Malaysia in the Era of Globalization #48
Chapter Six: Malaysia: Assets and Liabilities
The Far and Pervasive Reach of the Malaysian Government
In Malaysia, the government’s powerful reach is extensive and pervasive, affecting everything and everybody all the time. This was dramatically demonstrated to me recently. A bright Malay student on her own effort was accepted for graduate work at Cambridge University. She applied to a local university for funding under its academic training program, and was accepted. But to get that scholarship she had to be interviewed by the Public Service Department (PSD). Fair enough. Then she was told that because her TOEFL (a standardized English test) score was outdated she would not qualify, she would have to re-sit the test.
Here she was, accepted by Cambridge and deemed qualified by the dean of a local university, but the bureaucrat at PSD had veto power over her. Never mind that she had graduated from a top American university (which was why she was accepted to Cambridge in the first place) and had aced the TOEFL years ago, but those facts did not persuade the esteemed civil servant. Fortunately she was tenacious enough to fight such inanities; but it took the personal intervention of the deputy prime minister no less to resolve the issue in her favor. Why should the deputy prime minister have to decide a simple matter like this? Is he not busy enough?
After the intervention of no less than the second top honcho in government, one would think that the problem would be solved and not recur. Far from it! Later, two of her colleagues were accepted to Boston’s MIT. Unfortunately they, being “good, dutiful” Malays, meekly accepted the PSD decision and agreed to re-sit their TOEFL to be held later in the year. Fortunately for them, MIT was kind enough to grant them a deferment.
There was however an unfortunate sad twist to their story. As a result of the 9-11 attacks, America is now restricting visas to Muslim countries. So there is no certainty they will be able to go to MIT when the PSD will finally approve their scholarship. So now we have two young bright Malays who are denied their full potential because of the pigheadedness of an obscure civil servant.
Ungku Aziz, the distinguished former Vice Chancellor of the University of Malaya, recounted his experience with a senior civil servant on expanding the campus library. The officer insisted that the university not waste money on acquiring new books until the lecturers had read all the existing books in the library. Imagine such mentality!
The late Tun Razak was so hamstrung by the rigidity and lack of imagination of civil servants that he started the various state corporations like Pernas and Petronas to bypass the hidebound bureaucracy. It was a brilliant strategy, but as these corporations expanded and retired civil servants were appointed to run them, they began acquiring all the characteristics of the civil service. Petronas, the national petroleum company, is widely regarded as the exception. While it has done many things right and performed better than many state owned companies including those owned by the various State Economic Development Corporations (SEDC), it is difficult to ascertain Petronas’s true status or actual performance. Only recently Petronas was embroiled in a controversy in buying (some say bailing out) a failing shipping company owned by the son of Prime Minister Mahathir. Only time will prove whether that particular acquisition was a sound business decision. To put matters in perspective, Exxon and Royal Dutch Oil both have reserves, assets, and revenues considerably greater than Petronas, but you would not know that by the size and lavishness of Petronas headquarters.
Nothing gets done in many Third World countries precisely because their massive and intrusive governments get in the way of the people. With big governments come complicated rules and cumbersome regulations. Then you would need the assistance of “specialists” to help navigate the myriad and complicated ways. In the West, their services are called lobbying; in the Third World, corruption. Either way they are a drag on efficiency and productivity.
The impact of corruption on investment is equivalent to the drag imposed by higher taxes. Thanks to globalization and the consequent free flow of information, corrupt practices in Malaysia are often first revealed abroad. The corruption of telecommunication contract was first revealed in Japan when the authorities were investigating their own companies. Likewise the old Lockheed scandal involving the purchase of military jets was exposed through congressional hearings in Washington, DC. Earlier I alluded to the Bank Negara’s foreign exchange debacle that prompted the Federal Reserve’s public rebuke.
The perception (as well as the reality) of corruption in Malaysia is worsening, despite official protestations to the contrary. Malaysians are only too aware of the ubiquity of petty corruptions at lower levels and influence peddling among the upper ranks. The country’s ranking in the Transparency International Perception Index has declined substantially in the last few years.
Governments are by nature inefficient. Suppose a government entity decides to allocate a million dollars to clean up the beaches. First there will be a series of meetings to select the head of the department and determine his or her status within the civil service hierarchy. Then there will be endless meetings to prepare the appropriate job description and “mission statement,” and on deciding whether the directorship will be “superscale” or “timescale” position, and the appropriate office space and parking slot! And of course the matter of the director’s living quarters. Then there will be detailed specifications of the trucks and tender bids. Perhaps a year later and after spending nearly half the budget on such administrative trivia would the first garbage be picked up! If the project had been given to a private contractor right away, he would be out there the very next day with his own pickup truck to clean up the beaches.
The drag that the public sector imposes on the economy is also seen in America. As a surgeon in private practice I treat many patients under government-sponsored programs. Every month I would receive stacks of new regulations to comply. The regulatory requirements became so burdensome that I decided to opt out. Recently I was negotiating with a government agency for rental of a building I owned. It dragged on for nearly a year with endless meetings with the directors of various departments (finance, real estate, environment, etc.). Businessmen experienced in dealing with the government factor in these added costs. It is not surprising that government agencies pay outrageously high prices.
To take a dramatic if not hilarious example, the 9-11 terrorists’ attacks revealed the dangerous gaps in American intelligence. At an oversight congressional hearing, it was revealed that the intelligence agencies knew the suspects beforehand through various intercepts. Unfortunately the agencies did not have any Arab- or Afghan-speaking employees to translate the messages. This led Newt Gingrich, the former speaker of the House of Representatives and a vigorous advocate of small government, to testify that the FBI and CIA directors could have just hailed a taxi outside their offices and the first driver to arrive could probably translate for them!
America can afford such inefficiencies because one, its government is not large relative to the economy, and two, the private sector is vigorous and thus could readily accommodate such governmental inefficiencies without damaging the overall economy. In Third World countries where the private sector is poorly developed, a large and inefficient government would devastate the economy.
The best government is not that which governs least, as the conservatives would have it, rather one that restricts its activities to those that are properly under its purview. Some of these include the nation’s defense, maintenance of law and order, and general public health. A government that dabbles in business, as Ibn Khaldun so wisely observed centuries ago, is doing a disservice both to itself as well to the nation and its citizens. A government big enough to give you everything, former President Gerald Ford once noted, is a government big enough to take from you everything you have. He meant by this is that government will end up taxing its citizens to death in order to provide all the services demanded by them. And this is the bane of socialist governments.
To me however, the taking away in the form of taxes from the citizens is the least dangerous aspects of big government. More pernicious is that such a government would end up taking away the citizen’s initiatives. That is the more devastating consequence. That worries me most about the ever-increasing generosities of special privileges afforded to Bumiputras. This danger is further compounded by the fact that the costs of those bounties are disproportionately borne by non-Bumiputras. As Bumiputras do not bear the full costs and burden, they are more likely to demand more and more until they become the full ward of the state. Then all initiative would be gone.
Ultimately the best form of government, as the German philosopher von Goethe noted, is that which teaches us to govern ourselves.
Examine the present Malaysian government. It is clearly involved in a multitude of unnecessary activities. Does the government do a better job in attracting tourists to justify a Ministry of Tourism? Similarly, I fail to see the justification for a ministry of information or one for sports, information and culture. Get rid of them. The most laughable ministry is that for entrepreneurial development. Do those makan gaji (salary man) bureaucrats really think that they could groom entrepreneurs? If they could they would have left government service a long time ago and started their own business!
When government controls the “means of production,” we have socialism and communism. Less well known but just as destructive as this structural socialism, is the more subtle form of functional socialism, where the state exerts control over industry via various laws and regulations. With inappropriate government policy, even sand could be made scarce in Saudi Arabia, as the economist Milton Friedman noted! And in the name of social equity, even capitalist governments have undertaken massive redistribution of wealth from producers to takers. This institutionalization of the Robin Hood mentality, though well intentioned, generally results in the leveling down of wealth. The government is so consumed with redistributing wealth that it neglects the more important function of creating it in the first place. This is the blight of mature Western democracies.
A critical reappraisal on the proper role of government is badly needed in Malaysia. While many are quick to point to the failures of market, the more devastating shortcomings and oppressiveness of big government are not well appreciated. I trust my fate more to the invisible hand of the free market than the strong arm of the government.
Next: Malaysia’s Digital Divide
The Far and Pervasive Reach of the Malaysian Government
In Malaysia, the government’s powerful reach is extensive and pervasive, affecting everything and everybody all the time. This was dramatically demonstrated to me recently. A bright Malay student on her own effort was accepted for graduate work at Cambridge University. She applied to a local university for funding under its academic training program, and was accepted. But to get that scholarship she had to be interviewed by the Public Service Department (PSD). Fair enough. Then she was told that because her TOEFL (a standardized English test) score was outdated she would not qualify, she would have to re-sit the test.
Here she was, accepted by Cambridge and deemed qualified by the dean of a local university, but the bureaucrat at PSD had veto power over her. Never mind that she had graduated from a top American university (which was why she was accepted to Cambridge in the first place) and had aced the TOEFL years ago, but those facts did not persuade the esteemed civil servant. Fortunately she was tenacious enough to fight such inanities; but it took the personal intervention of the deputy prime minister no less to resolve the issue in her favor. Why should the deputy prime minister have to decide a simple matter like this? Is he not busy enough?
After the intervention of no less than the second top honcho in government, one would think that the problem would be solved and not recur. Far from it! Later, two of her colleagues were accepted to Boston’s MIT. Unfortunately they, being “good, dutiful” Malays, meekly accepted the PSD decision and agreed to re-sit their TOEFL to be held later in the year. Fortunately for them, MIT was kind enough to grant them a deferment.
There was however an unfortunate sad twist to their story. As a result of the 9-11 attacks, America is now restricting visas to Muslim countries. So there is no certainty they will be able to go to MIT when the PSD will finally approve their scholarship. So now we have two young bright Malays who are denied their full potential because of the pigheadedness of an obscure civil servant.
Ungku Aziz, the distinguished former Vice Chancellor of the University of Malaya, recounted his experience with a senior civil servant on expanding the campus library. The officer insisted that the university not waste money on acquiring new books until the lecturers had read all the existing books in the library. Imagine such mentality!
The late Tun Razak was so hamstrung by the rigidity and lack of imagination of civil servants that he started the various state corporations like Pernas and Petronas to bypass the hidebound bureaucracy. It was a brilliant strategy, but as these corporations expanded and retired civil servants were appointed to run them, they began acquiring all the characteristics of the civil service. Petronas, the national petroleum company, is widely regarded as the exception. While it has done many things right and performed better than many state owned companies including those owned by the various State Economic Development Corporations (SEDC), it is difficult to ascertain Petronas’s true status or actual performance. Only recently Petronas was embroiled in a controversy in buying (some say bailing out) a failing shipping company owned by the son of Prime Minister Mahathir. Only time will prove whether that particular acquisition was a sound business decision. To put matters in perspective, Exxon and Royal Dutch Oil both have reserves, assets, and revenues considerably greater than Petronas, but you would not know that by the size and lavishness of Petronas headquarters.
Nothing gets done in many Third World countries precisely because their massive and intrusive governments get in the way of the people. With big governments come complicated rules and cumbersome regulations. Then you would need the assistance of “specialists” to help navigate the myriad and complicated ways. In the West, their services are called lobbying; in the Third World, corruption. Either way they are a drag on efficiency and productivity.
The impact of corruption on investment is equivalent to the drag imposed by higher taxes. Thanks to globalization and the consequent free flow of information, corrupt practices in Malaysia are often first revealed abroad. The corruption of telecommunication contract was first revealed in Japan when the authorities were investigating their own companies. Likewise the old Lockheed scandal involving the purchase of military jets was exposed through congressional hearings in Washington, DC. Earlier I alluded to the Bank Negara’s foreign exchange debacle that prompted the Federal Reserve’s public rebuke.
The perception (as well as the reality) of corruption in Malaysia is worsening, despite official protestations to the contrary. Malaysians are only too aware of the ubiquity of petty corruptions at lower levels and influence peddling among the upper ranks. The country’s ranking in the Transparency International Perception Index has declined substantially in the last few years.
Governments are by nature inefficient. Suppose a government entity decides to allocate a million dollars to clean up the beaches. First there will be a series of meetings to select the head of the department and determine his or her status within the civil service hierarchy. Then there will be endless meetings to prepare the appropriate job description and “mission statement,” and on deciding whether the directorship will be “superscale” or “timescale” position, and the appropriate office space and parking slot! And of course the matter of the director’s living quarters. Then there will be detailed specifications of the trucks and tender bids. Perhaps a year later and after spending nearly half the budget on such administrative trivia would the first garbage be picked up! If the project had been given to a private contractor right away, he would be out there the very next day with his own pickup truck to clean up the beaches.
The drag that the public sector imposes on the economy is also seen in America. As a surgeon in private practice I treat many patients under government-sponsored programs. Every month I would receive stacks of new regulations to comply. The regulatory requirements became so burdensome that I decided to opt out. Recently I was negotiating with a government agency for rental of a building I owned. It dragged on for nearly a year with endless meetings with the directors of various departments (finance, real estate, environment, etc.). Businessmen experienced in dealing with the government factor in these added costs. It is not surprising that government agencies pay outrageously high prices.
To take a dramatic if not hilarious example, the 9-11 terrorists’ attacks revealed the dangerous gaps in American intelligence. At an oversight congressional hearing, it was revealed that the intelligence agencies knew the suspects beforehand through various intercepts. Unfortunately the agencies did not have any Arab- or Afghan-speaking employees to translate the messages. This led Newt Gingrich, the former speaker of the House of Representatives and a vigorous advocate of small government, to testify that the FBI and CIA directors could have just hailed a taxi outside their offices and the first driver to arrive could probably translate for them!
America can afford such inefficiencies because one, its government is not large relative to the economy, and two, the private sector is vigorous and thus could readily accommodate such governmental inefficiencies without damaging the overall economy. In Third World countries where the private sector is poorly developed, a large and inefficient government would devastate the economy.
The best government is not that which governs least, as the conservatives would have it, rather one that restricts its activities to those that are properly under its purview. Some of these include the nation’s defense, maintenance of law and order, and general public health. A government that dabbles in business, as Ibn Khaldun so wisely observed centuries ago, is doing a disservice both to itself as well to the nation and its citizens. A government big enough to give you everything, former President Gerald Ford once noted, is a government big enough to take from you everything you have. He meant by this is that government will end up taxing its citizens to death in order to provide all the services demanded by them. And this is the bane of socialist governments.
To me however, the taking away in the form of taxes from the citizens is the least dangerous aspects of big government. More pernicious is that such a government would end up taking away the citizen’s initiatives. That is the more devastating consequence. That worries me most about the ever-increasing generosities of special privileges afforded to Bumiputras. This danger is further compounded by the fact that the costs of those bounties are disproportionately borne by non-Bumiputras. As Bumiputras do not bear the full costs and burden, they are more likely to demand more and more until they become the full ward of the state. Then all initiative would be gone.
Ultimately the best form of government, as the German philosopher von Goethe noted, is that which teaches us to govern ourselves.
Examine the present Malaysian government. It is clearly involved in a multitude of unnecessary activities. Does the government do a better job in attracting tourists to justify a Ministry of Tourism? Similarly, I fail to see the justification for a ministry of information or one for sports, information and culture. Get rid of them. The most laughable ministry is that for entrepreneurial development. Do those makan gaji (salary man) bureaucrats really think that they could groom entrepreneurs? If they could they would have left government service a long time ago and started their own business!
When government controls the “means of production,” we have socialism and communism. Less well known but just as destructive as this structural socialism, is the more subtle form of functional socialism, where the state exerts control over industry via various laws and regulations. With inappropriate government policy, even sand could be made scarce in Saudi Arabia, as the economist Milton Friedman noted! And in the name of social equity, even capitalist governments have undertaken massive redistribution of wealth from producers to takers. This institutionalization of the Robin Hood mentality, though well intentioned, generally results in the leveling down of wealth. The government is so consumed with redistributing wealth that it neglects the more important function of creating it in the first place. This is the blight of mature Western democracies.
A critical reappraisal on the proper role of government is badly needed in Malaysia. While many are quick to point to the failures of market, the more devastating shortcomings and oppressiveness of big government are not well appreciated. I trust my fate more to the invisible hand of the free market than the strong arm of the government.
Next: Malaysia’s Digital Divide
posted by M. Bakri Musa | 2:00 PM
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