The Colour of Inequality: Ethnicity, Class, Income and Wealth in Malaysia

This book by Muhammed Abdul Khalid is one of the several books that Ban purchased over the years that he either read little of or none at all ("The Prince" is another example). I recently just finished reading it and here are my thoughts on it.

The key point in the introductoary section is that while there''s plenty of coverage on income inequality but there's hardly any on wealth inequality. This book includes a study of the latter to give a better picture of inequality. 

After the introduction, the book starts with history. Yay! I love history haha. In short, the British is responsible for causing inequality among the races in terms of income and wealth. It was also during their occupation that there was an influx of Chinese and Indian immigrants.

 

The middle part of the book is quite puzzling. On one hand, it presented the following statistics:

" Interestingly, despite the widening income gap in absolute terms among the ethnic groups, the decomposition of inequality by ethnic group reveals that most of the inequality in Malaysia is accounted for by the intra-group component and a much smaller proportion is explained by the inter-group component.  For example, for the year 2004, the total inequality, as measured by the Gini coefficient, was 0.418, and of these, 93.71 per cent was accounted for by the within-group differences while only 6.29 per cent was explained by the ethnic differences. "

" The poorest 20 per cent...cumulatively own less than 0.2 per cent of the total wealth in Malaysia. At the other end of the distribution, the richest 10 per cent account for about 40 per cent of the wealth distribution... "

" The distribution of property assets is equally lopsided. The poorest 40 per cent has about 5 per cent of the total distribution with the middle 40 per cent having about 40 per cent. The richest 10 per cent, meanwhile, has nearly 294 per cent more than the median... "

" The distribution of financial assets is the most skewed, ... The richest 10 per cent controls about 77 per cent of the whole distribution while the poorest 80% accounts for only 5.6 per cent. "

" The "within-group" component is the degree of inequality rising from differences within the group, while "between-group" is the degree of inequality caused by asset disparity between groups. "

" The decomposition of the Theil index for the three different classes shows that more than 90 percent of the inequality in the distribution of financial assets arises from the disparity within groups. "

" Collectively, the between-group component contributed just below 12% of overall inequality, nearly similar to the findings of inequality in income.  These findings suggest that Malaysia's wealth inequality tends to arise largely from large differences within a particular group (whether ethnic or location), and less from the differences between them.  The importance of this findings is that reducing disparity among different ethnic groups will not be sufficient to obtain a significant reduction in overall inequality.  More importantly, the differences within each group will also have to be reduced.  This concurs with the view of previous studies that show that reducing disparity between the different groups would only make a minor contribution to reducing overall inequality. "

In short, these statistics shows that the inequality between the races is almost wholly driven by the differences within each race i.e. poor vs rich in this case. Yet, littered among these are statistics that show how well the Chinese are doing (in terms of income, wealth, education, occupation etc) compared to the Bumiputeras. Why? What is the purpose of including these statistics? The fact that these are correct doesn't mean they should be included. As an extreme example, why don't state that the sun rises in the east and sets in the west?

Perhaps these would be used as justification for certain policy recommendations that are set out at the end of the book but for what purpose? The clear answer to address inequality among the races is to address the gap between the poor and the rich regardless of race, as evidenced by the various statistics above. Strangely, this is exactly what the book set out later, with one exception (*read the last sentence of point (11) below):

(Please note that some of the recommendations are implied rather than directly stated)

(1) Set up a universal non-taxable educational account. Government would match the contribution made by the poor.

(2) Set up more fully residential schools, especially in East Malaysia, and staffed with top-quality teachers and modern infrastruture to make up for what ehse sutdnets lack in their original environment."

(3) Quota system, targeted at disadvantaged students, must be re-introduced, as meritocracy is pro-rich and penalises the poor and the rual students.

(4) Set up a non-taxable interest earnings housing account. Government either match or supplement deposits made by the poor.

(5) A revamp of the housing policy must also be undertaken, particularly in urban areas, where affordable housing must be built.

(6) Development must also extend to the rural and wider regional areas and not just major towns and developed states.

(7) Capital gain tax.

(8) Inheritance tax.

(9) Focus on direct tax rather than indirect tax i.e. progressive tax structure.

(10) Luxury goods tax.

(11)  Set up "Equal Opportunities Act and Commission". " There is a need to promote equal and fair access to opportunities, not only in the private sector, but also in the public sector. *The private sector must be encouraged, and to some extent be given incentives, to ensure that the workforce is at least reflective of the country's population composition. "

(12) Legislation/institution to give those discrimnated against an opportunity to refress unfair treatment.

(13) Encourage unionization.

All the above seek to address the gap between the poor and the rich and nothing on the gap between the races with one exception highlighted by the asterisk which appears out of the blue, much like those statistics showing the differences between the Chinese and Bumiputeras. Again, why?

There are other puzzling moments in the book e.g. dismissing a World Bank study because it was based on a sample size of only 200 but on the other hand readily made conclusions based on an interview with a much smaller number of people, but to me, the most glaring part is what I set out above.

This book would have been much better if all those irrelevant stuff was removed. Their inclusion does nothing good and likely inflame racial sentiments, which is tragic because of how unnecessary it is. Just focus on closing the gap between the poor and rich and everything else should improve.