By Ahmad Ibrahim
Everyone speaks about economic reform. Our economy can be stronger with some structural tweaking. The high income dream continues to elude us. We are addicted to labour intensive industries. We are over dependent on the low cost business. The plan to migrate to a high technology industry remains lethargic. Our wages have not kept up with inflation. Though our cost of living is among the lowest in the region, many struggle to deal with living expenses. We subsidise to ease the struggle. But subsidies prove costly. Targeted subsidies have been suggested as more realistic. Implementing is not easy. Our fiscal health is not in the best of shape. Reducing the deficit is a struggle. Experts say our taxation system is not the most efficient. The GST would be a better option. But this was manipulated for political gain during GE14. Most economists disagree with the claim that GST was the reason for rising costs. All agree we need to structurally reform the economy to have a chance of moving forward sustainably.
A major challenge to economic reform is the lack of public understanding about the economy. Low economic literacy is a stumbling block to constructive economic reform. The government is serious about instituting reform. But the acceptance by the population is a struggle. We saw this in the recent attempt to rationalise the country’s diesel subsidy. Many among the general public only look at the immediate pain that they have to go through with the removal of the subsidy. This is because of the poor understanding about the true economic role of subsidy. In a proper economic structure, subsidy should be a temporary measure to address economic issues including catalysing investment and taming inflation. It is not permanent. Subsidies are often deployed to incentivise new investments. A good example is the energy transition roadmap, where subsidies are given to motivate businesses to shift into more sustainable energy.
This is where economic literacy can make a difference. Various measures have been proposed to improve the economic literacy of the population. Informed decision-making is one. A populace that understands basic economic principles can make more informed decisions when voting on policies or supporting specific reforms. This reduces the likelihood of endorsing policies that may have negative long-term economic consequences. Next is accountability. Economically literate citizens are better equipped to hold their leaders accountable. They can critically assess the promises and performance of their representatives, pushing for transparency and honesty in economic matters. Economic literacy promotes the creation and support of sustainable policies. Understanding concepts like budget deficits, inflation, and taxation helps in recognizing the need for balanced and forward-thinking economic strategies. There must be adaptation to change.
With the global economy constantly evolving, economic literacy enables individuals and businesses to adapt to changes more effectively. This includes understanding market trends, technological advancements, and international trade dynamics. There will be reduced inequality. Educated citizens can advocate for fair economic policies that address issues of inequality and social justice. They are better positioned to understand the implications of wealth distribution and the benefits of inclusive economic growth. Studies have shown that economic literacy empowers individuals to manage their finances better, leading to improved personal financial stability and reduced reliance on social safety nets. This individual empowerment collectively contributes to a more resilient economy. A society that values and understands economics is more likely to encourage innovation and entrepreneurial ventures. This drives economic growth, job creation, and competitiveness in the global market. Economic literacy is not just a personal asset but a societal necessity that underpins effective governance, sustainable development, and overall economic well-being.
We must get serious to strengthen the economic literacy of the people. All must understand the issues. Education can start from school age. Economists must communicate more with the general about the economic instruments. Instruments including subsidy, taxation, investment and budget preparation must be communicated in simple terms to the public. Stay away from using complicated economic jargons. Only through better economic literacy can the government move with economic reform which the country desperately needs.
The author is an Associate Fellow at the Ungku Aziz Centre for Development Studies, Universiti Malaya