We need to change the way we view inequality — Mandeep Singh

AUGUST 11 — Four years back when I was still in my A-Levels, I took up my first Economics-related book (or should I say tome). It was none other than Capital in the 21^st Century, the popular and often-quoted magnum opus of the renowned French economist Thomas Piketty.

For an A-levels Economics student, Capital in the 21^st Century is considered an unorthodox beginner choice. This is probably due to its turgid number of pages and extensive use of data for us teenage students who could barely memorise all the economic theories for our own exams.

But that book interested me mainly because it dared to address on an issue that none of my lecturers, textbooks, and even most of the conventional economists themselves did at that time — income inequality.

To those who had no chance to read it, the gist of the book was that income and wealth are increasingly concentrated at the hands of the top 1 per cent for the past 30 or so years and this happened at the expense of the bottom half.

With that, income inequality turned out to be hit topic of the year. Bernie Sanders adopted the welfare of the other 99 per cent as his campaign; President Barack Obama addressed it at his following state of the union; Even our Minister of Economic Affairs himself, Datuk Seri Mohamed Azmin Ali, quoted Capital in the 21^st Century in his presentation of the Selangor State Budget for 2015 when he was still the Menteri Besar.

In fact, fast forward to today, according to this year’s World Inequality Report — also co-written by Thomas Piketty — rising income inequality is almost everywhere but at different speeds.

However, back in Malaysia, the trend is oddly the other way round.

According to The State of Households II by Khazanah Research Institute (KRI), income inequality has generally fallen since the onset of the New Economic Policy in 1970. Coming up to 2016, our Gini coefficient is at its lowest ever of 0.399.

The incomes of Chinese, Indian, and Bumiputera households are converging to the median level of RM 5,228. The Gini coefficient within the Indian population increased steadily from 0.390 in 1989 to 0.443 in 2012, only to plummet to 0.396 in 2014. An increase for over 23 years can be overturned in the space of two years. Racial inequality is getting close to becoming a thing from the past.

So, Malaysia is an anomaly, at least compared to the rest of the world.

It looks like we deserve to celebrate a victory against income inequality that even the advanced economies and neighbouring countries find it hard to fight.

Yet, apparently, our government back then seemed uncertain on how to react to such a feat.

That is based on the paper, Is inequality in Malaysia really going down? A puzzle explored, by Hwok-Aun Lee and Muhammed Abdul Khalid.

Further quoting the paper, “Policy documents have not highlighted the drop in inequality as a success nor attempted to draw insight from this track record...public discourses maintain that inequality has risen or remained high”

But still the question remains, how did our income inequality fell then?

Perhaps more pressing conundrum should be why our people do not feel the same.

To begin with, many economists misunderstood inequality as a matter of absolute numbers. For example, everybody just referred to one Gini coefficient to simplify the gap between the rich and poor. The higher the coefficient, the larger the gap.

As convenient as that reference is, it came across as neglecting the underpinnings of ordinary people’s lives.

Being poor is not just about having lower incomes; It is an identity that manifests itself in every narrative.

Just look at the multitude of makeshift roadside stalls (gerai) or paper lama collectors that we encounter every day. We have a name for them — it is called barefoot entrepreneurs.

It is not because the poor has any special entrepreneurial zeal. As aptly reflected by Banerjee and Duflo in Poor Economics, most of them do so because they have no other options.

Most of them set up set up a gerai only to survive but do not have the talent, skill and appetite to turn it into a successful enterprise, which is why often enough they are of the informal sectors.

No other options

To understand why the poor have no other options, we need to look at income inequality from a different lens. We need to begin with the households.

Taking 2016 as the latest and most complete case study, a median household in Malaysia earns RM 5,228 per month, spending an average of RM 4,033. The average wage per individual in 2016 was at RM 2, 657.

This means a typical Malaysian household has around 4 members in which 2 of them are breadwinners — possibly a graduate and a parent for M40 and T20 families and both parents for B40 families.

From these figures, we can already propose a few stark observations.

Firstly, the B40 households really do not save much. That transpires to a larger wealth inequality between the rich and poor Malaysians. This is amidst KRI emphasising that children born to parents with some form of savings have a better chance to climb the income ladder.

Secondly, most of the students from the B40 households are not attending college. While nearly all Malaysians have a secondary education, inequality at the post-secondary level is high.

Only 5 per cent of young adults from the bottom income quintile earn a Bachelor’s degree, compared to 40 per cent from the top. The World Bank’s Malaysia Economic Monitor finds that 84 per cent of households where the head holds a Bachelor’s degree (or above) are in the middle and upper-classes.

Yet, according to the same report by KRI, B40 children are 4.6 times more likely to be upwardly mobile if they have a tertiary education.

With such shortcomings in savings and tertiary education, B40 households are generally stuck in a repeated cycle of being poor and marginalised.

A bigger problems lurks in wealth inequality

Social Security has been weak, if not non-existent, for the B40 households.

To put this in comparison, the savings of the top 0.3 per cent of EPF members are greater than the total savings of the entire bottom 47 per cent.

In fact, the study on the figures from EPF reveals a more disturbing conclusion — more than half of the active EPF members, i.e. private sector workers, earn less than RM 2,000 a month.

If this is coupled with the description of a median household above, it is no wonder that the B40 household finds it difficult to save anything for their future generations.

At worst, with such a meagre pay for their husbands, housewives might end up becoming barefoot entrepreneurs themselves, bringing their children along with them.

That could also explain why B40 children tend to not further pursue higher education as education is only free until the secondary level.

The importance of studying our EPF distribution is that with a single contribution scheme that applies to all private sector workers, it mirrors our wage distribution.

So, if our wealth is extremely unequal, then that means our wages are the same too.

It is not just any income inequality, it is wage inequality

Still, that really does not answer the main crux of this conundrum — why the numbers are falling then, in fact rapidly in these past few years?

It is all thanks to BR1M.

The strong rise of the income share of B40 in recent years is mainly attributed not to wages, but to current transfers and remittances.

BR1M is included for the first time in the 2014 Household Income and Basic Amenities (HIS) Survey which is used to calculate our Gini coefficient. The purpose of EPF analysis above is to remove the element of transfers from the income distribution.

According to The State of Households II, current transfers are growing as a share of household income, with its share in B40 households is more than double of that in average household income.

Although it is good news that the Pakatan Harapan government is planning to keep the scheme only with a different name, BR1M’s long term viability needs to be reassessed.

In the long run, only improved working conditions and a stronger social protection can contribute to better welfare of the B40 households.

In other words, we need to increase our minimum wage.

Suri Incentive with increased minimum wage

Recently, Deputy Prime Minister, Datuk Seri Dr Wan Azizah has announced the Suri Incentive as part of Pakatan Harapan’s promise within the first 100 days of its administration.

Its first phase targeted for housewives in the e-Kasih category will begin on August 15^th.

The purpose was to provide a layer of Social Security for housewives through the 2 per cent contribution by their husbands.

This is a laudable move for gender equality. With the rise of feminist movements, the contribution of women’s work — especially unpaid ones — in the economy needs to be recognised.

However, it has to work in tandem with the rise of minimum wage to RM 1,500 — another one of Pakatan Harapan’s promises.

It is to ensure that the absolute amount of EPF contribution among the B40 households do increase, instead of just changing hands from the husband to the wife.

Only through this way can the new government tackle gender, income, and wealth inequality all at once.

Inequality is not just a number, it is a sentiment

Nicholas D. Kristof once wrote on his New York Times column that inequality causes problems by creating fissures in societies, leaving those at the bottom feeling marginalised or disenfranchised.

The thing about inequality is that we do need a little bit of it to reward the good grades against bad or the hardworking worker against the lazy one.

Yet, when inequality becomes extreme, it creates a sense of unfairness in society. The lazy rich gained at the expense of the hardworking poor.

To say in another way, inequality is just like fire — when it is small it becomes your friend, when it becomes big it burns down your house.

We cannot justify inequality in Malaysia with only a single number. It is not like a Gini coefficient of 0.399 makes us feel any more equal compared to our peers.

We need to resonate with the challenges faced, the dejection felt, and the hopelessness carried by the marginalised.

So, the next time you buy a packet of nasi lemak a shabby gerai or even sell your old newspapers to a paper lama collector, bear in mind that most of are there because they have no choice.

* Mandeep Singh is the director of corporate relations (MY branch) at the Association of Malaysian Economics Undergraduates (AMEU).

** This is the personal opinion of the writer and does not necessarily represent the views of Malay Mail.