My Say: National social protection should be introduced soon
Malaysian politicians have long reminded us that we will soon achieve high-income country status. But the vulnerable, often silent majority has largely felt excluded, and various vulnerabilities are felt more intensely by this growing ‘precariat’.
Many of them yearn for lasting and comprehensive social protection. Malaysians struggling to cope with recent catastrophic events – such as the pandemic and the recent floods – are increasingly demanding reliable help. But this desire goes far beyond the aspiration for short-term relief programs to deal with temporary threats.
Social Protection Floor
A recent report by the Khazanah Research Institute (KRI) recommends comprehensive social protection across the life cycle – from childhood through adulthood and then into retirement as people age. It aims to strengthen social security in Malaysia, calling for an inclusive “social protection floor”, leaving no one behind.
Led by Hawati Abdul Hamid, “Building Resilience: Towards Inclusive Social Protection in Malaysia” is co-authored by Adam Manaf Mohamed Firouz, Jarud Romadan Khalidi, Nur Thuraya Sazali, Puteri Marjan Megat Muzafar and Siti Aiysyah Tumin.
The report makes recommendations for desirable government investments towards a more just society. Invoking multilateral conventions, it promotes social security for all, based on a life-cycle approach, and the universal provision of essential social services and income security.
Rather than reactive, the report is forward-looking. As the government considers short-term relief and recovery measures, it should reform ‘forward’ for the future – instead of the Davos slogan of ‘building back better’. After all, you should “never let a good crisis pass”.
The proposed social protection floor includes a universal family allowance (UCB) to ensure that the cognitive and physical development of each child is not compromised.
Improving life prospects not only equalizes opportunities for all children, but also brings long-term economic and other benefits to the nation. Initially, the proposed UCB would cover children up to 12 years of age. It would then extend annual coverage to all teenagers under the age of 18.
The extension of compulsory social security to all Malays of working age is the second major thrust of the report. In terms of sequencing, it first proposes to extend minimum coverage to all before improving longer-term protection.
Existing social insurance schemes were never designed for the new working majority — in non-standard employment, contract work, self-employed and others in informal employment — who are largely excluded from existing schemes .
old age vulnerability
The Employees Provident Fund (EPF) was established in 1951 to win Malay hearts and minds during the colonial counter-insurgency campaign. The mid-1948 emergency had made little military progress in its first three years before the British changed strategy.
The EPF was financed by employers’ and employees’ contributions, without public financing. The contribution is legally compulsory for all employees (including part-timers) in the private sector. But the EPF does not cover most workers who are not formally employed.
Consequently, most do not participate, especially those with employment contracts – commonly referred to as contract workers. With only a small fraction of the working population eligible for government and other pensions, less than half can rely on EPF pensions or savings.
Before the pandemic, more than five-sixths of EPF members could not expect retirement income above the official poverty line from their savings! Now only 3% have enough to stay above the more realistic EPF Belanjawanku poverty line.
These widespread deficits mean that there is no income security for most older Malaysians to live out their lives in dignity after retirement. Instead, the report proposes a Social Insurance Pension (SIP) to provide basic income security for older people.
Social security financing
Calling for comprehensive social protection to deal with the various risks throughout the life cycle, the report’s recommendations integrate the principles of social solidarity, risk pooling and collective financing. But changing technology and work processes as well as budgetary constraints pose new challenges for the sustainable financing of social protection.
Meanwhile, payments to self-employed or contract employees often increased as livelihoods became more precarious. In addition to preventing poverty, social security also seeks to limit precariousness by mitigating socio-economic shocks, other vulnerabilities and related risks.
Comprehensive social protection should induce a virtuous circle, strengthen the social contract, foster trust in government and increase government revenue. Of course, more targeted social assistance will always be needed, for example for people with disabilities.
In this effort, the report envisages an important contribution from voluntary organizations and other civil society organizations. Yet comprehensive social protection requires establishing and providing a basic floor – without depending on charity, changing fashions or political whims.
In implementing its recommendations, the report urges that feasibility, cost-effectiveness and efficiency be kept in mind. Recognizing the pandemic budgetary demands, he urged allowing time to secure adequate funding to build the necessary capacity and institutional capacity.
The report proposes to have a single national social security institution with a unified register providing comprehensive social security, without excluding anyone. Public expenditure for UCBs and protection schemes for people of working age is estimated at around RM16.4 billion in the first year.
The authors recommend starting SIP after everyone under the age of 18 has received Child Benefit. They also expect savings from the consolidation of existing programs, reducing the additional public expenditure needed to RM2.4 billion per year.
To be financially, economically and socially sustainable, the report proposes that public funds complement employer and employee contributions. Thus, the government will have to subsidize the precarious, namely the unemployed, the unpaid (for example, housewives) and workers in informal and atypical employment.
The report recognizes that Malaysia has already achieved a lot. He notes that EPF and the Social Security Organization (Socso) quickly brought some relief to members after the Covid-19 pandemic disrupted livelihoods.
While noting gaps in coverage, he appreciates how contributory social insurance has helped formal sector employees cope with life cycle risks. But in the future, there is still a lot to do to overcome obstacles, problems and criticisms.
As Tun Abdul Razak Hussein sought to reunify Malaysia after May 1969, he proposed the Rukunegara and the New Economic Policy (NEP) in 1971. These aimed to achieve “national unity” by ending poverty and reducing inter-ethnic socio-economic disparities.
Razak envisioned a Bangsa Malaysia and “nationalist socialism” with state intervention in the national interest. He created Socso in 1972 to eventually provide comprehensive social protection in nine areas. But his vision died with him, with no other ruler, including his son, pursuing it since.
Thus, the KRI report takes up the challenge launched half a century ago by Razak. It suggests what can and should be done for equitable development. After all, a nation is judged not just by the ostentatious lifestyles of its elite, but more so by how it treats its poorest.
Jomo Kwame Sundaram, a former professor of economics, was UN Under-Secretary-General for Economic Development. He is the recipient of the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.