-off. Some states are doing much better than others. More than two-thirds of the households in Kuala Lumpur have an income of RM6,000 a month or more, whereas 84.8% of all Kelantan households earn less than that. More than two-thirds of Kelantan households have an income of RM4,000 or less and around a third earn RM2,000 or less. The economic concerns of Kuala Lumpur households are quite different from those in Kelantan.
The latest data that we have on household income are for 2014, when the price of oil (one of our major exports) was close to double what it was for 2016 and when the economy of China, our largest trading partner, was growing faster. Although GDP has continued to increase since 2014, we will only know whether household incomes also increased when the Department of Statistics completes the 2016 survey this year.
If we are concerned about the economic well-being of our people then the objective of economic policy must surely be to raise household incomes. Increasing GDP is only a means to that end and not an end in itself.
How we grow our economy matters. It must be in a way that leads to higher salaries and not just higher profits. We need to promote and create high value-added businesses that are able to pay good salaries and a work-force that is educated and trained to work in those businesses. We need innovative entrepreneurs and we should promote small businesses and start-ups that create good jobs. But we cannot expect to turn every low income earner into a high income businessman – for the majority of us the route to a higher household income will be through a better job and a higher salary.
For those who have trouble making ends meet, we need to agree whether we should help them and what criteria we should use. Should it just be household income? Should the size or location of the household matter? Should the old, the disabled or families with children receive more help? The more complicated we make the criteria though, the more it will cost to administer and catch cheats.
Cash transfers targeted at those we want to help are far more efficient than subsidies. The old petrol subsidies for example benefited the well-off big-thirsty-car owner much more than a motor-cyclist or a bus passenger and the well-off now still receive subsidised electricity for their air-conditioners, subsidised public university education for their children, virtually free treatment at the emergency room of a government hospital and much more.
Raising household incomes has to be the goal of our economic policy. In the meantime, some households need help and targeted cash transfers are the most efficient way of doing so.
Datuk Charon Wardini Mokhzani is the managing director of the Khazanah Research Institute and would like to thank his colleagues for their research for this article. The State of Households II which was published by the Institute last August has more information on this topic and can be read or downloaded at www.KRInstitute.org
7th Jan 2017, Staronline
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