Can Vision 2020 be Far Away? Malaysia's Transformation Problems to a High‐income Economy

Abstract

AbstractAt the beginning of 1990s, the then Prime Minister Mahathir Mohamad set the goal that Malaysia in 2020 should become a high‐income economy and a vigorous and economically just middle class society. We are not far away from 2020. We therefore raise the question whether Malaysia is close to or far away of becoming a high‐income economy with this economic trap issue in the article. Instead, we focus on income inequality as an inroad to economy seen from an OECD country level perspective. In our examination of this question, we first discus different strands in the debate on transformation from middle‐income to high‐income economies. The debate has focused on the middle‐income trap issue especially from an economic perspective. It is an interesting and fruitful input to the transformation debate, particularly the question whether lack of industrial upgrading and deepening keeps middle‐income economies back from becoming high‐income economies. We do not deal so much with Malaysia's transformation problems. From our point of view, income inequality (high Gini coefficient) is an important but often neglected element in the mosaic to explain Malaysia's transformation problems both in a domestic and global policy perspective. We examine income inequality and transformation to a high‐income economy from different angles. We look into the business structure; income distribution compared with high‐income economies; household income distribution, consumption, lifestyle and the middle class; education and tax system as lever or barrier for reducing income inequality; old and new political coalitions as drivers for maintenance or change of income inequality. Through this analysis, we seek at the same time to highlight whether Malaysia is close to become a vigorous and economically just middle class society.