Towards A Competitive Malaysia #59

Chapter 9: Institutions Matter (Cont’d)

Institutions of Law Enforcement

Peace and stability are prerequisites for prosperity. In times of war and turmoil, only criminals and arms dealers would be raking it in. As for investments, those with wealth would be concerned with preserving, not enhancing it.

The military is to ensure safety from organized threats from within (armed rebellion) and outside (war). Malaysia has had experiences with both. During the Japanese Occupation and communist insurgency, little economic development took place. The basic consideration was survival, with resources diverted to that sole function.

While no one has done a treatise on the economics of war, it is plain that all the death and destruction are not only tragic but also a colossal waste. The multiplier effect of civilian spending is many times greater than that of the military. Yet today the bulk of the budget of many Third World countries, Malaysia included, is being consumed by the armed services. The best and brightest are absorbed into the army instead of engaging their talent in economic enterprises and creating wealth for themselves and their country.

The power that has the stronger economy usually prevails. The military might of the old Soviet empire collapsed because of its rotten economy. The path towards military supremacy is not in buying expensive sophisticated warplanes that your illiterate pilots could not operate, rather to build schools and train teachers. That would also pave the way towards economic development, quite apart from producing smart soldiers.

Thankfully for most, war is a rare occurrence. The more readily identifiable threat to society’s security and stability comes from those who flaunt and break the laws: the criminals. The extreme of lawlessness is anarchy, which will bring us, economically, to the same conditions of war. At lower intensities of lawlessness, we see the wasted expenditures on private guards and obsessions with gated communities. If the Filipinos were to expend their collective resources on a good and efficient police force instead of each clan providing for their own private security and expensive alarm system, they would have a much more orderly and economically vibrant society. Those private guards could now be diverted to assembling computers, not weapons.

Crime imposes a huge cost on individuals as well as society. In some Latin American countries crimes consume up to a quarter of the GDP.

The rule of law is one of the most critical requirements for economic growth. It is the necessary incentive to work, invest, and innovate. Why partake in all those activities if the fruits of your labor would be taken away? It is immaterial who takes that wealth away: robbers or the state’s confiscatory tax.

Crime, like war, imposes its costs directly through the damage incurred with the criminal activities, and indirectly by inhibiting legitimate economic and other activities. Even threats of crime can be devastatingly effective in discouraging investments.

Tourism in New York City rebounded only after the authorities cracked down on petty crimes. An interesting side benefit to this strict crackdown is that it discourages other more serious crimes. The sociologist James Q. Wilson termed this the “broken window syndrome,” that is, when law enforcement agencies crack down on such seemingly inconsequential crimes as vandalism and the breaking of windows, the real criminals would take note. (This is different from the broken window syndrome of economics discussed earlier, which refers to the income multiplier effect of spending to fix broken windows.

Malaysian police have yet to learn this. When drug addicts freely “mainline” on the streets in broad daylight or cars illegally double park with the cops blissfully ignoring them, the signal sent is that you can break the law with impunity. Another innovation from New York is community policing where cops become part of the community instead of being stuck in their cars or at their desks.10 They are busy on their beat, mingling with the citizens. The emphasis is on preventing crimes, in contrast to the usual pattern of reacting to them. Many cities also require their police officers to live in the city, again to increase their civic involvement so that even in their off hours they would remain as authority figures.

The colonial government knew a thing or two about community policing long before the concept was even acknowledged. The authorities recruited simple village folks with minimal education to be “special constables.” They patrolled the villages on their bicycles or on foot, and otherwise let the community know of their presence. They are aptly referred to as mata mata, the “eyes” of the authorities. These law enforcement officers must be seen as working for and not against the community. A major problem with big American cities until recently was that their police officers were predominantly white while the citizens non-white minorities. There was minimal identification between the two. Worse, these officers often lived away in the suburbs; they were seen more as an occupying force rather than part of the community. Today that is changing with enough blacks and other minorities on the force. Major American cities have not seen a major racial incident since this innovation.

A comparable problem exists in Malaysia. The police force, like other branches of the government, is overwhelmingly Malay. The police live isolated in their barracks behind barricades, with minimal interaction with the community they serve. This problem becomes acute when the community they serve is predominantly non-Malay. There is minimal opportunity to build trust and relationships. Absent both, and the relationship is akin to that of guards and their prisoners. The police force in predominantly Chinese areas should have sufficient Chinese presence, and I would make the police constables live among the citizens.

When we think of crime, we think of robbery and other violent crimes. We readily appreciate their negative impact on the economy and on our safety. No less injurious to the economy (and also to our well being in the long run) are white collar crimes: embezzlement, breach of trust, and outright corruption. I will cover these, in particular corruption, later.

Stability and security are prerequisites for economic development. To encourage development, a nation needs to go further. It must have in place institutions to ensure that citizens get to keep that which is rightly theirs; allow them to exchange freely among themselves goods and services (that is, to trade); and lastly, to adjudicate the inevitable conflicts.

Next: Property and Contract Rights