Does the National Economy Exist?

By Ooi Kee Beng

for The Edge Malaysia, 31 July 2016.

The income gap, technically defined, is quite an easy concept to comprehend. One can compare Gross Domestic Product per capita or per household within a given country; and collectively, one can use the Italian sociologist Corrado Gini’s measure of statistical dispersion developed in 1912 to represent the income distribution of the residents in a country—the Gini Coefficient.

What is clear today is that income gaps in general have been increasing throughout the world, especially since the idea that income redistribution as a political ideal to lower wealth gaps and opportunity inequality took a severe beating with the fall of the Berlin Wall in 1991. Vulgar understandings of market forces in the form of neoliberalist thought have overwhelmed the world since then.

The fall of communism in Eastern Europe was paralleled in China by the permission given by strongman Deng Xiaoping to China’s 1.2 billion people for some of them to get rich first, and without consideration for the widening of income gaps in a country that for several decades had sought to realise egalitarian dreams.

But behind leftist ambitions versus rightist desires about income distribution lies a larger issue, and this has to do with the basic unit of analysis, namely the nation state—and more specifically, the national economy. The national economy needs to be contextualised and deconstructed for a historically informed picture of a country’s political economy to surface.

The ontological status of a national economy is a complex one. When can we say that an economy is a national one? By virtue of statistical incorporation of economic activities carried out within national boundaries into a national budget? By looking at tax dominion? By virtue of a common currency? Or by virtue of economic and fiscal policies being implemented systematically over time?

When is there an entity worth calling a national economy? To me, it has to be twinned to the notion of nation building to make sense. The development, income, and opportunity gaps within a single country are a measure of how integrated the various socio-economic realities – the various societies – that exist within its boundaries are. The more integrated those realities, the more national the economy.

The simple act of founding a country through universal acceptance of its geographic boundaries; who qualifies as its citizens; and even through the legislation of a constitution, does not a national economy make. These do not turn the complexity of human endeavours within national borders into an integrated and dynamic entity.

A national economy, to be logically national, has to be inclusive in nature. This inclusiveness is not only about universal taxation or a simple redistribution of resources. It has to be about the mission of providing benefits and opportunities for its citizens, with the structural support needed incorporated for these opportunities to be properly utilized.

Analysing post-colonial countries like Malaysia should illustrate what I mean. The parts that were nominally and practically controlled and that now constitute Malaysia were to varying degrees incorporated into, and developed as, parts of Great Britain’s colonial economy—and by extension, of the global economy.

Needless to say, while some territories, such as Singapore and Penang, were important nodes in the global economic network, others such as Terengganu and Kelantan were only tangentially touched by outside dynamics, and largely inconsequential to the empire. Most of the rest of the territories functioned as plantation land, forestry assets and tin mines. These globally-informed economic activities affected the population to varying degrees, and public services and political structures were established to serve them and to provide stability and security for them.

The history of Malaya after independence demonstrates the attempts that are needed to develop a country, build a nation, manage a state, and create a national economy to replace the colonial economy. The first Prime Minister Tunku Abdul Rahman Hussein’s gradualist style was considered too slow and tested the patience of many within his own party. His successor, Tun Abdul Razak Hussein, adopted a profoundly interventionist approach and implemented policies to change the socio-political and socio-economic nature of the country. Nation building – and the creation of a national economy, in the mind of his administration – requires the transformation of socio-economic structures into ones that would successively and incessantly close the development, income and opportunity gaps. This was clearly expressed in the Second Malaysia Plan, what we in short call the New Economic Policy.

Without doubt, much was accomplished during the NEP’s twenty years. By the time it officially came to an end in 1990, the Malaysian economy was ready—buoyed by some good timing and luck, no doubt—to fly with the other Flying Geese of East Asia.

Mahathir Mohamad’s Vision 2020, which staked out the developmental path for the country, entered popular discourse in 1991. However, along the way, the prerequisite of inclusiveness in the building of a national economy, was forgotten more and more. This amnesia led not only to heightened consciousness about divisions between races and religions and the tensions that emanate from that; but also the failure of the government to integrate beyond the tipping point the diverse economic realities found within the country.

These two conditions interact most profoundly. The failure to integrate the population’s diverse socio-economic realities is manifest in the country’s development, income and opportunity gaps. And the failure to fill these gaps has in turn led to them being filled by the heightened consciousness of racial and religious divisions.

Sadly, this divisive state of mind is politically always useful, and when stimulated distracts popular attention away from those fateful gaps in order to perpetuate them.

The author is Deputy Director of ISEAS-Yusof Ishak Institute, Singapore.