Tan Sri Wan Abdul Aziz Wan Abdullah - the secretary-general of Treasury, Ministry of Finance, Malaysia wrote in The Star on 14 September 2009 in relation to Redefining Malaysia's Growth Model.

In it, he writes about the need to address new areas of economic growth - to move away from low value economic activities and reliance on low cost labour. He mentions a number of policy areas, but most importantly is our direction on human capital. Some excerpts from the article:

Now, we are at a critical juncture in our economic development path. While the input driven model was successful in transforming the Malaysian economy, there are now signs that export value-added is stagnating and investment by and large, is not contributing to the widening nor deepening of the product mix.

Depending too heavily on the external sector now is no longer an option. It is also not serving to increase domestic value-added through backward and forward linkages. Furthermore, investment is not building research capacity and domestic innovation capability.

In addition, companies operating in Malaysia are too dependent on cheap and low-skilled foreign labour, especially in the manufacturing and services sectors. Private companies are still reluctant to innovate and invest in labour saving technology and new production techniques. These conditions have led the our economy into the middle-income trap.

Transforming from the above model would require significant upheavel and reforms in a number of areas. The middle income trap that is mentioned above is very dangerous because it is comfortable. Unlike the low levels of poverty that drove our industrial model, the current middle income levels are considered satisfactory for many. Hence, moving out of this comfort zone is going to be very difficult.

With a small population of 27.7 million, Malaysia’s domestic demand is rather limited and our companies must strive to make the world their market. This will enable our companies to benefit from the economies of scale and in turn enable the rakyat to consume quality products and services at lower prices.

At the same time, policies need to be put in place to encourage more Malaysian companies to embrace and adopt new ideas, technologies and know-how from the rest of the world. This will enable us to optimise output from existing resources of land, labour and capital.

There is no doubt that competition is a vital part of a vibrant economy. Towards this, strategies under the new model must be designed to attract the entry of new firms and encourage the emergence of new industries. Countries that have elevated themselves from middle- to high-income have relied on change and innovation.

Towards this, we need to focus on R&D and applied technology development in niche areas. This will create critical masses of research talent in centres of excellence and generate findings that give rise to technological spillovers for industry.

The private sector should complement and supplement efforts of the public sector and subsequently play a pivotal role in generating economic activities and be the engine of growth. We are into this together. The role of the Government shall be limited to facilitating private sector initiatives and in those areas where market conditions fail.

It is possible to come up with policies to encourage the above: however, the challenge is to internalise these mindsets. We need to create the "research culture" to be able to ensure sustainable innovation and value creation. To achieve this, it starts with two key areas: education and empowerment.

The new economy also requires our companies to re-examine their business models. In conventional models, maximisation of shareholder wealth is seen to be the ultimate. Men’s insatiable wants have resulted in companies pursuing wealth at the expense of benefits and well being of the people.

Companies should be held responsible for their own actions and/or inactions without Government interference. Such responsible companies will create lasting relationship with customers and stakeholders. Ethics and integrity should be their guiding principles.

Human capital is the key ingredient in the new growth model. As we progress in the new economy, there will be a greater demand for high skilled jobs and if the supply is not available domestically we have to source and pay for such talents elsewhere.

This is the challenge for the education institutions in Malaysia. Our schools, skills centres, polytechnics and universities must play a proactive role and expose our students to the state of the art technologies. In addition, our students should be inculcated with good working habits, suitable soft skills and the yearn for continuous improvement. This long-standing issue must be addressed immediately.

A reform of the education system is a must if we are to stand any chance of building an innovative society. Education MUST be de-politicised and allowed to be reformed by a combination of knowledge experts and visionary entrepreneurs. For one, rote learning has to give way to a more holistic learning approach. Our children must be allowed to think, try & fail, and learn through their own volition.

In addition to the above, society, the public and private sector needs to work towards empowering people. Give people the freedom of expression. The Public and private sectors should remove this "top down" thinking that has pervaded our society for so long. Yes, culturally we respect our elders and those senior to us: but we must allow the youth to teach the elders a thing or two in many areas. Today's technology is moving so fast that it seems only the young are able to keep up.

As an example of empowerment, organisation structures should pass down more authority to the front-liners and have head offices focus on supporting these front-liners instead of asking them to report to head office all the time. The same should be applied in the public sector. Instead of relying on bureaucracy and controls to ensure integrity, allow total information transparency to drive the personal accountability of the front-liners.

These are the two fundamental areas of policy change we should be thinking about. Join us in our discussions on how those policies should look like, what changes should be done, and how those changes are to be implemented. Let's have great discussions on the topic and perhaps we can share these with Tan Sri Dr Wan Abdul Aziz.