The errors of five-year Malaysia Plans

By Medecci Lineil

11th Malaysia Plan (11MP) is an economic plan that determines how labour, businesses and financial capital will be allocated.

“The 11MP has clear strategies, initiatives and outcomes. It will radically change our way of doing things and accelerate the country’s development. What did not work (previously) will be eliminated, what is high impact will be scaled up and accelerated,” the document states.

The 11MP, in my view, can be thought of as similar to five-year plans for the national economy of the Soviet Union which were implemented from 1928 until its collapse in 1991.

Yet our politicians and economists are not willing to give up on the idea.
How many houses can be built, how many technical workers must we produce, how many jobs can we create, how much income can we earn, what prices can we control, how much money is needed to lift the bottom 40% out of poverty and turn them into middle class society, how much land can we develop, what business can we do, what kind of subsidies should we give to industries, how much money can be financed to build basic infrastructures?

My question is: why does the government keep thinking that it can micromanage entire sectors of the economy?

To think it can do so is completely ridiculous. I know intelligent and PhD bureaucrats at the Economic Planning Unit and Ministry of Finance like to exaggerate their understanding and control.

Can you imagine being a developed nation after five years from now is going to be determined by a book of hundred pages long?

When Austrian economist Friedrich Hayek received the Nobel Prize in 1974, his acceptance lecture was a warning to economists and social scientists about the dangers of scientism and the pretence of knowledge.

His message in his lecture was clear: “If man is not to do harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organised kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible.”

Taking wages and prices for example, despite having a general idea about the relationship between them, Hayek said that economists do not and cannot possess information about the particular structure of wages that produce equilibrium.

He also called men who believe they can ascertain and direct all the forces at work in society fatal conceit.

He wrote “intelligent people will tend to overvalue intelligence, and to suppose that we must owe all the advantages and opportunities that our civilisation offers to deliberate design”.

The central planners and intelligent bureaucrats are now telling us we need to spend RM260 billion of taxpayers’ money on people’s well-being, human capital, education, infrastructure, innovation and productivity.

Let us take housing. A huge allocation of resources by the government to supply one million houses and seduce us into buying them, regardless of whether we can afford it or not.

Home financing is expanding, thus prices go up. Who is hurt the most? The very people it designed to help, those at the bottom 40% who have to borrow more money to buy a house at what seems to be ever increasing prices.

We can now see the job of central planning is impossible, even for the smartest person like Datuk Seri Dr Rahamat Bivi, director-general of the economic planning unit at the Prime Minister Office.

In other words, Hayek said, “The recognition of the insuperable limits to his knowledge ought indeed to teach student of society a lesson, of humility, which should guard him against becoming an accomplice in men’s fatal striving to control society – a striving which makes him not only a tyrant over his fellows but which may well make him the destroyer of civilisation, which no brain has designed, but which has grown from the free efforts of millions in individuals.”

Perhaps it is time for us to revisit the works of Friedrich Hayek.

First published at The Malaysian Insider on May 23, 2015.

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