Market discipline, not meddling, drives successful labour policies

A PREDICTABLE THING happened when last year Malaysia started booting out the hundreds of thousands of illegal workers toiling within its borders: key sectors of the economy went into hard labour.

After a four-month amnesty in return for returning to their home countries - and facing the likelihood of fines, jail and flogging if they remained - more than 400,000 illegal workers left Malaysia. The mass exodus caused a shortage of some 200,000 workers in manufacturing, 150,000 in construction, 50,000 in plantations and 20,000 in the services sector, according to government estimates.

Within weeks, the economy started bleeding. Palm-oil plantation owners complained of losing US$18 million a month as their unharvested fruits were left to rot.

As the government tightened the screw on illegal workers - which it has done periodically over the years, with the same self-destructive results - experts warned that the economic cost could run into hundreds of millions of dollars, and could cripple already anaemic GDP growth.

But the technocrats of Putrajaya, the country's glittering new administrative capital, dug in their heels and tried to hire workers from Sri Lanka, Nepal, Myanmar, Vietnam and Pakistan.

Unsurprisingly, most Malaysian employers found the new recruits a poor substitute due to linguistic and cultural differences and the fact that they lacked appropriate skills.