Pay increase to achieve High income status?

The Star carried a news report today that a Deputy minister said this:

A pay increase for over one million civil servants is one of the key ingredients in ensuring the success of the New Economic Model (NEM)….

He said this was to ensure that the NEM’s objective of transforming the country from a middle-income economy to that of a high-income would improve the public sector’s productivity, thus ensuring successful development.

“Singapore shifted to a high-income economy several years ago by setting high pay for civil servants, which has succeeded in improving its economic performance.

“So civil servants in this country cannot be ignored,” he said

I thought that was a very simplistic view of how to transform Malaysia from a middle income country to a high income country.

Increasing the pay of the civil servants without increasing the productivity and ensuring that there is a matching growth of the economy will only make the country incur more debts.

Say if there is an  increase of pay without increase in economic activity and growth, the operating budget of the government will increase , and this increase will either come at the expense of the smaller development budget or making the budget deficits bigger. If the budget deficits is bigger, then we need to borrow more to fund the deficits, and ultimately the country will be in a bad financial state. If the development budget is smaller, then we cannot fund projects to stimulate our economic expansion.

It is like a company suddenly raising the staff’s salary across the board without any increase in its revenue and profits. So whatever increase will be from either its reserve or borrowing. This will ultimately affect the balance sheets and the shareholders will suffer .

If the solution is so simple, then even Nigeria, Myanmar would be HIgh Income countries by just increasing the pay of its civils service and forcing its private sectors to increase pay for all Nigerians or Burmese.

We need to increase our economic activities and growth so that we enlarge our tax revenues, making the nation and the government richer in order to pay our workers higher salaries and thus move up the Economic ladder. There is no shortcut to this!

Singapore is a total different case altogether. They pay higher salary to their civil servants because they have the best in their civil service, and their economy was growing much faster at that time when they raised the civil service’s pay. The pay increase matched the productivity increase.

This cannot be said of our civil service where not everything , from recruitment to promotion, depends on meritocracy. In Malaysia, we still have the crutch syndrome and this is a direct opposite of meritocracy. Without meritocracy, ow are you going to attract the best brains into civil service? If the best brains are not in civil service , then how are you going to compete with private sector, no matter how high you raise your salary?

The whole idea ( to increase pay to make the country a high income country)is naive and does not make much sense to me. A high income country depends on innovation and knowledge, and i think we have not done very well in both these areas.