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M. Bakri Musa

Seeing Malaysia My Way

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Location: Morgan Hill, California, United States

Malaysian-born Bakri Musa writes frequently on issues affecting his native land. His essays have appeared in the Far Eastern Economic Review, Asiaweek, International Herald Tribune, Education Quarterly, SIngapore's Straits Times, and The New Straits Times. His commentary has aired on National Public Radio's Marketplace. His regular column Seeing It My Way appears in Malaysiakini. Bakri is also a regular contributor to th eSun (Malaysia). He has previously written "The Malay Dilemma Revisited: Race Dynamics in Modern Malaysia" as well as "Malaysia in the Era of Globalization," "An Education System Worthy of Malaysia," "Seeing Malaysia My Way," and "With Love, From Malaysia." Bakri's day job (and frequently night time too!) is as a surgeon in private practice in Silicon Valley, California. He and his wife Karen live on a ranch in Morgan Hill. This website is updated twice a week on Sundays and Wednesdays at 5 PM California time.

Saturday, May 28, 2005

Learning From Danaharta's Success

Learning From Danaharta’s Success

(Danaharta Can Teach US What Competence is About)

The Sun Daily (Malaysia) May 20, 2005

M. Bakri Musa

The recent announcement that Danaharta will redeem its bonds and close shop by year end is a rare piece of good news. At a time when government-linked companies (GLCs) are synonymous with mediocrity and incompetence, Danaharta’s success deserves greater attention.

There are two aspects: one, to study Danaharta with a view of replicating its formula elsewhere, and two, to analyze why we needed the entity in the first place.
This is akin to the practice in my profession where all surgical complications are reviewed. The purpose is to prevent such complications from occurring, and to learn on how best to manage them should they occur.

Danaharta was set up in 1998 in the aftermath of the economic crisis to relieve local banks of their crippling load of non-performing loans (NPLs). Danaharta’s success is directly due to its competent management. It was the rare instance where then Prime Minister Mahathir picked someone truly smart and capable, and then gave him the freedom to run the agency without political or bureaucratic meddling. Mahathir also appointed a distinguished supporting board.

Danaharta’s first chief executive Azman Yahya was atypical in many ways. Unlike the masses of young Malays in the 1980s who were satisfied with merely scraping through third-rate universities abroad, Azman Yahya excelled at the London School of Economics. He then went on to get additional professional training. Many Malays with an Oxford first degree feel that they are already smart enough to helm billion-dollar corporations; they feel no need for furthering their education.

Azman also defied tradition by opting for multinational corporations instead of the civil service, GLCs, or petty party politics.

Danaharta’s first board was also unusual. Chaired by the distinguished Raja Tun Mohar, it included luminaries like Megat Zaharuddin, an Imperial College engineer and the first Malaysian CEO of Shell Malaysia, as well as two accomplished foreign bankers. At a time when Malaysians felt that they had nothing to learn from foreigners, this was indeed a radical departure.

The management style too was different: open and transparent. Its communications and tender offerings were initially all in English and pragmatically targeted to the audience it was trying to influence. Danaharta operates like a business, acquiring NPLs at their discounted market values. More significantly, Azman Yahya was very visible, often making the announcements personally thus giving the impression of an engaged CEO. What a contrast to the usual Sultan Syndrome that we see too often in the executive suites of GLCs!

Danaharta acquired its first NPLs from Sime Bank, a subsidiary of the GLC Sime Darby. Sime Darby was an old colonial company until it was acquired through a pseudo sophisticated and expensive nationalization scheme. Inspired by the “Look East” policy, Sime Darby was a Malaysian keiretsu wannabe. Buying a bank was part of this “bold and strategic” move. Only problem was, Sime Darby had no competence in that area!

Despite Danaharta’s evident success, there is surprisingly little curiosity or eagerness to learn from it.

Had the Danaharta model been applied to Bank Bumiputra, it could have been the locomotive that would have pulled Malays into the modern economy. Instead, the bank proved to be a huge barnacle that nearly dragged Malays and Malaysia under.

Bank Bumiputra was finally put out of its misery, but not until precious billions of ringgit were exhausted. To many, especially non-Malays, the bank remains the symbol of Malay incompetence in commerce. It is a very painful reminder.

There is also no attempt in examining the nation’s worst economic crisis. Danaharta is modeled after America’s Resolution Trust Corporation (RTC), which was set up to rescue a similar crisis of its Savings and Loans industry. Both the RTC and the industry scandal are now history, but not before saddling American taxpayers with billions of dollars. The only redeeming aspect to that debacle is that the key culprits are now behind bars. The connivance of their politician friends were exposed in highly publicized congressional hearings.

Until Malaysia undertakes similar scrutiny, the more important lesson of why it needed agencies like Danaharta in the first place will never be learned. Consequently, expect more Danahartas in the future.

Saturday, May 14, 2005

Competence, Not Humility Needed

SEEING IT MY WAY

M. Bakri Musa

Malaysiakini.com May 13, 2005

Competence, Not Humility Needed

(Co-written with Din Merican)

Editorial lead: Prime Minister Abdullah Badawi recently conceded that there are shortcomings in his leadership. But humility is not going to win over those critics who want to see action.

Prime Minister’s Abdullah Badawi’s recent “admission” speech to the local Harvard Club bore all the hallmarks of his spinmeisters, right down to the tone, style and language. In the speech Abdullah acknowledged his poor performance. Admitting is one thing, action is another.

The Prime Minister may dismiss his critics as cynics unable to appreciate the subtleties and complexities of Malaysia’s problems, but that would not in any way improve his performance. He can win them over only by executing and producing. Otherwise Abdullah has more than his critics to worry about; his own party will throw him out.

The Prime Minister chose as his theme, “The Challenges of a Nation Growing Up.” It would have been more appropriate had he reflected on his own lack of “growing up” as a leader.

Abdullah attributed the lack of results to malaise and inertia. We might add, on whose part? He has all the power of his office to make things happen. To achieve that he must lead and provide national direction. Instead, what we have for the last 18 months are knee-jerk responses and scatter gun approaches to policy making, peppered with his endless sermonizing. When he should be focusing on the economy, he becomes addicted to and distracted by Islam Hadhari.

Ending Deficits and Subsides Not Enough

Abdullah’s economic polices are nothing more than a rehash of the standard IMF prescription of slashing deficits and cutting subsidies. During the recent Asian economic crisis, this IMF remedy proved a disaster for Indonesia. In contrast Malaysia, in pursuing a diametrically opposite policy, fared much better.

In principle we agree with eliminating deficits and subsidies, we argue over the manner and timing. More importantly, we have to address what brought those deficits and subsidies in the first place, for unless those issues are resolved they will continue to burden the nation.

Abdullah must confront the core problems of the economy: structural distortions and supply and distribution bottlenecks (as exemplified by the diesel fiasco). Compounding them are corruptions and preferential policies. Additionally, the currency peg, once a savior, is now fast becoming a liability unless it is reviewed, and soon.

While we do not subscribe to the Reaganomics assumption of “deficits don’t matter,” more important than the size of the deficit is what it is being used for. If it were for operating expenses (increased salaries for politicians and bonuses for civil servants) or overhead (renovating the prime minister’s residence or carving out a new Brasilia in the Malaysian jungle) then any deficit no matter how small would be a drag on the economy.

On the other hand if the deficits were used to build much needed infrastructures (ports, airports and railroads) or to enhance productive capacities (improving schools and universities), incurring large deficits would be prudent economic management.

It is for this reason that we disagree with the cancellation of the double railroad project. It is a much needed infrastructure; it would enhance the capability of the Johor Port. Our argument is with the bloated costs. There was no open competitive bidding; it was done through the usual “negotiated” process with pre-selected vendors. To get the best price we must open it to all bidders, including foreigners.

Abdullah characterized his reducing the deficit as the most difficult task he had to do. He would have learned the wrong lesson if he were to focus solely on this.

Malaysia is fortunate in that its high domestic savings could finance the deficits. The challenge is not to squander them on showpiece projects. Prudently done such public spending also help boosts the economy. Pump priming is not a substitute for or an alternative to private sector led growth; it is a counter-cyclical measure to restore confidence.

Pump priming does not mean simply pouring money on a problem. The debacle over the schools’ computer lab projects failed miserably because policy makers confused their primary objective, that of providing amenities for our students and not jobs for inept and politically-connected Bumiputra contractors.

Ending Deficits and Public Debt

We did some simple arithmetic. We added all the costs of unneeded and ostentatious mega projects (Putrajaya, Twin Towers) with the various bailouts (Bank Bumiputra, MAS, Perwaja). The total easily exceeded the cumulative deficits for the last few years. Meaning, had Malaysia not wasted those precious funds it would have a surplus.

So much for the “difficulty” of deficit reduction!

Were Abdullah to go further and sell off the government’s stake in the various GLCs, he would be able to wipe off the entire public debt and have plenty left over to improve our declining schools and universities as well as build new ones. The government has no business being in business.

Transparency and Openness: Only Talk

So far Abdullah’s talk of openness and transparency remains just that – talk. Some projects may be “open” but only to Bumiputras, and only selected ones at that!

As for transparency, consider the definite lack of enthusiasm for releasing the Royal Commission on the Police Report.

As for inculcating First World mentality into Malaysians, this is the same leader who recently banned books by, among others, Karen Armstrong. Looks like Abdullah needs to drag himself first into the First World. His smart young advisors obviously learned nothing from having spent time at such august institutions as Oxford. We doubt very much that the distinguished audience of the Harvard Club posed any of these questions.

If we were not enamored with Abdullah’s deficit reduction, his strategies for ending subsides are no better. Malaysia is already burdened with imported inflation from the ringgit’s peg to the weakening dollar. Eliminating subsidies at this juncture especially if done suddenly and without much thought will aggravate inflationary pressures. It will also be socially and economically disruptive. Resorting to price controls is not the answer either, especially in a period of rising inflationary expectations. America learned this in the 1970s.

Consider the diesel subsidy. It does not make sense to end the subsidy and yet control what the poor taxi drivers could charge. The social and economic injustice just reeks. With the current corrupt system, the subsidized diesel meant for taxi drivers and fishermen are diverted to the factories.

In his speech the Prime Minister blasted local corporate chieftains for their “addiction” to subsidies, cheap foreign labor, and rent seeking behaviors. Meanwhile his minister is bringing in 100,000 unskilled Pakistanis. As for rent seeking behaviors, he is obviously ignorant of where the money in UMNO’s “money politics” comes from.

If those corporate leaders were addicted, then Abdullah is their dealer, or to use the polite social terminology, the enabler.

As expected, Prime Minster Abdullah’s “admission” is widely praised in the mainstream media, with some trumpeting it as a reflection of his general humility. To them, our Prime Minister can do no wrong, that is, until he is out of office. To us, humility is an overrated trait especially in a leader. We prefer competence.

Abdullah’s supporters, undoubtedly well meaning, are doing themselves, the Prime Minister, and the nation a great disservice in blindly praising him. Sooner or later, when you see that the emperor has no clothes, it spares everyone the general embarrassment if someone were simply to expose the naked truth. If you do not have the courage to do that, then at the very least give him your best attire.

Tuesday, May 10, 2005

Get Rid of the 3-D Jobs

Malaysiakini.com (May 4, 2005)

Get Rid of the 3-D Jobs


The government’s rationale for the massive influx of foreign workers is that Malaysians shun those “dirty, dangerous and demeaning” jobs. A smarter, and in the long run cheaper, solution would be to make those jobs less dirty, less dangerous, and less demeaning. Better yet, get rid of them.

If Malaysia were to admit foreigners, I would prefer that they be the highly skilled, educated and talented. They would then add to the quality of our human capital and economy. Those illiterate maids and unskilled laborers do nothing more than to make Malaysians feel superior. Having Indonesian maids is a way for non-Malays in particular to vicariously compensate for their perceived inferior treatment from the Malay officialdom.

These low-skill foreigners do not enhance our talent capital; they also do not improve the gene pool when they marry locals.

Cheap labor never confers meaningful or long term competitive advantage. Labor is only a small portion of the total cost of any enterprise. Even in a labor intensive industry like healthcare where labor cost is significant, only a very small fraction of that is for low skill jobs, the rest are for highly paid technologists, nurses and physicians. Besides, there will always be someone somewhere who can offer his or her services cheaper. China is using prison labor for free; try competing against that!

Malaysia has to climb up the value chain in labor, that is, make its workers more skillful and productive in order to deserve premium pay. Failure to do that would destine the nation to a permanent third rate status economically.

The ready pool of cheap foreign labor provides little incentive for Malaysian companies to innovate and be more productive. Rubber is tapped and palm nuts harvested in exactly the same labor-intensive way as it was a hundred years ago.


Barisan Government Behaving like the Colonialists

Early in the last century the British colonialists too brought in massive numbers of illiterate immigrants from China and India to man the imperial tin mines and rubber estates. The excuse then was that the natives did not want those jobs, or were just too lazy.

The consequence of that short term economic expedience was to burden the country with an intractable and dangerous race problem. It took over a century and many bloody skirmishes before Malaysians came to terms with the reality of today’s plurality. Some have yet to accept it.

It was the Malays, not surprisingly, who vehemently opposed the earlier British move. Ironically today an essentially Malay government is aggressively bringing in more foreign workers. In this regard the UMNO ministers are no different from those colonial secretaries! Economic imperatives have a way of making people think and behave in the same way regardless of culture and race.

Still the same question remains: What future burden will this new wave of foreigners impose on the nation?


Eliminating the 3-Ds Jobs

Eliminating those “3-Ds” jobs is not impossible. A generation ago the most degrading job was disposing “night soil.” It was a familiar sight then to see those coolies with pails hanging from a pole strung across their shoulders going from house to house emptying the latrines. It was dirty and dangerous work; they were exposed to many lethal diseases. Today those jobs have long disappeared, thanks to indoor plumbing, septic tank, and central sewage plant.

We still have sanitary engineers; they are highly trained and their salaries are anything but demeaning. They are responsible for the efficient running of sewer treatment plants, the hallmark of any modern city. Urban centers in the Third World are public health death traps precisely because they lack such essential facilities. Kota Baru for example, is plagued with endemic outbreaks of typhoid and hepatitis.

Then there are the maids, or “servants” to Malaysians. The Australians and Americans have considerably much higher income, yet they feel no compulsion to have maids. The reason is obvious. Their homes are well equipped with the necessary labor-saving appliances.

As for cooking, I can whip up a mean curry chicken to rival what my mother used to cook in a fraction of the time because all the ingredients are ready made. I do not have to slaughter and clean the bird, nor do I have to pound the curry and chili. Having a maid would simply erode my precious privacy.

In America when our children were young and with both my wife and I working, we too had a housekeeper. But we paid her well, including contributing to the equivalent of her Employees Provident Fund. More significantly, her son entered the same university as our daughter’s. How many Malaysian maids would aspire to have their children go to college?

Many of the American nannies are certified in cardiopulmonary resuscitation and well-baby care. In short, there is nothing demeaning to being a maid in America.

Many of the dangerous jobs in construction can be made less dangerous by enforcing existing safety rules. Visit any construction site in Malaysia and we see workers without safety helmets, goggles or harnesses. With the use of conveyor belts, lifters and earth moving equipment many of these jobs could be made redundant. Mechanization of tin mining eliminated the need for thousands of coolies; likewise in agriculture. Today one American farmer feeds a hundred people compared to only a few a century ago.

I see no need to have immigrants man petrol service stations. In America the petrol stations are automated, and you pay with credit cards as you would at an ATM machine. It is not beneath even the owners of a Rolls Royce to pump their own gas.

Yes, there are many jobs in the service sector like the hospitality industry that cannot be mechanized. The solution there would be to increase the wages to make them attractive to locals. I do not mind paying more for my teh tarik and have it not served by a sweaty Bangladeshi attired in a ragged T-shirt.


High Employment Tax for Low-Skill Foreigners

To discourage the import of low-skill workers, I would impose a heavy surtax to the tune of a few hundred ringgit per month per worker. This would cover the cost of the workers’ healthcare and other related future social expenses.

There is at present a hidden cost to importing these workers in the form of permits. These are restricted in numbers and doled out only to political cronies, providing yet another avenue for corruption. The system encourages the import of workers.

These low-skill workers add only minimally to the economy, yet they impose a substantial burden and in unknown ways on our social system. Whether they are fellow Muslim Indonesians or non-Muslim Vietnamese, there are substantial problems in integrating them. The dislocations are expressed in such indices as increased crime rates. We ignore such early subtle signals at our own peril.

Malaysia must impose stricter rules on employing foreigners, especially those with low skills. Before American companies can legally employ a foreign worker, they must prove that they have been unsuccessful in getting local residents to take the job despite a substantially higher pay.

It is insane for Malaysia to bring in foreigners when there are literally thousands of our youths who are unemployed. Putting a hefty price tag to importing workers would make Malaysian companies invest in the training local youths to be future workers. This would benefit the citizens, the companies, and ultimately, the nation.