crises – the _

I have been thinking about how fragile Malaysia could be lately after remembering episodes when the country looked brittle. The 1965 breakup when Singapore became independent is an example but there are other times that fit the bill: the Emergency, the 1969 riots and possibly even the crises of the late 1990s.

With the world changing rapidly, I do not think the idea of Malaysia remaining as a country could be taken for granted. Whether we survive as a country depends on how we identify and navigate various challenges. These challenges do not necessarily lead to a national breakup, but could lead to the diminution of the country in terms of economics or prestige.

Many of these challenges are actually interlinked and solutions would have to be thought through multidisciplinary lens.

For my own benefits, I am listing down those challenges here:

Territorial integrity.
1. Loss of control over the waters of Sabah and Sarawak. This concern comes from China’s presence in the area. Unlike other Asean claimants, China is special due to its aggressiveness, expansive claims and refusal to abide by rules all Asean claimants largely adhere to. A significant loss of territory would involve a significant loss of petroleum revenue to all Malaysian parties, leaving revenue claims between the federal and state governments a moot point. And unlike Malaysia’s previous dispute with Singapore with respect to areas surrounding Pulau Batu Puteh, or with Indonesia with respect to the seas around Sipadan, the China trouble would likely involve the use of force and violence.
2. The balkanization of Malaysia, with Sarawak and Sabah exiting the federation as having the highest probabilities. There has been growing secession calls based on years of unhappiness relating to unequal partnership between the federal government and the two states. One positive aspect from this is without the Borneo states, Malaysia would likely stop having serious disputes with China and that would free up the rump Malaysian state from a tricky geopolitical problem. But this would also mean that smaller Malaysia would lean towards China more.
War in Asia-Pacific. A war that matters would likely involve China and the US. In this war, it would be hard to stay neutral.
Foreign political influence in Malaysian society. Foreign influence is inevitable for a small, open and diverse country that Malaysia is, with a largely free and democratic environment. But with risks of international conflicts rising (prime examples include geopolitical rivalry between the China and US, wider conflict brought by Israel in the Middle East which would inflame sentiments in other parts of the world, war in the Taiwan Strait and conflicts involving non-state actors particular those relating to jihadist and adjacent groups), foreign actors would attempt to sway domestic public opinion, domestic elections and through that, political decisions that Malaysian national leadership make. There have been domestic corruption cases with links to foreign governments and high offices had been penetrated or compromised by foreign agents before. Additionally at the societal level, this could further reduce trust between ethnic groups who generally would be affected by certain international issues differently.
Fragmentation of the global supply chain. This could go either way. Malaysia for the longest time has been deeply embedded in the global supply chain and this had brought the Malaysian industrial revolution of the 1970s-1990s. But it also caused the 2000s premature deindustrialization following China’s entry into the WTO in 2001. At the moment, Malaysia is benefiting from changes brought by heightened China-US rivalry (plus their respective allies) but the way Malaysia is handling it—playing both sides and creating an imperfect balance—might risk a blowback from one side or the other. We have already seen certain Malaysian companies slapped with sanctions by the US, which spells doom for those specific businesses. There are chances that Malaysia needs to choose which supply chain we want to participate in, and lose access in the other.
Fiscal challenges. To address changes in the global economy and global politics (along with the retreat of the free trade consensus), the Malaysian state needs to have the necessary capacities and capabilities in various fields: education, health, defense, infrastructure, energy, various industries, etc. To develop and maintain those capacities and capabilities, the state must have the required fiscal firepower. But Malaysia has a weak-to-okay fiscal space owning to the federal government’s reluctance to address taxation issues decisively while facing growing decentralization demand along with rising expenditure requirements. This reluctance is primarily due to electoral considerations, and not so much the inability of the economy to generate such revenue. I would go as far as claiming that this fiscal challenges are partly the cause behind Malaysia’s inadequate measures in tackling other challenges cited in this list. The longer the reluctance lasts, the harder it would be to address those many challenges as those challenges do grow over time.
Decentralization among Malaysian states. Many have long sought decentralization away from Putrajaya as a means to provide check-and-balance to federal powers. But recent decentralization has brought several new challenges (and amplified preexisting ones) to a small country like Malaysia. There are at least four challenges from the top of my head.
1. Loss of revenue for the federal government. This goes back to concerns over fiscal pressures the central government faces and from there on, national capacities and capabilities. This eventually would hurt the beneficiaries of decentralization as they likely would have to pay for the same services the federal government finances, but possibly without the benefits of economies of scale.
2. Loss of capacity caused by transfer of authority of specific issues. This depends on the power and not all transfers are negative nationally.
3. Loss of policy cohesiveness which challenges the central authority to improve certain areas such as energy security. In other words, policies would likely see fragmentation. But again, this depends on the fields. Some fields may benefit from diversity of solutions but some others, not. I fear for many policymakers especially at the state level, they lack the competencies to see such a thing.
4. The loss of Malaysian customs union, specifically, tax-based taxes that discourage national trade and weakens the common market. This is a threat for overall national economic growth as it would be a drag on trade growth.
5. Weakening of the Malaysian identity, hence the loss of societal cohesiveness and further erosion to social capital.
Climate change. Malaysia will require investment and spending to adapt to the new reality of climate change. These investments and spending include infrastructural like sea barriers, fresh water supply, shift of energy use, electrification and spending such as compensation for maintenance of forest cover, tree planting as well as expenditure to raise the capacity of health and emergency services. Without the necessary fiscal power, Malaysia would likely not able to mitigate some of the effects of climate change, and/or adapt as well as we need to be. This would likely need further expansion.
Ageing society. Malaysia still has a young workforce, with the overall population median age at 30 years old but the situation will change in the next 20-30 years.
1. This will require investment in health facilities made in the near future, which is dependent on the government’s fiscal strength. There is the private sector of course but it is unlikely to provide a comprehensive coverage at an affordable cost to the public that a universal public system could.
2. The lack of a universal safety net will be a problem.
3. An ageing society also would demand greater labor force likely through migration if the country is to grow economically further.
4. Economic growth in such a demography would likely be weak, which raises the likelihood of social instability, given Malaysia’s low social capital that would work better with high economic growth.
5. Pension crisis. This specifically about the government civil service’s pension through KWAP. Currently, there is a large liability gap and it is unclear it would ever be covered under business-as-usual scenario.
Youth unemployment/underemployment and the danger of a growing underclass. One worrying trend is the demand for instant gratification by young adults in the form of reluctance to investment in education. They are attracted to the gig economy and they rationalize so by stating current gig income is more lucrative than going into debt for tertiary education. However in 10 to 20 years, these groups of youth would likely find themselves as an underclass as their real income stagnant and left behind by those with tertiary education rises, whose premium over those without would likely widen. The assumption of wage stagnancy for gig workers understates the problem: how would they compete with AI driven gig services? This kind of mass joblessness would create future social instability, especially as the society ages and relies on the young for tax revenue needed to fund societal needs.
Political dynastic rivalry. Malaysia has only recently become a competitive democracy and we are beginning to see political dynastic rivalries that fall neatly along partisan division. There is a danger the rivalry becomes a zero-sum game as losers get prosecuted and winners get everything. In such a case, the losers would not necessarily go away peacefully or let go out power when they should. This could easily turn into a chaotic and violent equilibrium that has been witnessed in other countries.
Race and religion. This is intertwined with political dynastic rivalry, but also dependent on economic growth. A weak growth along would likely raise the temperature as far as race and religion is concerned. I also think this is just a proxy to the low social capital that Malaysia has. This risk has proven to be an effective tool at derailing reforms needed to address multiple other challenges.
Technological change. This is a wildcard because we do not really know how it would affect Malaysia. We still do not have a clear idea how 5G would change our lives (the way in the 1990s, we only had a vague idea how the internet would change everything). And even with AI is all the rage now, we still do not have a clear idea how it would change everything that we do. Malaysia could either ride the wave or miss the boat.
Growing rich before growing old. Malaysia aims to be a high-income economy soon. Although definitionally it is easy to achieve, it might be harder to do so in a more substantive manner. It is also a race against other economies: recently China has passed Malaysia in terms of GDP per capita, which shows Malaysia is starting to fall behind.
Immigration/refugee crisis. There are severe crises all around the world and the closest one is happening in Myanmar. Large waves of refugees could overwhelm the Malaysian system, which is already suffering from insufficient funding.

I would likely expand this later by putting them in timeline (to describe urgency), rough likelihood of these things happening and the degree/intensity of each problem.