KUCHING: Malaysia’s decades-old five-year economic plans are doing more harm than good and should be scrapped, says the Centre for Market Education (CME), arguing that they distort markets, waste public funds and stifle productivity growth.
In a policy paper released this week, CME called the plans “Soviet-style relics” disguised under modern labels such as “strategic thrusts” and “mission-critical enablers.” Despite their technocratic appearance, the think tank said, the plans rely on the flawed assumption that information about costs, opportunities, and preferences can remain stable over five years.
“When a five-year plan is taken seriously, it cages the economy. When it is applied loosely, it becomes a wish list,” the paper said.
Either way, CME argues, central planning disrupts the market’s ability to coordinate information through entrepreneurial trial and error, leading to misallocation of resources, fiscal pressures, and slower productivity growth.
CME described two common failure modes: when taken seriously, the plans impose rigid targets and direct capital into pre-selected sectors, often clashing with changing market signals. Governments then respond with subsidies, guarantees, or special-purpose agencies to prop up these initiatives—resulting in contingent liabilities and long-term fiscal strain.
When applied loosely, the plans devolve into aspirational catalogues. Ministries cherry-pick pet projects, track activity rather than outcomes, and often ignore sequencing, budget limits, and trade-offs—weakening accountability and blurring policy priorities.
“Planning substitutes rhetoric for rules. The government shifts from setting clear frameworks to orchestrating grand narratives,” CME said.
CME rejects the idea that development is left to chance in market systems. Instead, it says, markets channel decentralised knowledge through prices, profits, and losses.
“No document, however consultative, can capture the complexity of millions of interdependent decisions,” the paper said.
“The role of policy should be to set simple, general, and predictable rules that allow bottom-up solutions to scale.”
The paper also highlights Malaysia’s heavy reliance on government-linked companies (GLCs), which dominate key sectors like banking, utilities, transport, plantations, property, and services. While some GLCs serve public mandates, CME warned their sheer size discourages private initiative and locks in insider advantages.
“Even when GLCs are efficient, they deter entry, stifle business model diversity, and pull talent toward rent-seeking rather than innovation,” it said.
CME called for a full review of GLC holdings, categorising them into strategic monopolies, contestable sectors, and non-core assets. Where competition is viable, GLCs should not receive preferential treatment in taxes, guarantees, or procurement.
CME proposed replacing five-year plans with a rules-based policy framework. Key recommendations include:
Hard budget constraints: Introduce a medium-term fiscal framework with clear rules, such as net debt-to-GDP limits and caps on operating expenditure growth.
Transparent project pipelines: Replace planning wish lists with costed, rolling infrastructure pipelines reviewed independently. Focus audits on value for money, not political theatre.
GLC reform and divestment: Publish public-service obligations, link them to performance, and begin a phased divestment via IPOs, trade sales, or management buyouts.
Regulatory simplification: Establish a one-stop digital system for business registration with fixed timelines. Conduct a full inventory of licences and scrap unnecessary ones through a regulatory “guillotine.”
Open trade and capital flows: Liberalise foreign entry in services and high-value manufacturing. Tie incentives to performance in R&D, exports, or workforce training.
Competition reform: Strengthen the competition authority’s independence and enforcement powers, including against GLCs. Use open access and fair pricing rules in network industries.
Instead of chasing flagship megaprojects, CME said government should refocus on delivering core public goods: quality education, clear property rights, impartial courts, efficient ports, and clean infrastructure. Procurement in these areas should be open and based on lifecycle cost assessments to curb discretion and leakage.
On tax policy, CME urged a shift toward broad-based, low-rate taxes with minimal exemptions. Where incentives are needed, they should be automatic and rules-based—such as accelerated depreciation. Equal tax treatment for debt and equity, and allowing firms to carry forward losses, would also support growth.
Rather than tracking traditional KPIs, CME proposed a national productivity dashboard measuring total factor productivity, new firm creation, export sophistication, and capital efficiency. These indicators should be published quarterly, and major policies should face sunset reviews tied to measurable impact.
“Outcomes matter more than optics,” the paper said. “It’s time to replace planning with performance—and let the economy breathe.”
