August 15, 2020 House of Trust

Social Mobility Index 2020

In January 2020, the World Economic Forum created a new index to measure social mobility, broadly defined as the ability of a child to have a better life than their parents and the impact of a person’s socio-economic background on their success in life. This holistic assessment of 82 global economies is calculated based on five key dimensions including Health,  Education (access, quality and equity, lifelong learning), Technology,  Work (opportunities, wages, conditions) and finally Protection and Institutions (social protection and inclusive institutions). 

General Key Findings: 

  • Direct and linear relationship between a country’s income inequality and its social mobility score on the index.
  • Very few economies have the right conditions to foster social mobility and consequently income inequalities have become entrenched. Thus highlights the need for a global momentum on tackling inequality through a new social mobility agenda. 
Source: World Economic Forum
  • Globally, the greatest challenges are low wages, lack of social protection and poor lifelong learning systems.
  • Investing in the right mix of social mobility factors will result in substantial economic and social returns.
  • Countries that adhere to the “stakeholder capitalism” model tend to perform better than countries with a focus on “shareholder value maximization” or “state capitalism”. 

Stakeholder capitalism is a system in which corporations are oriented to serve the interests of all their stakeholders which include customers, suppliers, employees, shareholders and local communities

Source: Investopedia

Shareholder value maximization is the idea that firms should operate in a manner in which shares will reflect higher expected future values. As such, businesses should be run to make their business as attractive as possible to current and future potential shareholders

Source: Pragmatic Capitalism

State Capitalism is an economic system in which private capitalism is modified by a varying degree of government ownership and control

Souce: Merriam Webster
  • Many policies designed to address social mobility require both additional public resources through taxation and a different mix of public spending on the key drivers of social mobility. 
  • Improving tax progressivity on personal income, policies that address wealth accumulation and broadly re-balancing the sources of taxation can support the social mobility agenda. 
Source: World Economic Forum

Summary of Findings on Malaysia’s performance:

  • Malaysia ranked 43rd among 82 nations, with a score of 62. 
  • Across countries in East Asia and the Pacific, Malaysia ranked 6th after Japan (Score: 76.1), Australia (75.1), Singapore (74.6), New Zealand (74.3), South Korea (71.4). 
  • Malaysia performed well in several specific measures including Work Opportunities (ranked 24th), Education Access (29th), Lifelong Learning (29th) and Technology Access (34th). 
  • However, Malaysia still has a lot of room for improvement in terms of fair wage distribution (Ranked 67th with a dismal score of 33), social protection (57th), working conditions (55th) and health (50th). 
  • Specifically, Malaysia performed extremely poorly in terms of low pay incidence (scoring a bleak 19.1), ratio of bottom 40% to top 10% labour income share (score: 32.4) and ratio of bottom 50% to top 50% labour income share (31.6); all of which contributed to the mediocre performance in fair wage distribution. 
  • If Malaysia is able to increase its performance by 10 points on the Social Mobility Index by 2030, the resulting growth would add RM 17.4 billion (US$4.2billion) to the nation’s economic output every year. In other words, Malaysia’s GDP is predicted to grow an additional RM 173.5 billion in 10 years if we manage to achieve a score of 72. 
Malaysia’s Performance in Social Mobility Index 2020
Source: World Economic Forum

For the PDF version of the full report from the World Economic Forum, refer to the attachment below:

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