Malaysia in the Era of Globalization #89

Chapter11: Embracing Free Enterprise

Let there be amongst you traffic and trade by mutual goodwill.
—Surah An-Nisaa (The Women) (4:29)

When you are lost, goes an old Malay saying, revert to the source. That seems to be Malaysia’s new economic strategy following the Asian economic crisis of 1997. Buffeted by the turmoil of globalization and open markets, Malaysians yearn for the simpler days of fixed exchange rates and controlled commerce. Some even suggest regressing to the old days of bartering! But as in the jungle, the path back is often overgrown, and one could just as easily get lost in retreating. Malaysia is better off preparing for the new realities of open markets and globalization, instead of retreating to some imagined good old days of yore.

With the collapse of communism free enterprise remains the only viable economic system. It is successful because it has proven to bring the greatest prosperity to the largest number of people. Many have sought a “third way,” a mid course or a bridging between free enterprise and state planning. Alas, there is no such alternative.

Free enterprise or capitalism, in the traditional definition, is an economic system based on the private ownership of the “means of production” and in which profits can be acquired through investment of capital and employment of labor. This is in contrast to socialism and communism where the state owns the “means of production,” and also your labor. In free enterprise there is private ownership of properties, while in socialism and communism, everything belongs to the state. In Islam of course everything belongs to Allah, man is only His trustee (“vice regent”) on earth. Only God can revoke this trust (presumably upon one’s death). Nowhere in the Koran is it stated that Allah has substituted the state for humans for the trusteeship of the earth. In this regard, capitalism rather than socialism or communism is closer to Islam. Besides, the atheism of communism is the very antithesis of Islam.

With capitalism you are rewarded for your efforts and ingenuity; with socialism, the all-powerful state decides how much you deserve or should get. To use a biblical phraseology, with free enterprise you reap what you sow; with communism, to each his due or according to his needs. To revert to my familiar bovine analogy, imagine you have two cows. With socialism, in the spirit of equality, you are required to give one to your neighbor; in communism, you must give both to the state and it may in turn give you some milk in return; with capitalism, you sell one cow and buy a bull. (If you are a real entrepreneur you simply let your cows loose amongst your neighbor’s bull!) Real world experience proves that over time the capitalistic system produces the greatest number of cows.

The failures of communism and socialism are now self-evident. The old defunct Soviet empire is only the most dramatic example. But remnants of that ideology are still alive and kicking to inflict their damage on the economies of many countries, Malaysia included. Present-day stagnant India with its ubiquitous “Permit Raj” is an ever-ready sorry reminder of the dangers of central planning and big government.

Malaysia, despite its commitment to free enterprise and open markets, is still very much enamored with elaborate central planning and fancy Five Year Plans. My own minor involvement in the late 1970’s with Malaysia’s never ending Five Year Plans is instructive. I see little evidence of improvement since then. It was towards the end of the Fourth (or was it the Fifth?) Malaysia Plan. I was instructed to develop plans for the next five years, and countless meetings were held. Only months before we were busy with the midterm review of the current plan. There were still many projects that were either behind schedule or had not been implemented. Prior to that, we were engaged in yet another series of equally intensive reviews of uncompleted projects of the previous plans. We were indeed heavy into planning. In fact I could keep myself busy just attending these multitude of meetings! Many civil servants spend their entire time doing just that. Alas, planning is one thing, executing is another, as I would soon discover.

I had this simple idea that instead of concocting grandiose new schemes that would never see the light of day, I would review all previous plans, starting with the very first one twenty years earlier. To my surprise those plans were all well thought out, practical, and sensible. My predecessors had obviously taken their responsibilities seriously and put much thought into their submissions. The only problem was, few of those sound ideas had been implemented. And the fewer still that had been completed were useless or inoperative because conditions had changed dramatically. For example, by the time the new operating suites were completed they were already severely stressed from heavy usage because of the long delay between planning and completion.

So instead of dreaming of glamorous new projects, I merely updated the old ones. As for the required all-important “mission statement,” I stated simply that my objective was to complete all the projects of previous plans. Direct and truthful! After factoring for expanded capacity and inflation, I arrived at the new estimates with no difficulty. My immediate superior was suitably impressed when I submitted my proposal way ahead of schedule.

The only problem was, when the minister reviewed my submission, he was not amused. First, I did not have any grandiose proposals, and second, so many previous projects had not been implemented. While he understood my point, nonetheless he insisted that I come up with a new and better plan. He was not interested to know why those previous projects were not completed. They were his predecessor’s responsibility, not his!

Fortunately for me, I too had my own personal five-year plan, for soon afterwards I resigned from government service. And mine was fully implemented and on time.

Today (2002) Malaysia is embarking on its Eighth Five Year Plan. I can imagine all those bureaucrats spending countless hours in meetings with their Powerpoint presentations (if they are computer savvy, that is) on their various projects, complete with detailed dates of implementations, costs, and other minutiae. When one sits at one of these meetings one is suitably impressed. That is, until you actually see those projects at the ground level. Then one realizes that all those wonderful plans are just that—simply plans.

My experience with top-down bureaucracy of central planning was equally dismal. I was in charge of the postgraduate educational program at the Johor Baru hospital and had ordered much-needed books and journals for the library. Easy enough, except when it came time to get the funds I was told to submit the request to the Ministry of Health headquarters. I did but was told that books could only be ordered once a year and that somebody from headquarters would be visiting me soon to discuss the purchase order.

That bureaucrat did finally show up and the first thing he asked was whether I had competitive bids! I had difficulty convincing him that buying medical books and journals was not like buying hospital uniforms where one can comparison-shop and accept the lowest bidder. I suggested that the ministry authorizes a sum of money annually for books and journals, and let the hospital do its own purchasing. He was not persuaded but instead tried to impress me with his vast knowledge of the civil service code and the relevant circulars.

A year later the books and journals had yet to appear. It would not surprise me that they had not even been ordered, awaiting no doubt approval from Treasury or perhaps the minister himself. All for a measly few thousand ringgit! Meanwhile those young doctors were without their reference books and journals.

When I pointed this out to a more senior ministry official, his reply was that central planning was a way to cut out corruption. Had they given me the cash, I might have spent it on frivolities or worse, absconded with it. It is pathetic that they would trust me with the lives of the citizens but not a few lousy ringgit. I shudder to think of the bureaucratic maze my purchase order went through.

Extrapolate my experience and one need not wonder why Malaysia is a mess. In response to the economic slowdown, the government in 2001 allocated a multi-billion ringgit fiscal stimulus package. A year later the funds were still stuck at Treasury. Whatever economic impact the planners had imagined in drawing up those wonderful plans, all came to naught. The Prime Minister blamed the Public Works minister; he in turn blamed Treasury; and Treasury of course blamed the contractors. Reminds me of the “blame the dumb cows” story!

I have now come to the conclusion that all these elaborate central planning are nothing more than massive public works projects to keep the glut of civil servants occupied. That those plans occasionally benefited the citizens is merely coincidental!

If that were the only consequence of central planning, it would be relatively benign. The more sinister aspect of central planning is that it would lead to the gradual erosion of the rights and liberty of citizens.

These planners may be well intentioned initially, but all too often when they promise a rosy world, the reality is the reverse. People’s lives would be planned to satisfy the needs and desires of the planners. Left unchecked, these planners become control freaks. This was the prescient observation of the Austrian economist von Hayek in his classic book, The Road to Serfdom. It is significant that the book was first published at the end of World War II when the world was enamored with central planning and Maynard Keynes, a brilliant and eloquent proponent of government intervention, was the towering intellect in economics.


Next: Free Enterprise As An Islamic Tradition