While some have argued that economics is a technical subject, others may argue that, quoting Ha-Joon Chang, the author of ‘Economics: The User’s Guide’, “95% of economics is common sense deliberately made complicated”.
Based on the book ‘The Econocracy: the perils of leaving economics to the experts’ written by three English young economist-academicians in 2017, economics has become too complex for the common people to participate, giving the effect that they are not entitled to an opinion and there is no way for them to enact changes in the economy. It is assumed that the economy is a totally distinct system with its very own logic, that is only understood by the experts – apart from economics becoming the tool of power for some.
At PUTRA, we always believe that knowledge is to be shared with everyone and for it to happen, the democratisation of knowledge has to take place. Hence, this is why PUTRA is launching an introductory series of write-ups, podcasts and videos on social studies, ranging from history, economics to political science.
This is the start of the new PUTRA 101 Series about social studies where we dissect, re-explained using layman terms for the good of the rakyat. The new PUTRA 101 Series will be written in both Bahasa Malaysia and English, for all layers of the Malaysian society to participate in this knowledge sharing.
For the Bahasa Malaysia edition of this wite-up: PUTRA 101: Kesan Pandemik COVID-19 Kepada Ekonomi Malaysia.
To start, the COVID-19 economic impacts can be said to have originated from two factors.
The first is the outbreak of COVID-19 originated in Wuhan, China has resulted in a worldwide lockdown where basically all the countries stopped producing goods, selling and buying from one another. This has led to the reduction of income/profits for the businesses that were engaging in import/export trade before the COVID-19 outbreak.
The second is the implementation of the Movement Control Order (MCO) which is estimated to last for six weeks, given the last extension announced by the Prime Minister on April 10, 2020. As we all know, the MCO has enforced a total closure of all non-essential services with only essential services allowed to be operating.
The main objective of this MCO is to break the chain of COVID-19 transmission so that the impact of the COVID-19 outbreak will not be painful to our country as some other countries in the world are currently experiencing. Previously, we have dedicated an appreciation write-up to our frontline heroes for their contribution during these crucial times. Please give it a read if you have not! (link).
To ease the impact of MCO, where everyone is not allowed to go out, only stores or shops that are selling basic necessities such as grocery shops and supermarkets, are allowed to be opened. Our favourite Mamak restaurant and all eateries are still opened but their food/drinks are only allowed to be delivered directly to us or as takeaways.
This MCO implementation on its own has its impacts on businesses.
While some businesses remain open, some businesses have found it too difficult to sustain and at the same time pay their workers’ salary from the decrease in daily profits as no one is actually buying anything from them because everyone is at home. Instead, they chose to shut off and close their businesses during the MCO period. The same case also applied to the non-essential businesses where they have to be closed at all times and workers are not allowed leave their homes.
From this total/partial closure of businesses, there are three impacts to workers namely:
- A reduction of salary – with a reduction in working hours, some workers may find that their salary is reduced too.
- No salary given at all – some business owners took the decision to give unpaid leave to their workers as they cannot afford to pay their workers any salary since they are not making profits at all during the MCO.
- Retrenched and made unemployed – the worst impact on the workers from this COVID-19 outbreak is that while some businesses struggled to make ends meet, some businesses have decided to take the drastic move which is to lay off their workers to save their businesses.
From these three impacts to the workers, we can say that the economy is taking a hit from the COVID-19 outbreak, based on the factors mentioned above. This is because when businesses start to react in a way that affects the workers’ earnings, the domestic market (the Malaysian economy) will be impacted. The simpler form of reasoning for this would be:
- Due to the COVID-19 outbreak, the businesses are not allowed to operate as per usual.
- Businesses find it hard to sustain and struggle to keep their business afloat as the workers (consumers) are not spending as they normally do. Reason: workers are not allowed to go out, no way to spend money/buy from these businesses.
- To save their businesses, workers are given a salary cut, unpaid leave or the worst, retrenched. Ultimately, the workers are impacted directly here.
- Since the workers are not earning the same as they had previously;
- It has led to a reduction in spending by the workers (consumers) because now, they do not have the money to spend as they did before.
- This has, in turn, made it even more difficult for the businesses to survive as their profits now will be even less than they had at the initial stage of the MCO.
- Step 2-5 is repeated over and over again.
Fortunately, the Malaysian government has stepped in and reacted well to the situation through the announcement of the PRIHATIN economic stimulus package.
For the better, the Malaysian economy is also undergoing a process of temporary adjustment to this whole COVID-19 situation as we are seeing that people are now more dependent on e-hailing services like never before and the e-commerce scene is seeing a rising trend here.
On that note, we will further dissect and re-explain in simpler terms, the economic restructuring brought by the COVID-19 outbreak in the next PUTRA 101 Series.
#StayAtHome, stay safe & looking forward to meeting you in the next article!
This piece is written by Syahmi Rafsanjani Shaarani, Managing Partner at PUTRA.
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