The Gini co-efficient is only half the story for Malaysia

gini.pngQuite a bit has been said about how poorly Malaysia performs on the Gini co-efficient scale — coined by Corrado Gini, its a measure of statistical dispersal. In the case of how its seen recent use, its an indication of the disparity between the haves and the have-nots in any given society. A value of 0.0 means that the country has hit an egalitarian paradise: there is a perfect distribution of wealth were the poor are poor but still control their rightful share of the economic pie and the rich are rich and control their proportionate pie. A value of 1.0 means that ALL the wealth in the society is owned by a single person. 

Apparently, Malaysia scores “poorly” in that regard, with a 0.46. Developed countries named as scoring “well” on the charts are like Italy and Japan with scores of 0.27 and 0.24 respectively. Most developing nations generally have scores around the 0.45 mark. 

Taking Malaysia’s score, members of the Opposition such as Tony Pua and Nurul Izzah, have used it to argue that Malaysia is in a bad state; policies such as the NEP have hurt the country more than it has helped

While what they say has a lot of truth, it’s really only half the story as far as the Gini coefficient is concerned and how it maps the state and mindset of a society. Let’s clear that up right away.

A high score in the Gini coefficient charts is not necessarily a bad thing. Countries like Hong Kong have a score of 0.50, even the United States, as a bastion of equality and freedom, is clocking in at a score of 0.40, not very far away from our mark.

Therefore, contrary to popular belief, wealth distribution disparity does not have to be a bad thing. However, there is a caveat — the opportunity for wealth creation needs to exist. A large gap in the income divide of the rich and poor is acceptable as long as the poor have a means to become rich (and vice versa).

Economic inequality has a positive effect and a negative effect. The positive one is called the “incentive effect”. The greater the disparity between the rich and the poor, the harder the poor will work in order to become rich. The harder the majority work (i.e. the poor), the larger is the result of the overall economic pie. The negative one is called the “distance effect”. Inequality leads to greater inequality. The schools of the rich kids are well endowed and well staffed. The schools of the poor kids are rundown with fewer facilities. Money makes money, the less money you have, the less your potential. 

Obviously, the Government can soften the blow of the “distance effect” through higher taxes for the rich and more aid for the poor. However, there needs to be balance in this — tax the rich too hard and you lose the incentive to work. This is the challenge that social welfare states are struggling with right now. Just ask the French.

So where do we strike the balance? The answer, isn’t so obvious because it’s that we don’t. Or at least, that’s not where the focus should be. The focus of our country’s leaders should be to ensure that there are avenues for upward mobility. If you tell the poor man that he will always be poor regardless of what he does, then you’ll have a socialist revolution on your hands in no time. 

The reason why Hong Kong is such a peaceful state in spite of its incredibly high Gini score is because everyone there is so hard at work. They know that being rich is not a marker of luck or birth — its a result of hard work.

That’s the culture that we need to breed in Malaysia. A culture of hard work and graft. Less the excuses and the whines of why so-and-so are disenfranchised for so-and-so reason. The NEP, Article 153, corruption, cronyism, politics, my father didn’t read me bedtime stories when i was a child — yes, some of them may be valid reasons for feeling left out from the economic table, but none of them trump the fact that success on the back of hard work and sweat is still possible in Malaysia. Our leaders need to remind everyone of this fact, moreso than anything else. Encourage the Government to reward the ones who embrace this philosophy, and try our best to soften the blows to those who don’t.

When i read stories such as this, talking about how the poor man is poor because he only earns RM800 a month and can’t feed his family, i sympathize. But at the same time i have to ask if everything that can be done has been done.

Can’t afford to feed a family of 5 on your income? Don’t have so many kids. Where are the Government policies promoting birth control for the institutionally poor? Too harsh? If you think so, then you’re still not seeing the bigger picture. No one, on any side of the political divide is talking about this. Why not? It’s “not our culture”? Then, our “culture” is partly to blame for our problems. Let’s change that.

Malaysia has a system of public exams — its the same paper for everyone. SPM, STPM. How well you perform in these exams determine your access to tertiary education, access to scholarships, and the like. If you’re smart and you work hard, then there is a way out, regardless of your race. Anything else, is an excuse. No one is stopping you from furthering your education and breaking the cycle of poverty but yourself. I see kids playing truant everyday. Everyone talks about how they don’t have access to scholarships, no one talks about how poor student attitudes are towards education.

Just outside my place of work, a husband and wife operate a fresh fruit stall (one of two such stalls they own). Long hours of work for them, i’m sure. They are there everyday, and are remarkably popular during lunch hour — not only do they keep a good selection of fruit for sale, but its always fresh and their service is prompt and with a smile. One day, i saw them drive away in a very expensive MPV, after clearing up for the day. 

A poor man is poor, while its convenient to blame the Government for not doing enough, poverty is really, very often, a choice the poor man made. Changing this choice should be our priority. That is the real story no charts or tables will be able to tell.


2 thoughts on “The Gini co-efficient is only half the story for Malaysia

  1. Good writeup Aiz, inequality in itself is not bad as long as it is a result of market forces. The market is neutral and with minimal information asymmetry, the poor has every chance to employ market forces to their advantage. However inequality as a result of market manipulation and distortion where the government favors a selected group based on race or cronyism resulting in monopoly blocks access for the poor. Essentially if you are poor and are not in the government good books, you are screwed. Whilst there is room for some upward mobility in Malaysia, our political economy make up is closer to the second category of inequality.


  2. While you may be right, Sani, it’s disappointing to see that no one (or at least, no one recently) among the leadership has really spoken about what the people can do for themselves.
    Everyone, including the Opposition, has been talking about what the government, state or federal, should be doing for them.
    The focus is incomplete, and that’s going to be, if not already, part of the problem Malaysians will faced on the issue of upward mobility.


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