Empowering businesses to help the poor

A An English folk fairy tale tells us of an old woman living in what must have been a gargantuan shoe with her twelve exuberant children. As far as fairy tales go, thirteen people cramped in a giant shoe isn’t too much of a stretch. However, this story may not be too far removed from reality.

This can be particularly seen among disadvantaged communities – otherwise known as the urban poor – scattered across the Klang Valley or Greater Kuala Lumpur conurbations.

It is symptomatic of the general state of affordable housing (owned and rented) provided by the state to the urban poor and the interaction/interrelationship between income and affordable housing in general, as measured by the price/ income (or median multiple – median house price as a multiple of median annual household income) as a “quantity” (i.e. the dominant supply in the market), and the dynamics of planning as ‘quality’ (ie the design and environment of affordable housing). This is just an example.

According to data from the Federal Ministry of Lands, the number of extremely poor people in Kuala Lumpur has increased by around 270% over the past two years. The absolute poverty figure has risen to 8.4% in 2020 from 5.6% in 2019. This is in addition to the approximately 600,000 M40 households who are newly classified as B40, representing approximately 20% of those who initially earned between RM4,850 and RM10,959.

Although the transition to endemicity has allowed the reopening of the economy to continue on the basis of further easing/easing and normalization, this is not expected to reverse the income shock that has driven down from many city dwellers in the socio-economic classification scale.

With the cost of living crisis compounded and intensified by imported inflation since late last year, profits have fallen in real terms. This in turn means lower living standards and, most importantly, savings.

Profit and profit exploitation by cartels (facilitated by market concentration and monopoly/oligopoly) in the supply chain (as contributing causes of primarily manufactured inflation) for essential commodities like commodities food have more affected purchasing power and, by extension, savings. It was alleged that poultry was one of them.

Essentially, we are seeing a sort of “stagflation” at the micro level (for the B40 and the lower and middle levels of the M40) – where wages have remained stagnant but the cost of living continues to rise unabated.

Reduced purchasing power and savings levels imply the need to keep more liquid assets, as evidenced by loan moratoriums and the four Employees Provident Fund withdrawal schemes. And our Bursa is trading slowly etc.

In turn, this implies that the state should recycle captive savings (i.e. illiquid assets) locked up due to regulatory/policy requirements, into deficit and invest in the economy (that is i.e. liquid assets) – to increase aggregate savings of households and the private sector (since investment determines savings).

The recent hike in the key overnight rate by Bank Negara will only serve to reduce the fragile purchasing power of the economy, still reeling from the backlash of the impact of Covid-19 – forcing it to reduce his savings. Even if during all this time, it is highly unlikely that we will return to the stagflation of the 1970s, where inflationary conditions persisted consecutively.

This was partly due to the wage spiral, in which the costs of higher nominal wages were passed on to consumers, and the cycle of profit margins repeated itself only to be broken by cuts in an environment of austerity (as in the UK case).

Moreover, the oil shock, characteristic of the 1970s, was the result of deliberate reductions in oil production – which occurred twice (1972-1974 and 1979).

The current spike in energy prices is due to supply chain, ie distribution, bottlenecks. The geopolitical and geoeconomic conflict between Russia against Ukraine and the West does not change this.

Instead, we are in a state of “macro-equilibrium”, where the percentage of the quantum of wage increase (assuming it is constant or maximum) is systematically exceeded by the rate of inflation and, by extension, the Goods and Services Tax (GST), should it ever be reintroduced.

Minimum wage increase: (RM1,500-RM1,200)/RM1,200 = 25%

Hypothetical GST increase: (6% – 4%)/4% = 50%

The GST, of course, would mean that it’s the B40 that subsidizes the higher M40s and T20s.

Implementing the minimum wage increase on May 1, 2022 is not enough to address the high cost of living in the Klang Valley, where there is a high percentage of urban poor.

To get a concrete idea of ​​urban poverty on the ground, just take a look at the low-cost apartments and houses of the People’s Housing Program to see the dilapidated and unsanitary living conditions where a “typical” family of six has no choice but to squeeze into a 650 square foot space.

On top of the already deplorable living conditions, frequent water cuts in the Klang Valley only add insult to injury as people have to queue to collect buckets of drinking water from trucks -cisterns to meet their daily needs because currently we have not set up a supply from groundwater. (as a strategic reserve) via the drilling of wells, which can be done in localities.

Under the administration of Prime Minister Datuk Seri Ismail Sabri Yaakob, the Bantuan Keluarga Malaysia and the National Food Basket Program respectively provide direct cash transfers and food baskets that emphasize nutritional quality.

The aid represents an increase in the amount over previous schemes – up to RM2,000 for households with three or more children.

Although unconditional cash transfers and the public distribution system, in the form of food baskets, are essential to address the socio-economic conditions of the poor, they should only be conceived as a palliative measure.

Beneficiaries should be further supported to exit this social protection system via a multi-pronged strategy, including jobs and training/skills for parents (breadwinners) and technical and vocational education and training (TVET) and higher education for children.

Public-private partnerships or PPPs play a central role – providing the jobs, retraining and retraining or upskilling alongside industry accreditation for TVET programs and higher education opportunities. Private partners definitely include non-governmental organizations and social enterprises.

In March 2022, the Federal Ministry of Lands announced the creation of a special unit that would monitor urban poverty. This unit will also have a designated task force that will be tasked with distributing aid and assistance to targeted vulnerable households in federal territories.

In order to ensure a more effective and coordinated effort in the fight against poverty in urban areas, the special unit should engage in a PPP by collaborating strategically with the private sector and social enterprises.

Take Suri for example. It is a Malaysian social enterprise based in Kuala Lumpur that strives to empower disadvantaged/B40 mothers, providing them with income-earning opportunities, such as teaching them sewing skills.

To date, Suri has 40 full-time and part-time working mothers under her wing. Ten of the mothers are now certified with Sijil Kemahiran Malaysia (level three) as part of their sustainable growth initiative.

EMIR Research has written about the vital role social enterprises can play in providing employment and training opportunities – Social enterprises in Malaysia – a new provider of jobs (June 17, 2020).

He would further like to offer policy recommendations to help poor urban communities by empowering social enterprises:

1. The government should consider promoting private investment in social enterprises. We should persuade investors such as venture capitalists to invest in socially responsible investments by incentivizing social impact bonds, and even green bonds, to invest in the green economy across all areas/sectors.

In another article – Malaysia’s 12th Plan – Piloting the Green Investment Program with Green Bonds” (October 13, 2021) – we called for the creation of a green investment bank which would be 100% owned by Bank Negara, together with either the Ministry of Finance or the Ministry of Environment and Water , or both, holding “preferred shares”.

Under this PPP, the government raises funds for green projects by acting as an intermediary between investors (Bank Negara, green investment bank) and service providers (private sector and social enterprises).

Fiscal and financial incentives can be provided through tax allowances/reliefs for both investors and social enterprises that attract investment.

2. The government should also ensure that social enterprises receive a share of government contracts such as the supplier development program under the PPP.

At the same time, the government should open new dedicated procurement channels for social enterprises – which integrate and implement national policy frameworks on related policy issues, such as social protection and post-retirement employment.

A PPP would provide the urban poor with wider and increased opportunities for better quality jobs that would enable them to access higher income streams and hence increase their purchasing power and quality of life.

Equally important, it would also help the government manage deficit spending in a more targeted and transparent way, where the money will be well spent.

Last but not least, the multiplier effect will also benefit the economy as a whole.

Jason Loh Seong Wei and Rosihan Supplement are part of the research team at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.
Comments: letters@thesundaily.com

About Rodney Fletcher

Check Also

Sebi’s new ETF rules are a game-changer for investors

On July 1, Sebi’s new rules for ETFs and passive funds come into effect. Having …