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The Fallacy of Malaysia’s Economic Realities and the Foreign Workers

Professor Robert Merton, one of the founding fathers of modern-day sociology argued that “a false definition of the situation evokes a new behaviour which makes the original false conception come true”. We are accustomed to several economic facts that we accept as the norm, although it might be different elsewhere. It is embedded in our mind that farmers and fishermen would be poor and only white collar workers are entitled to life of luxury.

Why is it that our local farmers and fishermen – providers of food that is essential to our survival – mostly live in poverty while their counterparts in Europe earn a decent wage and live a better life? There’s a Polish proverb that expresses this: “If the farmer is poor then so is the whole country.”

So, why is that the providers of non-essential goods and services such as cosmetics, jewellery, automotibiles and so on, are super rich? Things are equally bad for our rubber tappers, some of whom survive on less than RM500 a month, even though rubber is one of Malaysia’s prime industries.

This unjust economic setup is mainly due to the middleman’s monopoly of the supply chain. We cannot accept and continue to justify the stark economic divide as the norm. These realities should not be the case. It is something that can be changed if we pledge to make fundamental changes.

So where do we start? A good place would be on the policy on foreign workers and how it affect 90% of Malaysian workers.

Malaysia’s most vulnerable group

According to the Labour Force Survey Report, Malaysia, 2014, an approximately one million Malaysians work in elementary occupations as cleaners, helpers, labourers, service workers and refuse workers – competing directly with close to 800,000 legal foreign workers with the same job scope. There are also 300,000 foreign workers in service and sales, and who work as machine operators. Another 213,000 foreign workers in craft and related trade.

However, note that these numbers only refer to the legal, registered foreign workers. According to Human Resources Minister Datuk Seri Richard Riot, there are an estimated 6.7 million foreign workers (2.1 million legal plus 4.6 million illegals) in all sectors of the country.

What about our local workers? At the moment there are 11.8 million of them, 3.3 million of whom are in professional trades – as technicians, associate professionals, professionals and managers – that require more than Sijil Pelajaran Malaysia (SPM) qualification. That leaves 8.4 million workers in trades that require only SPM and below.

It is irresponsible to let 8.4 million most vulnerable Malaysians compete directly with more than 6.7 million desperate foreign workers from poorer countries. Foreign workers have more to lose, and everything to gain, compared to our local workers if they are unable to secure a job.

Salaries paid to foreign workers – Capital repatriation

According to Nation Master (2009) – the internet’s one stop centre for international statistics – Malaysia ranks No 12 in the world in the amount paid to foreign workers – USD 6.53 billion a year. On average the amount of money foreign workers sent home is around 40-50%, which makes the total salaries paid to them is approximately USD13 billion.

For every dollar in Malaysia’s GDP/capita, 2.1% goes to foreign workers. Here, we rank No 7 in the world behind Switzerland, Saudi, Kuwait, Oman, Lebanon and Luxembourg which we are in a different league. This was in 2009.

We would expect measures had been implemented to reduce the size of our capital repatriation. Unfortunately, seven years later, the Deputy Finance Minister, Johari Abdul Ghani in a Parliamentary sitting informed that for the year 2015 alone, a total of RM34.8 billion was repatriated by the foreign workers. Total salaries paid would be close to RM70 billion.

For an idea of how big that sum is, the amount would be sufficient to pay up to fourteen years’ worth of PTPTN loan disbursement or provide fourteen years Free Higher Education to the borrowers. It is also close to twice the amount of the 1MDB loan episode of RM41 billion – that is just for 2015 alone!

The Malaysian Employer’s Federation (MEF) has highlighted that the capital repatriated back to the foreign workers’ country of origin is a loss of economic gain to the country. Imagine if the money is being circulated in our local workers’ pockets and circulating here instead.

The hard fact is that the continuous reliance on foreign workers depresses local wages and reduces the incentives for businesses to become more innovative and productive.

We need to know where we want to go from here. Is this a reality we are willing to accept?

Myth of the local workforce

Defenders of the current business climate would be quick to argue that Malaysian local workforce are lazy and it makes financial sense to the bottom line to hire foreign workers, in terms of productivity. This is a false and misconstrued reality.

Is this true or is it a misleading perception built for years, driven by the profit motive? What does lazy mean and how do we gauge it? Are we comparing apples with apples? Is it acceptable to say that foreign workers are cheaper and have lower expectation on working condition and this make them more attractive for hire?

Let us test this reality. There are 200,000 Malaysians who commute daily between Johor Baru and Singapore. They leave home as early as 5.00 am and only to come back at night. They work mostly in the manufacturing and service sectors. At the same time, 300,000 foreign workers work in Johor Baru, surprisingly in the same sectors!

What about the onshore and offshore local welder, fitters, riggers and helpers who work 10 hours a day under the hot sun? Can we call the Cameron Highlands farmers who start their day as early as 4.00 am lazy? What about our sailors that sail the seas for months without seeing their families?

The Penang government did great job by offering 2,500 positions just for Malaysians (to collect refuse) with a monthly wage of RM1300. They received 25,000 applications, which debunked the perception that Malaysians are unable to work in 3D – dirty, difficult and dangerous jobs.

The real problem here is not that Malaysians are lazy and will not tolerate 3D jobs. Rather, the problem is they are demotivated because of the low pay and the minimum wage structure, which does not allow them to afford a decent standard of living.

Strong Government Policies – A Game Changer

Strong government policies and leadership can navigate and shape where Malaysia would be in the years ahead. What is set in place now will affect our future. Let us draw up a new economic reality.

Economic think tank BLINDSPOT had previously proposed for the government to set a minimum wage of RM1,500 for 2016 and raise this to RM1,850 by 2020 to achieve the 40:60 ratio for wages to business profits as proposed by Minister Dato’ Sri Abdul Wahid Omar. BLINDSPOT also proposed to limit the use of foreign workers in certain industries. Government may allow 100% foreign workers for genuine domestic maids. However, there should be zero foreign workers in the service and manufacturing, a maximum of 30% in construction and 50% in the agro based/ plantation industry.

These proposals are to ensure that the salaries of locals are increased while dependencies on foreign workers is gradually decreased, together with capital repatriation and other social woes associated with it. Bring back the days of “minah karen or mat kilang”, when it was acceptable for Malaysians to be cashiers and waiters, and let locals fill these services jobs now being done by foreign workers. The time has come to make a fundamental change as to how economy works in Malaysia and we must do it now.

Malaysian corporations can afford to pay their workers more. The national gross national income (GNI) indicates a 30:70 ratio for wages to business profits. This is far behind more developed economies’ at 60:40 ratio. The cost might increase but in the long run, we will be building a stronger economic foundation and will be able to compete on quality. Plus, capital repatriation will be reduced.

At the moment, productivity in manufacturing, for example, is 45% above salaries, which means our workers are significantly underpaid. Imagine being paid RM55 a day, when you should be making RM100!

If we allow this discrepancy to continue, there will be negative, long-term repercussions for the country. More jobs will be taken over by the foreigners and the salaries of locals will remain stagnant.

Change Malaysia’s Economy Fundamentally

Where do we want to see Malaysia in the next 10 years? Do we want an economic setup like in the Arab countries, where the foreign workers do most of the work? Or do we want to be like Australia / South Korea, where the locals do everything, from strenuous physical labour to professional services despite the fact that most of them have tertiary education?

Can we dream of a strong local workforce where both our skilled and professional workers are locals who earn high wages that are sufficient for them to live comfortably? Or a see a worsening of the current situation with many locals unable to find jobs and the majority of them earning low incomes?

Put more money into Malaysian pockets. This will spark a virtuous economic cycle as buying power will increase, which will in turn increase business profits and tax collection. When the government collects more taxes, it can spend more on human capital and, in the end, the economy will grow further. Virtuous economic cycle!

This might seem difficult to achieve but with the right planning, we can make this happen together. It is all about enforcement, leadership and strong policies. The nation was built on the sweat and tears of our workers, and it is time we acknowledged their contributions. The government needs to engage actively with corporations and unions to reconsider its policy on foreign workers policies and come up with the best solution.

Let’s hope that when we celebrate Labour Day next year, the slogan that we hear will be “Save Worker’s Day!” Save our workers and we save Malaysia.

*A version of this article first appeared in The Edge on the 14th May 2016

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