Towards A Competitive Malaysia #54

Chapter 8: Culture Counts (Cont’d)

Concept Versus Content

Economists consider Homo economicus to be rational, always carefully measuring his moves to effect “maximal utility.” As succinctly stated by Landsburg in his The Armchair Economist, “People respond to incentives; the rest is commentary.” Economists claim that their laws are truly “scientific,” blind to race, gender, or culture. While economic concepts may be universal, its contents vary with culture. What is viewed as incentive in one culture may be a distinct disincentive in another.

Consider the clumsy British attempts to encourage Malays to save. The more the colonialists increased the savings rates, the less likely Malays were to save. The Brits concluded the only way they could: Malays did not respond to modern economic incentives!

It took the genius of an indigenous economist to discover that, on the contrary, Malays, like others, respond to economic incentives. In his careful study, Ungku Aziz discovered that Malays were indeed diligent savers; the only problem was that they did not trust formal institutions like banks, especially those owned by foreigners. Worse, being Muslims, they considered interest sinful, equating it to usury. While the British thought that they were offering generous incentives by increasing the interest rates, to the Malays those were invitations to a life of sin. Those sneaky white devils!

Ungku Aziz went further with his insight. He established Tabong Haji, a mutual fund-like institution that collects and invests funds in Islamic-approved ventures. He declared the returns as faedah (dividends), not interests. To make the venture even more appealing, he astutely named it Tabong Haji, Pilgrims Fund, thus tying it with the Islamic theme, fully aware that it would sell with Muslim Malays. He was right. Today Tabong Haji is the largest mutual fund in Southeast Asia with over three million subscribers, a monumental legacy to the brilliance of an individual who could discern the difference between concept and content.

That British fiasco reminded me of the novice scientist who was conducting experiments on what made grasshoppers jump. Every time he clapped his hands and shouted, “Jump!” the critters would jump. Then he modified the experiment (changed one variable, to put it scientifically) and cut off their hind limbs. Then he repeated his command, and this time the insects did not jump. His conclusion? Cutting the hind limbs made the insects deaf. Right experiment, right data, but wrong conclusion! Nothing wrong with the scientific method, but everything wrong with the scientist!

Apart from differentiating between concept and content, there is the more important matter that what we offer as incentives would profoundly affect not only the responses, but also the responders. Offer honey, we get bees; rotten meat, maggots.

Under provisions of the NEP, publicly-listed companies are required to sell a significant portion of their shares to Malays, often at generously discounted prices in an attempt to increase Malay participation in that sector. Unfortunately, the lucky recipients are selected not by the companies or their investment bankers, rather by Ministry of Trade officials. Consequently those closest to the minister, like her son-in-law, would receive the bounty. Because politicians and bureaucrats make the decisions, they would naturally attract their own kind, meaning rent seekers and other economic parasites. It should not surprise anyone that a generation later, the only “capitalists” Malays have are of this variety.

When we encourage pseudo entrepreneurs we necessarily discourage the genuine variety. In business the phrase is, throwing good money after bad. In this case, pseudo capitalists chasing out the genuine ones. Malay farmers have an apt metaphor. When we let lallang (a tenacious weed) grow, it would choke out the good crops. Subsiding rent seekers and “ersatz capitalists” is akin to membajakan lallang (fertilizing weeds).

Another consideration is that while we may get the right responses and responders, the consequences are not what had been anticipated. America offers incentives to build cars with safety features like airbags and seat belts. Yes, driver fatalities dropped markedly but now pedestrian fatalities shot up. Motorists, realizing that their cars are now safer, drive recklessly causing deaths and injuries to pedestrians and cyclists. Unintended consequences!

Right after independence, the government wanted to emphasize Malay language, fearing that it would disappear and be overwhelmed by English. Novel incentives were introduced like extra bonuses if you were fluent in Malay. It was very successful, but there were unanticipated consequences. A generation later, Malaysians (especially Malays) are English illiterate. As English is the language of commerce and science, the loss was greatly magnified. Now the government is belatedly trying to remedy this, and finding it tough.

The government could use some of the techniques it used so successfully in encouraging the use of Malay, like giving bonuses and promotions only to those proficient in English. I am certain that the government is aware of the value of such incentives but is hesitant to use them because that would favor non-Malays. They are aware of the importance of English and are not easily swayed by the language nationalists.

The government is repeating the same colossal mistake a generation later in another way. Obsessed with trying to burnish its Islamic credentials, the government vastly expanded Islamic schools and establishments. The unintended consequence is that today’s young Malays want to be an imam or qadhi (Muslim judge) only, and the nation’s law, medical, and engineering schools are again desperately short of Malays.

Singapore’s Lee Kuan Yew, no doubt invoking the authoritarian powers of some ancient Chinese emperor, had his own brand of social engineering. Conscious of the limited landmass of that tiny republic, and fearing that his fellow citizens would breed with abandon, Lee imposed strict birth controls, with incentives like tax breaks and choice of schools for the children of those who complied, and severe punishment for those who dared challenge the order. He was too successful; today he and his successors are desperately trying to reverse course.

Have they learned their lesson? Far from it, they are still onto their next pet social engineering scheme, this time setting up “cupid clubs” to encourage their citizens to get married! Never mind that Lee Kuan Yew could not even get his own daughter hitched. These leaders never learn. The law of unintended consequences remains operative and universal.

Next: Progress and Wealth Creation