Instead of Windfall Tax, Hire Malaysians to Replace Foreign Workers to Share Prosperity

With the pandemic, glove makers have seen their profits and their share price rise exponentially over the past months. Given the sudden and unexpected nature of this windfall, it is a natural reaction to expect them to share this newfound wealth with society at large. A special tax would be the easiest and quickest approach, but would also prove to be short-sighted. 

Obviously, the pandemic falls outside of the control of the glove makers. Taxing them for merely being in “the right place at the right time” would be unfair, and would indeed be a deterrent to future investment, not only foreign but also from domestic entrepreneurs. A flourishing private sector requires a stable and predictable regulatory environment. A windfall tax is the opposite of that.   

What is under the glove makers’ control however, is how they design their production process. And here, they have opted for a model that relies on low-cost foreign labour. The sudden windfall profits therefore benefit mostly their shareholders, while the majority of their workforce remits the bulk of their wages abroad. Little finds its way to Malaysian society at large, and that is also unfair. 

Fortunately, there is a better and more sustainable way to ensure that profitable corporate activity benefits society as a whole more, and that is better jobs for Malaysians. Our economy needs the manufacturing sector to move towards less reliance on foreign labour. Therefore, I would recommend to use all existing and, if needed, new policy tools to guide the glove industry to automate and to hire Malaysians. This will lead to healthier economic growth in the long run, while also ensuring that this increased prosperity is shared by a greater number of Malaysians. 

With a carrot to incentivise the glove sector to automate, and with a stick to make the hiring of cheap foreign labour more expensive, the Government can guide the glove industry to create tens of thousands of jobs for Malaysians at RM2500 – RM4000 over the next few years through an “automation+Malaysianisation” programme. 

This approach is also in the glove makers’ own best interest. Just in the last few months, they have been confronted with the downside risks of relying on such a large foreign workforce, with export bans due to labour conditions and most recently the Teratai Covid-19 cluster. At this point, their executives and directors have a fiduciary duty to address those risks, and creating good jobs filled by Malaysians should be the touchstone of their proposed solutions. Ultimately, this will lead to a virtuous cycle for all sides.