Integrating The Malaysian Private Sector

Integrating The Malaysian Private Sector

M. Bakri Musa

www.bakrimusa.com

The government is intent on integrating the private sector. As usual it pursues this in its typical arrogant and ignorant manner. Take the requirement that publicly-listed companies have 30 percent Bumiputra participation. That is fine if we let the market pick those lucky Bumiputras. With Ministry of Trade officials picking the winners, it did not take long for that scheme to degenerate into yet another corrupt political patronage system.

            A more sensible approach would have been for the government to explicitly use ownership and employee diversity as criteria when awarding public contracts. American companies realize that workplace diversity is its own reward, quite apart from being the right thing to do. American corporations are outbidding their European and Japanese competitors in Africa because many of the US executives there are African-Americans. The same in China, with American companies actively recruiting ethnic Chinese-Americans as executives.

            The “mom and pop” retail sector in Malaysia is dominated by Chinese. They usually recruit their own kind, and there is nothing wrong with that. It is to be expected with small enterprises; their owners’ circle of trust is narrow, confined to immediate family and clan members.

            This concentration of the “small business” retail sector in Chinese hands is not due to lack of Malay business initiatives, as is widely presumed. Rather it is due more to the natural tendencies of those involved in commerce both large and small to band together and prevent new entrants to protect their existing markets and profits. Left to their own devices, as Adam Smith noted, capitalists would rather collude than compete. There is no need to attribute sinister racial motives even if there were to be any.

            If you ask small-time Malay traders and retailers the greatest obstacle they face it would be the inflated costs of their supplies. As with the retail sector, the wholesale market too is controlled by Chinese. Tun Razak was aware of this marketplace reality and the obstacles it posed to the small-time would-be Malay entrepreneurs. His solution was to set up crown corporations, the precursors of today’s Government-linked Corporations (GLCs), to be the wholesalers to Malay retailers. That was the only viable solution then.

            Today, a more effective way of breaking the monopoly of this ethnic supply chain and at the same time enjoy the benefits of having an efficient retail sector would be to open it up to more competition by encouraging major foreign companies like Carrefour and Walmart to set up business in Malaysia. Doing so would also spare the government the expenses of these GLCs; instead it would gain tax revenues from these foreign corporations.

            Companies like Walmart and Carrefour are enlightened employers. In America, Walmart is a major employer of minorities. Meanwhile in China, Walmart is revolutionizing not only the retail sector but also customers’ behaviors. The irony that a retail chain started by the avowedly anti-communist Sam Walton would find fertile ground in China or that he would prove more successful in changing the ways of the Chinese than Mao could ever hope escapes the Chinese Communist leaders. Score one for capitalism and globalization!

            In Malaysia, Carrefour has exemplary recruiting policies; it actively recruits capable Malays for its frontline as well as management positions. Unfortunately, instead of encouraging such multinational retailers with their enlightened personnel policies and exemplary work culture, the government is restricting them. The influence of “money politics,” otherwise known as corruption, among UMNO politicians and these Chinese retailers has a lot to do with that particular state of affair.

            As if the problems with wholesalers and suppliers were not big enough for budding Malay entrepreneurs, there is also the matter of credit, the lifeline of any business. Banks and other financial institutions ignore these small customers and those with less-than-stellar credit ratings. They have no alternative but to patronize pawnshops, Ah Longs (Chinese moneylenders frequently associated with the underworld), and chettiars (Indian moneylenders) with their usurious interest rates. They are also exclusively non-Malay operations, right down to the goons they employ to collect the delinquent payments.

            A more formidable barrier for Malays with respect to credit is our religious attitude towards interest, which is the flip side of credit. Malays like Muslims elsewhere, and much like medieval Christians, have yet to reconcile the Koranic injunction against ribaa to the critical modern role of credit and the associated cost of financing generally. In the subsequent section on Islam, I will pursue this issue further.

            Malaysia’s answer to these basic problems is to intervene through GLC lending companies. A better, cheaper and more effective way would again, like the retail and wholesale markets, be to open the market up to foreign lenders like AIG that specialize in “sub-prime” loans. That would put these chettiars and Ah Longs out of business. Malaysia would be better off without them. AIG also has enlightened personnel policies. Rest assured such companies would employ many Malays, certainly more than the present ethnic moneylenders do. Big companies like AIG are smart enough to recognize the need for frontline Malay employees to attract Malay customers.

            AIG’s aggressive pursuit of “sub- prime” borrowers, specifically for home mortgages, and its overexposure in insuring the highly sophisticated but in the end faulty “credit default swap” arrangements among major financial players contributed to the economic crisis of 2007-08.

            Put aside that specific insurance component of AIG, its consumer-loan arm provides a useful service. Granted, the interest rates are much higher reflecting the lower credit worthiness of its clients. Nonetheless even with the ‘high’ rates, they are still nowhere near the outrageous amounts charged by the Ah Longs and chettiars. Further, AIG and all the other finance companies are tightly controlled with respect to their collection practices. They cannot for example harass their clients at work. No such restraint exists for the Ah Longs. Their collection goons have been known to chop off the hands of delinquent customers.

            While integrating the Malaysian private sector is a necessary and worthy goal, active government interventions through mandates or GLCs are not the only or even the most efficient routes. Malaysian policymakers need to escape their myopic mentality and explore other possibilities. Liberating that sector by allowing more players, including and especially large foreign corporations, would be one excellent route. Another would be to explicitly reward companies with a racially integrated workforce and ownership by preferentially awarding them government contracts.

            To reiterate, the lack of Malays in the private sector is a problem, not a mystery. We can only begin to explore for solutions with diligence once we have liberated our minds. As long as we keep them closed, we will continue on the present path that has led us to where we are today. It is worth reminding Malaysians that the country’s most notorious and most expensive scandal involves a GLC–the 1MDB financial fiasco.

Next:  It Takes More Than Just Money

Adapted from the author’s book, Liberating The Malay Mind, published by ZI Publications, Petaling Jaya, 2013. The second edition was released in January 2016.