Sunday, June 26, 2011

Can tax incentives do the trick?

Selangor Times, June 24-26, 2011

Drains, by design, flow one way. So although I have never been enthused about the brain drain catchphrase, I find it fitting for this reason. It is hard to reverse the flow.

And it gets harder when we get opinionated while possessing little information on this complex national dilemma. There are hundreds of thousands, maybe close to 1.5 million, of highly educated Malaysians in Singapore, Australia, US, UK, Brunei, Canada and other higher salary countries. What really matter are the circumstances and views of this diaspora, but how do we find out?

The World Bank’s recent Malaysia Economic Monitor makes a welcome and needed contribution. The report highlighted the increasing seriousness of brain drain and presented some findings from an online questionnaire.

The number of respondents was low; the authors duly advise caution in interpreting the results based on a survey sample of around 200. The ethnic composition is similar to data on Malaysian immigrants compiled from receiving countries – predominantly Chinese, with a section of Malays and Indians. The young are also disproportionately represented, so the findings may be statistically biased toward their concerns. In the interest of nation building, though, this is not necessarily a bad thing.

The thematic results are not surprising, mostly adding statistical punch to our hunches. Brainy Malaysians are driven to live abroad to earn more money and pursue more fulfilling work, and are driven away by what they see as unfair policies. Respondents were asked their top three reasons: 66 percent ticked career prospects, 60 percent social injustice, and 54 percent compensation.

More interesting, though less headlined in the media, are some other bits of information. These illustrate the complexities of the problem, and underscore the need for further analysis before we can confidently propose policies to reverse brain drain. Reactions to the report focused, as expected, on discriminatory policies. But the study obtains other results that suggest meritocracy and financial rewards are not sufficient, and maybe should not even be the main starting point.

What might entice an immigrant back? To this question, 87 percent said a shift from race-based affirmative action to need-based affirmative action. I find this notion incoherent, and have not come across any credible programme of action by its proponents. The underlying egalitarian sentiments and the rejection of race-based policies are legitimate, but provide little basis for reform.

Other answers give us more to chew on. 82 percent of respondents indicated that “evidence of fundamental and positive change in government or the public sector” might incline them toward returning to Malaysia, while 46 percent checked “greater investment in public education”.

The combination of surveyed opinion indicates that systemic change matters as much as personal gain, and that rhetoric must translate into reality. Altering regulations, like pronouncing meritocracy, is not enough – this country needs to find ways to widen meritocratic practices and demonstrate sincerity and courage in tackling our fundamental problems.

Much still remains murkily understood. How much does the decision to leave Malaysia and not return stem from ethnic quotas, how much from deteriorating quality of institutions?

Unfortunately, we still know too little. The World Bank questionnaire did not ask whether respondents applied to public universities, or whether they would have enrolled in private tertiary education all along. It precluded asking a follow-up question to those who opted for private institutes, whether the spectre of the admissions quota or doubts over quality swung their decision.

Attitudes toward government and the bureaucracy also feature in the brain drain discussion. However, it’s unclear whether the discontent is related to discrimination, inefficiency, or corruption. Do Malaysians of the diaspora widely express negative views of government because they feel denied job opportunities in the civil service, or are they aggrieved at corruption and inefficiency associated with wayward practices in promoting officials and conducting government-business relations?

My sense is that ill-feeling toward government and unequal employment opportunity derives more from things that need not have immediate effect on peoples’ material lives but impinge on their sense of justice, such as poor public services, corruption and inequality. In other words, more meritocracy in the civil service is good, but cleaner government is better.

Another interesting note. Only 17 percent of survey respondents indicated that a “favourable tax structure” would carry weight in the decision to return to Malaysia. I’m not sure what to make of this.

Perhaps they have experienced paying higher tax rates in advanced countries but do not mind since they enjoy the benefits of decent government services and see transparency and accountability on public spending? Perhaps they accept that returning to Malaysia will entail financial sacrifice, so tax breaks will not do much to change their mind?

Inferences aside, the World Bank’s finding, if reliable, does not bode well for the government’s offer of tax incentives to lubricate “brain gain”. Again, the question arises, would Malaysians abroad be attracted back by giving personal inducements? Or would their decision be tipped by making government more transparent and accountable, improving public education and services, and ridding corruption?

Of course all the above matter, but we are giving perilously inadequate attention to the second set of issues.