POVERTY IN THE NEW MILLENNIUM - CHALLENGES FOR MALAYSIA

By
Dr. Sulochana Nair

Faculty of Economics and Administration

University of Malaya
Kuala Lumpa 50603
Malaysia

g3sulo@umcsd.um.edu.my

Introduction

The new millennium poses numerous challenges for Malaysia, which is on its
path to recovery from the financial crisis that rocked the Asian region in the
late nineties. Prior to the crisis Malaysia had achieved tremendous strides its
poverty eradication efforts, the overall incidence of poverty declined from 52.4
% in 1970 to 6.8% in 1997 while the total number of poor households fell from
one million to 294,400 over the same period. The commendable progress in
poverty eradication was largely due to the rapid economic growth rates which
contributed significantly to poverty reduction and the relentless efforts of the
government in prioritising poverty eradication as a major development
objective and formulating specific policies and programmes eradicate poverty.

The crisis has had adverse impacts on poverty reduction in Malaysia. In

addition to swelling the ranks of the poor and dampening poverty eradication
efforts the crisis poses challenges for existing poverty eradication strategies,
policies and programmes. The overall incidence of poverty increased to from
6.8% to 7.6% between 1997 and 1998 while the incidence of hardcore poverty
increased from 1.4% to 1.5% over the same period with the number of poor
and hardcore poor households increasing to 393,900 and 79,600 respectively.

The impact of the crisis has been most critical on the urban poor, the near
poor and migrant workers al of whom have been affected by contraction in
employment, escalating food prices and inflation. The impact of the crisis on
employment is evidenced by contraction in employment resulting in increasing
unemployment and retrenchment. Between 1996 and 1998 unemployment
rates increased from 2.6% to 3.9% 1998 while the number of workers
retrenched more than doubled from 8000 to 19,000 between 1996-1997 as a
result of restructuring, downsizing, bankruptcy, closure and relocation of
business The majority of the retrenched workers were from the manufacturing
(54%) and construction (11.1%) sectors. and this has important implications
for female workers the urban poor and the foreign workers who are
significantly represented in these two sectors.

Poverty in Malaysia –Some Theoretical Concerns

The theoretical concerns with poverty are related to the manner in which
poverty is conceptualised and measured and its relevance given changes in

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poverty dimension and profile. Poverty in Malaysia is conceptualised in both
absolute and relative terms Absolute poverty is measured in terms of the
Poverty Line Incomei Relative poverty is defined in terms of inequality
between groups and is measured by using income disparity ratio of income
groups ethnic urban and rural In addition relative poverty is defined as the
proportion of household earning in incomes less than half the mean or median
income. The concept of hardcore poverty was introduced in 1989 to give
special emphasis to the needs of the very poor. Households whose gross
monthly incomes were below half the PLI were classified as hardcore poor.

Poverty measures currently used suffer from inherent weaknesses which

impinge upon their ability to reflect the multi dimensional nature of poverty and
its various manifestations. Existing poverty measures have to be
supplemented with other indicators of the quality of life and to this end the
Malaysian Quality of Life Index has been developed in 1999ii

The Changing Dimension of Poverty

Policy responses to poverty in the new millennium have to take cognisance of

the changing dimension of poverty in Malaysia. Poverty in Malaysia still
continues to retain its ethnic and sectoral overtones with poverty levels being
highest amongst Bumiputraiii households, in the states of Kelantan,
Trengganu and Sabah and amomgst the self employed While both absolute
and rural poverty have declined considerably due to past poverty eradication
efforts there are indications that relative and urban poverty is worsening, new
forms of poverty are emerging and inequalities are increasing. Malaysia had
the highest income disparity in the Asia Pacific region with an income disparity
ratio of 11.7 % between the richest 20% and poorest 20% of the population in
1999.

While income distribution patterns in the period 1970-1990 showed

improvements with declining income inequalities, the period of the nineties
showed a reversal of these trends. The Gini coefficient increased from 0.446
in 1990 to 0.470 in 1997 with the income disparity ratio between urban and
rural households increasing from 1.70 to 2.04 over the same period. Income
disparities in Malaysia have significant racial overtones and income disparities
between Bumiputra and non Bumiputra household have been widening since
the nineties despite affirmative policy measure to narrow the gap between
these households. In 1997, 70.2 % of households in the bottom 40% income
group were Bumiputra while 62.7% of household in the top 20% income
bracket were non Bumiputra.

Relative poverty in the context of growing affluence has the potential to be

politically volatile as some groups or factions within the country are deprived
from enjoying the benefits of development Such groups despite an
improvement in socio economic status in absolute terms continue to feel a
sense of deprivation and frustration. Most of them belong to poorest groups in
villages, settlement plantations and in the urban sector.

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One major challenge is coping with changing dimensions of poverty. In the
past poverty in Malaysia was largely perceived as a rural problem with
strategies, programmes and development expenditure reflecting a strong rural
bias. However with rapid urbanisation structural transformation and rural
urban migration urban poverty has become more critical than rural poverty.
The majority of new households in poverty as a result of the crisis was from
the urban areas where contraction in economic activities in the construction
and manufacturing sector resulted in retrenchment, and unemployment and
inflation were greater The conceptualisation of poor household on the basis of
a single poverty line Income for rural and urban areas will underestimate the
scale of urban poverty and exclude large numbers of the poor from policies
and programmes Urban poverty is caused by multiple deprivation which are
not adequately reflected in the current PLI as urban households require higher
incomes to avoid poverty. Households that are classified as near poor also
require policy attention as they are the most vulnerable groups during a crisis
and are likely to move into poverty. Existing policies and programmes with
their inherent biases towards the rural sector are unlikely to make a serious
impact on urban poverty.

Poverty eradication efforts also have to address the problems of persistent

poverty amongst the indigenous people or ‘Orang Asli’ and Indian segment of
the population The “Orang Asli” represent a classic case of victims of
development The rapid expansion of development projects especially
infrastructural projects have had an impact on the material and ritual culture of
the ‘Orang Asli’ which are linked to the forest and ancestral land as well as on
their everyday form of material culture of the community. Past efforts ton
improve socio economic status have but encroaching into the economic
cultural and social spheres of the community and in the absence of a
concerted policy to protect material culture living and art skills the cultural
identities of the ‘Orang Asli’ would be comprised in the development process.
The ‘Orang Asli’ risk losing their autonomy and control over traditional land
and the resources in it.

Large segments of the Indian population especially those involved in the

plantation sector also experience high levels of poverty The Indian community
is largely poor and in some cases very poor. The environment in the
plantation is hardly conducive for attaining a decent education or acquiring
critical skills hat are needed in the modern sector of the economy. Poverty
becomes a way of life and when the plantation economy gives way to
development project the estate labour force is displaced and migrate to the
urban areas joining the ranks of the urban poor and live in squatter areas.
These displaced people with low levels of education and skills are largely
unemployable and find themselves competing with foreign workers for low
paying dead end type of jobs thus perpetuating their poverty. The majority
find themselves alienated and excluded from markets institutions that define
legitimate career path and work function. Escapes from poverty take on the
easiest but not necessarily the most legitimate form. The incidence of
involvement of Indian is organised and serious crime, drug racketeering and
gambling has been on the increase Recent statistics show an alarming crime
statistics involving g the Indian community with numbers disproportionate to

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their population composition. This results in the community being
marginalised and socially stigmatised The failure of effective community
leadership and poor performance of community based organisations have
contributed to immiserisation of segments of Indian community which have
neither economic nor political clout. Solutions for the problems of the
community should transcend narrow ethnic boundaries and be conceived as a
comprehensive part of overall development effort.

New forms of poverty have also emerged in the country as a result of rapid
economic growth and the development process itself. The dynamic changes
created by the process of economic transformation have resulted in social
consequences and increasing poverty levels for vulnerable groups. These
include single female headed households, migrant workers, unskilled workers,
the ‘Orang Asli’ and other indigenous people of East Malaysia, the poor and
elderly left behind in areas of significant out migration. The underdevelopment
of the rural areas and the growing privatisation of resources and
commercialisation of activities impoverish certain groups and marginalised
weaker sections in society especially in the rural areas who find their costs of
living escalating. This applies in particular to common property resources
where traditional claims to right have eroded in the face of increasing
commercialisation.

The new millennium also poses challenges for health and education, which
are two significant dimensions of human resource development. The
challenges for health are to continue to provide increasing health care access
for all segments of the population in the light of escalating drug cost, changing
disease patterns increasing specialisation in medical services, rising wages
and space costs. The prevalence of non-communicable diseases like lifestyle
related illnesses, environmental health and occupational diseases and the
increasing incidence of HIV/AIDS pose additional challenges for the already
strained health system. Increasing life expectancy and its impact on the
demographic patterns have resulted in increasing the number of senior
citizens who due to the breakdown of the family support system also demands
for the health services and processionals The presence of foreign workers in
addition to making demand on health care have also contributed to the
resurgence of disease like tuberculosis, hepatitis and malaria and cholera
which had previously been eradicated and the health care system has to
continue to allocate its limited resources to curtail these diseases. The
impending privatisation of health care will have adverse effects on vulnerable
groups especially the poor and low-income household who are likely to
reduce investments in health to sub optimal levels.

Education has played a key role in attaining national development objective

by contributing toward poverty reduction and reducing social inequities. The
challenges for education hare identifies shortages of qualified personnel, as
inequities in access due to shortages in infrastructure ensuring greater access
to high quality technological education and inefficiencies in management due
to shortages in technical and managerial skills.

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Globalisation, liberalisation and Malaysia’s current development polices pose
numerous challenges, which have direct and indirect implications for poverty.
Malaysia is poised to leapfrog into the information age with the establishment
of the Multimedia Super Corridor, 15 by 54 kilometre global electronic testbed
and emphasis on the k economy. The information technology sector is pivotal
in pushing Malaysia into the ranks of the developed countries by the year
2020. The restructuring of the Malaysian economy toward capital intensive
and high value added activities would increase the demand for knowledge
and skilled human resources. The k economy requires broad competencies
and access to these competencies have to be assured for all segments of
society. Racial and regional disparities in academic performance in subjects
critical to the k economy have been observed The performance of ‘Bumiputra’
and rural students fall below that of the urban and non ‘Bumiputra’ students If
remedial measures are not undertaken to the benefits of the k economy will
elude segments of the population widen racial inequality and increase the
digital divide between the poor and non poor.

The crisis pushed the issue of foreign workers to the forefront of policy debate
for several reasons. The presence of migrant workers, their remittance
abroad, perceived competition between local and migrant workers for
employment and the anticipated influx of large numbers of foreigners from
neighbouring countries caught up in severe turmoil all emerged as pressing
concerns.

Foreign workers account for about 20% of the labour force and this has
important implications for poverty, and human resource development. The
tightening labour market of the nineties saw a large influx of foreign workers
both legal and illegal into the country. While their presence was initially seen
as necessary input for attaining development goals the current policy
advocates a tightening of employment of foreign labour as the long term
dependence on foreign labour largely unskilled is seen as an impediment
toward achieving higher technology skills productivity and greater automation
in the production process. The increasing number of foreigners in poverty in
the post crisis period have contributed to the increasing incidence of poverty
The non citizens as a proportion of poor household more than doubled
between 1990 and 1997 from 7% to 15%. The presence of foreign workers
exacerbates poverty problems especially in the urban areas with demand on
amenities like housing health and education. In addition the presence of
foreign workers intensifies the competition for employment in the informal
sector and for low wage jobs The easy availability of unskilled workers at low
wage rates intensified during the crisis contributed to wage rates being
depressed and a reluctance on the part of employers to increase wage rates,
invest in capital intensification and human resource developments thus
resulting in low productivity.

The crisis has also intensified the vulnerability of foreign workers and long
terms solutions to resolving the foreign workers issue have to go beyond
existing policies of regularisation and repatriation. These policies have to be
formulated within the context of the various forces that impact upon labour

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mobility and regional solutions which incorporate the human rights elements
of foreign workers are needed.

Existing strategies for poverty eradication given their inherent weakness are
unlikely to resolve the poverty problem. There is need to formulate polices
and programmes that go beyond addressing the economic causes of poverty.
In addition the responsibility for poverty eradication has to be shared by all
sectors of society especially since the government has embarked on reducing
its role in the economy through liberalisation, decentralisation and
privatisation The moral and ethical dilemma with respect to poverty is
succinctly exposed by Stewartiv who sees poverty as the worst scourge of
underdevelopment and an attack on poverty as an intrinsic aspect of the
development policy In addition there is a human imperative to eliminates
poverty arising from the recognition that human beings are the most important
economic resources and the social return to poverty reduction are high.

Relative deprivation in the face of growing affluence and the desire to attain
the good life with all its material frills can create destabilising forces which
weaken the moral and ethical fibre of society There are indications that he
moral and ethical fabric of the Malaysian society is gradually being eroded.
v
This is manifested in a number of ways in terms of social violence, crimes
challenges to the family institution lack of ethical responsibility and increasing
corruption. The lack of honesty accompanied by the rise of corruption is of
growing concern and has spread to almost every sphere of society, sports,
entertainment politics business and government The impact of this on the
poor is profound In addition to the danger of poverty eradication mechanism
being tainted with corrupt practices the poor who lack resources are not in a
position to buy favours and thus become further impoverished both in
absolute and relative terms as political and other contact rather than acute
need become the ultimate criteria in determining access.

The Future Direction of Poverty

Poverty eradication strategies of this millennium will have to incorporate

elements of good governance and social development. In addition these
strategies have to be gender sensitive, pro poor, participatory and specifically
tailored to meet the heterogeneous nature of poverty groups. The current
strategy expoused in the recent World Development Reportvi with emphasis
on creating opportunities facilitating empowerment and enhancing security

i
In the Malaysian context the PLI is RM. 460 for a household of 4.6 person in Peninsula Malaysia and
RM. 633 and RM. 543 for a household size of 4.9 in Sabah and 4.8 in Sarawak in 1997
ii
Quality of Life is defined as encompassing personal advancements, a healthy lifestyle access and
freedom to pursue knowledge and a standard of living which surpasses the fulfillment of basic needs of
individuals and their psychological needs to achieve a level of social well being compatible with the
nation’s aspirations . The Malaysian Quality of Life Index is computed using 38 indicators derived
from ten key areas which are income and distribution, working life, transport and communication,
health education, housing environment family life social participation and public safety. Malaysian
Quality of Life 99, Economic Planning Unit Prime Minister’s Department , Malaysia
iii
‘Bumiputra ‘which translate literally as’ Sons of the Soil’ was used to distinguish the Malays who are
one of the major ethnic groups in Malaysia from the non Malays. The Malays are defined in the

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Constitution Article 160(2) as persons who profess the Muslim religion, habitually speak Malay and
conform to Malay customs. The term ‘Bumiputra’ has since the formation of Malaysia assumed a
special legal meaning and currently included the Malay as defined by the constitution, the indigenous
peoples of Sabah and Sarawak and the aboriginal groups or’ Orang Asli’ of Malaysia “
iv
Stewart, F as quoted in Askwith M,” Poverty Reduction and Sustainable Human Development :
Semantics or Substance Institute of Development Studies DP 345 November 1994 p6
v
Chandra Muzaffar “ The Way Forward Establishing A Fully Moral and Ethical Society Aliran 17(5)
1997
vi
World Development Report 2000/2001 Attacking Poverty Published for the World Bank Oxford
University Press 2000