This question is mesmerising so long as it is not answered properly.
So far, most of the answers given are either too disjointed or too outcome driven. Let me give you an example. We are now told that for the economy to make the quantum leap we have to be technology savy, created more IP stuff, attract more IP, etc. The policy action then becomes a simple immigration issue.
But by far the most significant underlying trend that is the cornerstone of Malaysian economic policy since 1970 until today (we'll see how the transformation is taking place) is the redistribution of wealth. We all know this. It is obvious. It is explicit as a policy. It is a policy and a national characteristic which we are proud. We defend it, locally and internationally. We even try to export it to Africa.
I think the original idea behind it is good - that there should be a more equitable distribution of wealth in the country, or in any country for that matter. It has always been an economic issue. But unfortunately it has become a political problem.
In its metamorphosis from an economic issue into a political problem, all the energies of government has been turned into an efficient process for the redistribution of wealth - all done simply by the indiscriminate spending of savings and reserves of the people and the nation extracted from the labours of the past in mining, plantations and oil and gas.
During this process of wealth redistribution, the focus has been on how to spend that wealth, which is demonstrated by tall buildings that we have in the capital cities but nowhere else in the country and by the investment of those wealth by individuals in instruments of higher returns which typically are more developed economies which a better organised system.
As the nation is drained of its economic juice and energy, the only major policy that we have going in this country follows the major policy of the other big but dying economy which is the US. It is symptomatic of economic decline when the only policy that seems reasonable is one of monetary expansion brought on by printing of money to finance government and consumer deficits - because banks find it not lucrative to fund industries.
With a loose monetary policies, we know that the value of money (both domestic and external) declines and this leads to increase the suffering of the ordinary people as they go about their daily business of living. This suffering causes a loss of confidence in the government and potentially a change in government.
To reverse the process, therefore, the following would seem appropriate, in decreasing order:
1. Refocus the economy on investment and growth, with redistribution built automatically into the income and wealth tax system. Remove ad hoc redistributive policies.
2. Tighten monetary policy. In the language more comfortable with central bankers - bring about gradually a monetary policy that is not as loose as before but at the same time make sure that the reversal in policy will not be detrimental to the lending activities and growth of the banks and without jeopardising the smooth operations of the banking and financial system.