Rationale For Establishing Malaysian GLCs

Rationale for Establishing Malaysian GLCs

M. Bakri Musa

www.bakrimusa.com

Late in the Mahathir Administration the government embarked on an ambitious “transformation” (that overused word again!) exercise aimed at, well, transforming GLCs. It is noteworthy that in all official publications on the matter, including its “Silver Book” and “GLC Transformation Manual,” there is no mention of the original principles or rationales behind the setting up of these GLCs.

It is obvious that the government and those currently managing these GLCs have lost sight of the original mission. No surprise than that those objectives have remained unaccomplished; they have been forgotten.

When Tun Razak conceived the idea of GLCs back in the 1960s he had three major objectives. First was to spearhead Malay engagement in commerce generally and the corporate sector specifically. Second, he wanted to level the economic playing field by breaking the monopolies and monopsonies of the huge colonial firms (as well as the few Chinese ones) thus easing the entry of new players (meaning Malays). Third, he wanted to bypass the Byzantine ways and lumbering pace of the civil service.

While merdeka immediately changed Malaysia’s political atmosphere, there was no comparable accompanying changes in the economic. Its commanding heights, from plantations to finance, remained entrenched in colonial hands. The only local firms that could come close to challenge those colonial entities were the few large Chinese ones. With the withdrawal of political protection for colonial firms, the existing Chinese companies blossomed. Like capitalists everywhere, they too were prone to collusion, aided greatly by their clan organizations and cultural tradition of guanxi (personal connections).

Even if there were enterprising Malays, they would not be able to compete against the clan mentality of existing Chinese enterprises. Like others, those Chinese businessmen were not in the least tolerating or welcoming of new competitors, especially those not of their own kind.

There was an enterprising Malay entrepreneur, “Loya” (lawyer) Maarof, (after whom Bangsar’s Jalan Maarof was named), who started a Malay bank and a string of Malay enterprises in Negri Sembilan. He was a bright man whose talent was earlier spotted by the British; he was sent to Britain to read law. He was also well versed in economics and knew the importance of having a Malay bank to act as an intermediary as well as catalyst for Malay economic development. More to the point, he was able to mobilize the Malay masses or at least interest them in matters economic. All other Malay leaders at the time (and even today) were intoxicated with political power, specifically then the pursuit for independence. Maarof was the rare exception; he recognized early that unless Malays were also serious players in the Malaysian economy, merdeka would be a hollow victory. He was particularly prescient.

Somebody must have viewed him a serious threat on the economic front, for he was soon found hung in Gombak. The official verdict: suicide. Not many believed that.

Not much has been written about this bright enterprising young lawyer. He was of my father’s vintage. All I knew about him was what my father told me when I was growing up. Not many Malay leaders at that time impressed my father. To him they were all good only at giving rousing (berkobar-kobar) speeches. Maarof was again the rare exception; he was a man of action, especially in the field of mobilizing Malay savings and starting Malay enterprises.

Maarof’s cruel fate reflected the then prevailing animalistic “law of the jungle” economic climate. A decade later Tun Razak too recognized that it would be a formidable challenge for any Malay (or anyone for that matter) to take on these established Chinese and colonial players. They had effectively tilted the economic playing field in their favor. Only the government would have the might to take them on; thus was born the first GLC. Fifty years later China would use the same strategy to establish its GLCs to take on the giant Western transnational corporations.

The third reason for these GLCs was to overcome or bypass the sluggishness of the civil service. The rule-crippled civil servants would stymie every development initiative with their bureaucratic obsession with “rules.” They were simple administrators, not innovative policymakers, clerks rather than executives. They were preoccupied with routine stuff; strategic planning and bold new initiatives were alien concepts to them. To get a simple project going would involve a Byzantine process, meandering through the convoluted belly of a constipated bureaucracy. All these inadequacies are well documented in Esman’s book, Administration and Development in Malaysia: Institution Building and Reform in a Plural Society.

With GLCs Razak could bypass all of those bureaucratic hoops. He was also able to recruit fresh young talent to helm these companies. Under the strict civil service code with its undue deference to seniority, these promising officers would have been stuck in some junior positions. That was how Tengku Razaleigh was able to head Bank Bumiputra and later, Petronas, while still in his thirties.

Today, the only hint of deference to Tun Razak’s original mission was this oblique and very brief statement in the 49-page “The Summary of Transformation Manual”: “[T]he principles of growth with equity, ... development of human capital, and the development of the Bumiputra community.”

To be generous, Tun Razak’s original mission of spearheading Bumiputra participation in the private sector could be encompassed under “the development of the Bumiputra community” umbrella. That aside, the much-hyped “Transformation” document makes no direct or specific mention to the role of GLCs in today’s Malaysia. Instead the report focused on profits. Meaning, these GLCs are no different from any other corporation except for the fact that the government is their principal shareholder and provider of financial and other capitals, and also increasingly, their main customer.

The stated objective of NEP, reiterated ad nauseam, is that there be at least 30 percent Bumiputra participation in the equity market. GLCs were to be the primary instrument to achieving that. There is little disagreement that over two generations later, Bumiputra participation in the private sector, specifically the equity market, is still well below what is expected based on our share of the population. It is also well below NEP’s modest target.

That transformation report made no reference to this abysmal failure. If these GLCs have failed to achieve their modest goals during the past five decades, it is unlikely that they will be any more successful in the next five. The only conclusion, and a crucial one, is that these GLCs are not effective. It is time we abandon them though the original objectives as laid out in the mission statement remain valid and worthy of pursuit.

It is time to liberate our thinking and be bold in our imagination. I suggest that we sell all these GLCs and put the proceeds in a trust fund for the specific purpose of enhancing Bumiputra human and social capital. Before fleshing out my proposal, I will review the impact GLCs have had on Malays. Just in case my idea of disposing of the GLCs entirely is deemed too radical, I outline my ideas for newer models as well as offer my alternatives towards achieving the same goals.

Next:  Ratinale for GLCs:  Leveling the Economic Playing Field

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.