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M. Bakri Musa

Seeing Malaysia My Way

My Photo
Location: Morgan Hill, California, United States

Malaysian-born Bakri Musa writes frequently on issues affecting his native land. His essays have appeared in the Far Eastern Economic Review, Asiaweek, International Herald Tribune, Education Quarterly, SIngapore's Straits Times, and The New Straits Times. His commentary has aired on National Public Radio's Marketplace. His regular column Seeing It My Way appears in Malaysiakini. Bakri is also a regular contributor to th eSun (Malaysia). He has previously written "The Malay Dilemma Revisited: Race Dynamics in Modern Malaysia" as well as "Malaysia in the Era of Globalization," "An Education System Worthy of Malaysia," "Seeing Malaysia My Way," and "With Love, From Malaysia." Bakri's day job (and frequently night time too!) is as a surgeon in private practice in Silicon Valley, California. He and his wife Karen live on a ranch in Morgan Hill. This website is updated twice a week on Sundays and Wednesdays at 5 PM California time.

Wednesday, July 30, 2008

Towards A Competitive Malaysia #64

Chapter 9 Institutions Matter

Insurance and Risk Management

Another important institution is the insurance industry. Although not directly linking owners and users of capital, nonetheless they are vital to the economy. Any economic enterprise carries risks. There must be a satisfactory mechanism to manage those risks in order to smooth out and thus encourage economic activities. Without it, no one would dare venture out for fear of losing everything.

There are three practical ways of managing risk: avoid, reduce, or share it. Avoidance means just that, staying away from high-risk ventures; however often the most profitable ventures are also the riskiest. One has to match one’s goals with the level of tolerance. If you were a trustee of public funds, you should not invest in high-risk ventures.

Limiting risks is prudent and indeed necessary. Doing otherwise would be foolhardy and a recipe for failure. We reduce risks through careful planning, doing due diligent studies, and having safe working conditions.

An instrument of the modern economy that reduces risks is the limited liability corporation. Imagine if I were to own a taxi business and my car accidentally kills somebody. If I do not have insurance, it would be unfair to the family of the deceased; he may have been the breadwinner. The insurance protects both my business as well as the public. That is why in advanced countries businesses are required to have insurance. In America all cars must have liability insurance. After all, accidents do happen.

Insurance alone is not enough. If the family were to be awarded damages beyond what my insurance would cover, I risk losing not only my taxi but also my other personal possessions. However if I were to form a corporation with limited liability to run my business, only the assets of that company would be exposed. My home and other personal assets would be protected. In Britain, such limited liability companies carry the suffix “Co. Ltd.” (Company Limited); in America, “Inc.” (Incorporated); and in Malaysia, Senderian Berhad (Sdn Bhd).

This concept of a limited liability company is one intellectual invention of the West that has done much for economic development. Without the limited liability and asset protection provisions of the Companies Act, those already rich would not be encouraged to start new ventures for fear of risking what they already have.

Another advantage to the company is that it has its own life legally. When the owner dies (or get entangled in a divorce or dispute) the company could still carry on its business uninterrupted.

The third manner of managing risk is to share it. This is the role of insurance companies. The concept of insurance is not new. Ancient Muslim traders had takaful—risk sharing—in which the participants in a caravan would contribute to a pool so that if one of them were to suffer a calamity like being robbed, they could recoup the loss (or part of it) through the pool. Centuries before, Greek shippers had similar arrangements to take care of the unfortunate among them who might be lost or destroyed in a storm.

Today’s insurance companies are much more sophisticated in their assessment (and thus pricing) of risks. Insurance is pivotal in a modern economy not only because they enable many to partake in economic activities by managing their risks, but also by the investments of their premiums.

Unlike depositors’ money in banks that are available to the depositors “on demand,” meaning at any time, the premiums insurance companies collect are long term or “patient” capital. It would be needed only when the claims would be filed, which may be years later or never at all. That capital is particularly suited for funding long-term projects like buildings and major constructions.

There is difficulty among some Muslims in accepting the concept of insurance, in particular life insurance. The difficulty is in separating the concept of risk management versus gambling and games of chance. Insurance is an integral part of the modern economy and is responsible for its vibrancy. It behooves Muslim scholars to study the matter more closely before rushing to dismiss it as “un-Islamic.”

Next: Civil Society

Sunday, July 27, 2008

The Courage To Be Diffferent

M. Bakri Musa

The Sultan of Trengganu’s decision not to bestow royal honors on the occasion of his birthday is worthy of praise. I also applaud his celebrating it in a low-key manner. With the nation facing trying economic times, this message of prudence needs to be conveyed from the highest levels of our leadership. Further, the Sultan’s gesture while seemingly symbolic portends far more significant changes.

I am surprised that this is not more recognized and lauded by our intellectuals and pundits. Perhaps they too are eagerly waiting for their own little title and accompanying tinplate.

The Sultan in his capacity as King is also imparting his important message to the Prime Minister. Abdullah, his humble beginnings in the village and his very public displays of piety notwithstanding, has shown a detestable fondness for things luxurious since becoming Prime Minister. Witness his RM 250 million corporate jet! Prudent spending is not his strength.

For a culture that does not normally recognize birthdays, Malaysians have taken up this Western cultural artifact with gusto. This is especially so with the royalty. The investiture ceremonies associated with such birthdays would stretch for days, with the Prime Minister and other top officials having to be in attendance at all times, thus distracting them from their regular work. Not that they are any good or effective when they are in their offices!

Apart from the King, Malaysia has nine sultans as well as four sultan wannabes in the person of state governors. With 14 head-of-state birthdays to celebrate and heaps of honorifics to bestow, there is a glut of these titles.

It is not so much that I detest these ostentatious celebrations rather that I resent the wasting of precious taxpayers’ money. I could not care less if those sultans and governors were to throw private parties at their own expense.

Whom We Honor

We can tell much about a culture by whom it honors. Consider the Presidential Medal of Freedom, America’s highest civilian honor. Its recent honorees include not only prominent statesmen and distinguished scientists but also such varied talents as the Black neurosurgeon Ben Carson, singer Aretha Franklin, boxer Muhammad Ali, and banker Alan Greenspan.

For contrast, examine the recipients of Malaysia’s highest royal honor, the “Tun.” Perusing the list for the past decade or two, all the recipients were either retired civil servants or “has been” politicians. Some awards seem automatic, as for example, for the sitting Chief Justice. They all would get one, even those who would later bring disgrace to their office. I am astounded to discover that there are more than just a few of those renegade characters so honored!

The message is clear. To the mindset of our leaders, the only way to serve the nation is through the government, or at least by belonging to the right political party. Such a myopic view of the world!

One is readily inspired when reading the citations of those honored with the Medal of Freedom. Unlike the Medal of Freedom, there is no citation to go with awarding the Tun. One has to guess their achievements. “Googling” their names would be an equally fruitless exercise.

Musa Hitam and Lim Keng Yeik are recent recipients of the Tun. Yet what are their contributions to the nation? Yes they were former cabinet ministers, but what exactly did they achieve? As for former Chief Justice Ahmad Feiruz, another recent honoree, what were his landmark decisions? The nation should honor their contributions, not their positions.

I can recollect only a few honorees whose contributions were truly significant and thus deserve honoring. Our first Chief Justice, Tun Suffian Hashim was one, as well as the first Governor of Bank Negara Tun Ismail Ali. Both rightly belong in the same league as the late Tun Razak.

I once suggested to a graduate student looking for a topic for her dissertation to go over the list of our royal honorees to discern the pattern. Who do we honor as Tan Sri and Datuk? This would have been a doable project a decade ago. Alas today, with the avalanche of names, you would need superior computer and statistical skills to do a credible analysis.

It reflects the degradation of our culture that there is now a widely acknowledged “under the table” price for these titles. Consequently, today you are as likely to find such honorees on the criminal roster as on the palace invitation list.

Truly Modern Monarch?

Sultan Mirzan may be our youngest King but he has already shown his innovative streak early and quietly. Soon after his installation he directed that all palace functions must end early so as not to interfere with the following working day. How sensible! That royal mandate must have been a severe shock to those ministers and senior civil servants who would find any excuse not to be punctual at their offices.

During the massive Bersih rally in 2007, the King demonstrated his political subtlety and acumen by being conveniently out of the palace and yet opening its gate to the rally organizers. That was a direct public slap to Abdullah who had earlier declared “saya pantang di cabar!” (Do not challenge me!)

On a more substantive level, following the recent March election, Sultan Mirzan as the Sultan of Trengganu taught Prime Minister Abdullah a much needed lesson on the real meaning of royal “advice and consent” on appointing the state’s Chief Minister. As Abdullah was (still is) a slow learner, Sultan Mirzan had to deliver his message in no uncertain terms. It took some time and much public humiliation, but Abdullah did finally learn his lesson.

Sultan Mirzan through his actions and Raja Nazrin with his speeches represent the new generation of royals who are more attuned to the nuances of the delicate checks and balances provided for in our constitution. Such a function, which has been severely lacking, is necessary for an effective government. These royals are not at all shy in exercising their long-neglected oversight role.

The framers of our constitution in their wisdom had provided for, in addition to a bicameral Parliament, another entity, the King and his Council of Rulers, which in effect is the Third House of Parliament. While it cannot initiate legislations nonetheless it has the power to review laws passed by Parliament. At least that was the situation until Mahathir amended the constitution.

Additionally, the consent of this Third Parliament is needed in making senior appointments. In matters pertaining to Islam, this Council rules supreme. This fact was brought to the fore during the recent imbroglio over the transfer of senior religious officials in Perak.

I hope these tentative ventures towards a more activist role for the King and his Council of Rulers would expand, with the King taking his “advice and consent” role more positively a la the United States Senate. While I do not expect open hearings I do hope the Council would carefully vet in private candidates for senior appointments and not merely rubberstamp the nominees of the Prime Minister.

This would restrain the current unchecked powers of the executive and correct the current imbalance that has tilted for so long towards it. At least that is one side benefit albeit unintended to Abdullah’s weak leadership. It allows the King and his brother rulers to re-exert their constitutional power. That can only be good for the nation.

Sultan Mirzan’s cancellation of the royal investiture on the occasion of his birthday should be viewed in this light. I hope he would venture beyond and usher our Third House of Parliament to its original proper oversight role. If he were to do that, then he and his fellow sultans would have justified the high cost of maintaining them, quite apart from earning the gratitude of their subjects. Besides, that is a far more crucial role than passing out fancy sashes and tin plates on their birthdays.

Wednesday, July 23, 2008

Towards A Competitive Malaysia #63

Chapter 9 Institutions Matter

Strengthening Financial Intermediaries

The bane of Third World economies is the inefficiency of their banking system specifically and financial intermediaries generally. Many countries lack financial intermediaries other than banks. The foundation of a successful and vibrant economy is an efficient system of financial intermediaries, including but not exclusively banks.

The Asian economic crisis of 1997 was essentially a crisis of the banking system. Show me an economically backward country, and I will show you one without a sound banking system and efficient financial intermediaries.

A constant and major task of regulatory agencies is to keep bankers on the straight path. Bankers are not immune to greed or playing loose with the rules. The major banks can be particularly egregious, shielded by the arrogance of their size. Governments are reluctant to close them and risk widespread economic ramifications.

It is precisely these banks that must be taught a lesson and taught early, lest lesser ones might be tempted to follow suit.

Nick Leeson, a trader stationed in Singapore, caused the collapse of Baring PLC, a 300-year-old institution and banker to the Queen of England. Malaysia saw the collapse of Bank Bumiputra, the pride of Malays, a casualty of the 1997 crisis. Conveniently forgotten in that debacle were the bank’s executives playing loose with the rules long before the crisis. On each occasion the regulators tolerated them because the bank was deemed “too important and too big to fail.” Had the authorities rapped the knuckles of those executives the first time they strayed, they would have learned a very important lesson, and the bank would still be around today.

An important function of regulators is finding ways to improve the efficacy and efficiency of the system. Conditions change, and banks must adapt to meet new challenges.

Canada goes through periodic (once every decade) reviews of its banking system to ensure that it meets the needs of the economy. Every financial crisis leads to improvements. The bank runs and failures of the Depression led to the establishment of the Federal Depositors Insurance Corporation. That boosted public confidence. The government also introduced a host of new regulations that prevented banks from direct ownership of companies to whom they extend credits. American banks have been strengthened and made more efficient through the diligence of the regulators.

Another stimulus to the enhanced competitiveness of American banks is the intense marketplace competition. This is what separates American banks from their Japanese counterparts. In the past, banks monopolized the banking needs (credit and deposit) of the public. Today money market accounts of mutual funds offer near-bank services and take substantial business away from traditional banks. These accounts are not Federally insured, but their customers are sophisticated; they would not hesitate withdrawing their funds at the slightest hint of trouble. Consequently, these money market managers are even more prudent than banks in order to maintain their customers’ confidence.

Other institutions like finance companies also aggressively compete with banks in giving out loans. This competition forces the banks to be even more responsive to their customers’ needs.

Bank’s credit lines were once reserved only for big companies; today they are available to retail and small business owners. With my credit line, which in effect is a ready standby loan, I could drive a hard bargain in buying a car, as I would be paying cash to the dealer, a powerful negotiating tool. Major borrowers also benefit from the increased competition. In the past they were stuck with the banks. Today major corporations borrow money directly from money market funds through the issuance of Commercial Papers, bypassing banks and effecting considerable savings.

As banks are prudent in their lending practices, they ignore the needs of those with less-than-pristine credit risks. In the Third World such individuals would be at the mercy of chettiars, Ah Longs, and other loan sharks with their unsavory and often deadly debt collection tactics. In America, there are financial institutions that cater to these “sub-prime” borrowers. Sure they would have to pay higher interest rates, but that would be less then what loan sharks charge, besides being spared their ruthless collection tactics.

When financial institutions are efficient, everybody—customers, companies, and the economy—would benefit. When they are not, everyone would pay. The function of the government is not to go directly into the business of banking, but to ensure that the country’s banks and other financial intermediaries are safe and efficient.

Following the 1997 economic crisis, the government aggressively pushed for consolidation of the banks believing that there were too many of them competing unnecessarily. How such a conclusion was arrived at was not revealed. The presumption was that through consolidation, the country would have few but strong banks that could withstand the inevitable international competition. To me, combining small, weak and inefficient banks would create only large, weak and inefficient ones, a situation that would pose even greater vulnerability and danger to the economy.

The manner of the consolidation too was suspect. Instead of letting market forces drive the process, the government embarked on a “guided merger” with the all-knowing Central Banker picking the lucky winners. The others better find suitable suitors among those chosen few.

The assumption for the consolidation remains unproven. How does Bank Negara presume to know that Malaysia would be better served by having a few major banks instead of many smaller ones? Only the market could determine that. If those banks fail to meet the needs of their customers, it does not matter what their size, they will fail.

It may well be that Malaysia would need both the small local banks as well as

the major ones. Americans are well served by having the friendly local neighborhood

bank where the manager knows each client personally, as well as the major

money centers like Citibank.

While banks link owners and users of liquid capital (cash), others link the users and owners of other capital. Venture capital companies connect those with money with those with intellectual capital. I may have a great idea on how to make the Internet more efficient and user-friendly, but to get my ideas to work would require money, which I do not have. So I go to the venture capitalists. If they like it, they will fund my project and take partial ownership of my enterprise in return. When (or if) my company is successful, they would sell their share and recoup their investments, plus (to be hoped) some hefty profits. With those fresh funds they would look around for other new entrepreneurs and start the cycle again.

Of course the venture capitalists could easily lose their investments if my company were to go bust. Thus they have to be prudent.

Malaysia is copying this idea by having its own venture capital companies to encourage new enterprises especially in ICT. Unlike the venture capitalists in Silicon Valley who raised their money privately (or use their own funds), the government owns the venture capital funds. Their managers are former civil servants; they still have that civil service mentality, the very antithesis of the venture capitalist. As they are not risking their own funds, they are not as prudent. If they pick losers, the worst punishment would be that they would be transferred to the Housing Department. Likewise, if they were to pick spectacular winners, their salary increases would still be dependent on their set salary scheme.

A government-funded venture capital fund is an anomaly. The government has no business risking precious public funds on risky commercial ventures. That is the role of the private sector.

Stocks and bonds also link savors with investors. These are more sophisticated instruments and involve greater risks than the simple lending and depositing activities of banks, and as such require more informed consumers.

The Malaysian stock market is well developed, the largest in ASEAN (sixth in Asia) in terms of capitalization (value of shares). It may look impressive but there are many issues still not resolved. Forty percent of the market (by value) is made up of GLCs like Tenaga Nasional and Telekom Malaysia. With the government a major player, how realistic can the KLSE be in terms of becoming truly open and competitive? Besides, there are other issues like transparency of corporate governance and protection of minority shareholders’ rights that remain problematic.

Another important institution is real estate developers. They link landowners with investors. Imagine that I have a piece of land but I have no money to build on it. Enter the developer. He has the expertise and capital to build a condominium complex. He and I could go into a partnership, akin to that of the venture capitalist and the entrepreneur, to build the complex. Depending on the value of my land and the cost of construction, we would share accordingly in the owner ship of the final project. With this arrangement, my land would be developed, the developer’s employees would have work, and society would have additional residential units.

A major issue in Malaysia is the lack of development of properties owned by Malays. Often these properties cannot be sold or their ownership transferred to non-Malays. Many such valuable properties as in Kampong Baru within Kuala Lumpur are left idle, akin to putting money underneath the mattress, useless and non-productive because their owners are cash-poor and lack expertise to develop them.

With some ingenuity and the proper intermediaries, such properties could be readily developed. These parcels could be leased on a long term basis to developers without there being any transfer of title. This is done in Hawaii where most of the land is owned by the Hawaiian royal family and thus cannot be sold. Through the issuance of 100-year leases, the land could be developed, with the trust collecting regular lease payments. That could be one solution to the quandary facing Malay landowners in Kampong Baru and other areas under the Malay Reservations Act.

The solution to the problem of poverty lies in creating institutions that could productively link the owners of capital (land, money, knowledge) to its users. We need not invent new ones, merely adopt and adapt the ones now functioning well in modern economies.

Next: Insurance and Risk Management

Sunday, July 20, 2008

Beyond The Veneer

SEEING IT MY WAY, Malaysiakini.com July 10, 2008

M. Bakri Musa

Third World Reality Beneath Malaysia’s First World Veneer

Book Review: Beyond the Veneer: Malaysia’s Struggle For Dignity and Direction

Ioannis Gatsiounis

Monsoon Books, Singapore. 2008

273 pages Indexed

US $15.95

Soon after Abdullah Badawi led his Barisan Nasional coalition to a landslide electoral victory in 2004, I wrote a blistering critique of his leadership. He had hoodwinked voters, I wrote, with his slick “feel good” campaign, and that sooner or later Malaysians would see through his emptiness. I had the piece previewed by my friend and frequent collaborator Din Merican. He suggested that I hold back and instead give Abdullah a chance. I did.

Little did I know that at about the same time (October 2004) an American journalist in Malaysia, Ioannis Gatsiounis, had written for Asia Times an essay titled, “Abdullah’s Honeymoon is Over in Malaysia.” Although more restrained in tone, nonetheless as judged by the title, he revealed a similar lack of enthusiasm for Abdullah as a leader. His “soft but firm” leadership, Gatsiounis wrote, “has shown … to be more soft than firm.”

That kind of perceptiveness is rare for a foreign observer, or a local one for that matter. Today, as judged by the current headlines, Gatsiounis’s judgment of Abdullah has become the common wisdom.

Such insights and perceptiveness do not come easily or quickly, even for the most astute of observers. Gatsiounis has been reporting from and on Southeast Asia since 2000, beginning first in Jakarta and later in Kuala Lumpur where he now resides. This gives him an intimate knowledge of Malaysia and a nuanced understanding of its racial dynamics and political tensions. He is not easily persuaded by smooth official press releases or slick PR gimmicks.

This volume, Beyond the Veneer: Malaysia’s Struggle For Dignity and Direction, contains his 42 essays written from about 2003 onwards. There are three commentaries on the recent “most crucial general elections in the country’s 50-year history,” one written just before the elections, and two, right afterwards.

“The Malaysian government’s authoritarian instincts,” Gatsiounis wrote in his first post-election essay (“A New Democratic Era in Malaysia”) “were finally checked by democracy at Saturday’s highly anticipated elections.”

Noting the immediate fractiousness among the opposition parties on power sharing, Gatsiounis observed (“The Malaysian Race Card”) that the “Chinese and Indians have become more vocal in opposing discriminatory policies, but they have given little indication that if they were granted greater equality they would rise above their own clannish tendencies.” As I said, Gatsiounis is a perceptive observer.

No Christaine Amanpour-type of Journalism

Today because of budgetary restraints, American media are cutting back on their foreign news operations, relying instead on what I would call the Christiane Amanpour-type of coverage. Fly in your celebrity journalist, interview the top local honchos, pick some cute quotes from the “man on the street,” choose some recognizable backdrops (which in Malaysia would be the Petronas Twin Towers), and then file your brief three-minute report that would appear just before the toothpaste commercial in the evening news.

Thus it is not surprising that Americans are poorly informed on matters beyond their borders. Such ignorance would ultimately percolate up to the leaders and policymakers. The results, as can be seen in Iraq and Afghanistan, can be devastating both to the natives as well as their “saviors.”

Thanks to the Internet, I have read many of Gatsiounis’s commentaries that have appeared in such publications as the International Herald Tribune, Newsweek, Washington Times as well as Asia Times. Let me assure readers that his reporting is the very antithesis of CNN’s Amanpour.

His is more along the Independent’s (Britain) seasoned Middle East correspondent Robert Fisk. Had Tony Blair listened to Fisk’s wisdom, he would probably still be Prime Minister today. More importantly, he would have spared himself, as well as those British soldiers in Iraq, much grief.

Malaysia is, as evidenced by the observations in this book as well as explicitly stated in the introduction, “trying to run the rat race of globalization on one good leg.” That is the leg Malaysia shows to the cameras, the gleaming Petronas Towers and the ribbon of smooth highways. The other, the bad leg that is severely handicapping the country, is the rampant corruption, deepening rich-poor divide, deteriorating institutions, and the increasingly dangerous polarization of race relations. To Gatsiounis, Malaysia has all but ensured that its “diversity is a weakness and not a strength.” I could not agree more.

There are no interviews of the powerful in this volume except for one longer than usual essay (“Malaysia’s Leader-in-Waiting”) based on a 40-minute interview with Deputy Prime Minister Najib Razak, a man very much in the news today, but for all the wrong reasons.

Gatsiounis observed that while Najib Razak “displayed a firm understanding of the kind of world Malaysia is entering and the attributes it would need … to be competitive, … he has also been a staunch defender of UMNO’s status quo … which has hindered Malaysia’s competitiveness and social harmony.”

I would say that Najib, like all UMNO leaders including supposedly better educated younger ones like Khairy Jamaluddin, are not so much defenders of UMNO culture rather that they are trapped by it, unable to escape its suffocating clutches. Their collective response to the March 8 electoral thumping for example, was not to seek changes but rather more of the same. To me, UMNO’s implosion is inevitable, and soon.

Instead of interviewing the powerful, Gatsiounis relies on his own observations. According to official accounts on the massive public Bersih rally calling for clean elections, the shopkeepers were fed up with the demonstrators who had disrupted businesses. In actual fact, as reported by Gatsiounis (“Opposition Steals a March in Malaysia”), those shopkeepers welcomed the increase in foot traffic. Their businesses were rudely interrupted only when the police came rushing in wildly brandishing their truncheons and firing their water cannons.

With such critical and penetrating reporting, I am surprised that Gatsiounis is not on the radar screen of the Home Ministry. One reason could be that those officials think that he writes primarily for foreigners. Those bureaucrats could not be more wrong. Through the Internet, Gatsiounis commands a sizable local audience, as evidenced by the praises on the book cover by such local luminaries as Ramon Navaratnam, Khoo Kay Peng and Ibrahim Suffian.

I asked Gatsiounis whether he felt intimidated by the authorities. Much to my surprise – and relief! – he answered no, although obviously he is aware of the realities. He however, wisely avoids flouting those restraints.

Malaysian journalists and writers regularly blame the myriad of restrictive rules for their timidity. They have to exercise self-censorship to survive, they claim. It is more an excuse. As Gatsiounis has shown, one can still be true to one’s professional ideals even under such trying circumstances. In truth, Malaysian journalists and pundits grovel to the powerful less for self preservation and more for ingratiation.

A challenge in publishing a collection of essays is organization, whether to arrange them thematically (as this one) or chronologically. The disadvantage of the latter would be that readers would have to jump from one topic to another. A combination would be better. On a section about Abdullah for example, arrange the essays chronologically. After all, a highly critical commentary on his leadership written in 2008, when Abdullah had clearly and fully exposed his incompetence, would not have the same impact as one penned earlier.

A further modification would be to have as a footnote at the bottom of the title page the date when the essay was written, instead of at the end. That would save readers from having to flip through the pages to the end of the article to find out when it was written.

With the current headlines filled with sordid details of the sexual escapades (real and imagined) of the politically powerful, and of police reports and sworn affidavits submitted and then retracted by those whose wish to ingratiate themselves to the powerful, we are again being reminded of the pitiful lack of solid reporting and penetrating analyses in the Malaysian media. By publishing this volume, Gatsiounis extends his reach among Malaysians, making them (hopefully) better informed. More importantly, this book also reminds Malaysians of what they miss in their daily news and information staple.

Wednesday, July 16, 2008

Towards A Competitive Malaysia #62

Chapter 9: Institutions Matter

Financial Intermediaries

A modern economy requires an efficient system linking owners of capital with its users, or to quote the Canadian Management Professor Reuven Brenner, “matching talent with capital, and holding both sides accountable.”18 There will always be those who have capital but unable to use it (or use it efficiently) and those who lack capital but have the expertise to use it efficiently. If we could link the two, we would have an arrangement that would benefit both parties as well as society.

Such arrangements have been part and parcel of human society. I may own land, but if for some reason I were unable to till it, I would get someone else to do it for me. He would get some of the harvest, a marked improvement in both our positions than before we entered into the arrangement. Society too would benefit from the excess of our harvests.

Such “tenant farming” is a feature even in primitive societies. The concept may be simple and unsophisticated, nonetheless such tenant farming has been the subject of modern analyses, and many an elegant insight of economics have emerged from such studies.19

Financial intermediaries like banks link owners of money (savers) to its users (investors). Imagine that I have some excess money. If I hide it underneath my mattress, I risk it being stolen or chewed by moths, and that money is not doing anyone any good. If I were to deposit it in a bank, the bank could use my otherwise idle money.

Consider that my neighbor wants to start a taxi business, but he has no money to buy the car. So he goes to the local bank to negotiate the loan. The bank manager, after assessing the applicant’s creditworthiness (essentially his ability to repay the loan), gives him the money (that it obtained from me and other savers) to buy the car. The bank expects the taxi business would generate enough revenue to repay the loan plus give the driver a decent income (in that order!) to make it worthwhile for him to get into the taxi business. For that service the bank would charge him a fee in the form of interest on the loan. To entice the likes of me to put my money in that bank, it offers interest on my savings.

As a result of this simple transaction, my neighbor gets to start his taxi business, the bank earns a fee for the loan, and I receive interest on my otherwise idle money. All parties gained. The greatest beneficiary of all is the community: it now has a taxi service. This benefit cannot be quantified; it may mean the saving of a life in getting someone to the hospital quickly.

Multiply such transactions a million times, and you would have a vibrant economy.

Imagine if there were no banks. My neighbor, knowing that I have some extra cash, would approach me directly for a loan. As I have no expertise in assessing his creditworthiness, I may be reluctant to lend him my money, remembering Shakespeare’s immortal admonition, “Neither a borrower, nor a lender be; For loan oft loses both itself and friend.”20 The end result is that nobody benefits; my money remains idle under my mattress; it stays as “dead capital.” While its impact on me would be simply that I could not earn interest on my idle money, the impact on society would be much more consequential. My neighbor would remain without a job and the town without a taxi service.

An efficient banking system is indispensable to a modern economy. By being efficient the bank could reduce its costs and thus could pay its depositors more interest thereby encouraging even more people to save. It could also then charge lower interest rates so that more people could borrow more money to start even more businesses. With less interest to pay, the taxi driver gets to keep more of the fares he earned from his passengers. With the greater earnings and lower interest rates, he would want to buy more cars and expand his taxi service, thus providing even better service to the community, quite apart from creating more jobs.

Imagine where the banking system is inefficient. First, savors would not trust it with their money. If banks were inefficient and had to employ thousands to do chores that could be done efficiently and cheaply by computers, they would not make much profit. They could not then pay much to their depositors, thus discouraging them from saving. To cover the added costs, the bank would then have to charge more for its loans, thus cutting out many more potential borrowers. High interest rates would quickly snuff out economic activities.

Banks can be inefficient in many other ways. If they dole out loans indiscriminately without paying close attention to the commercial viability of the projects they are funding (and thus the ability of the borrower to repay the loan), that would impact their profits. Loans to insiders, cronies, and the politically powerful without the usual rigorous credit checks or through corrupt and criminal activities are particularly dangerous.

Then there are imprudent practices. Bankers are humans, susceptible to the herd mentality. Often they help create speculative bubbles by encouraging over investments in particular areas. Strict rules preventing such over concentrations are useless unless they are fully enforced. The central bank must be vigilant, nabbing early those bankers who would be tempted to stray. Prior to the 1997 economic crisis, Malaysian banks were dangerously over exposed in financing the glut of real estate, margin stock buying, and lending to political cronies.

It is criminal that only seven or eight principals were responsible for over 80 percent of the non-performing loans of Malaysian banks during the economic crisis of 1997. Obviously these people had powerful connections such that the bankers could not say no. Either that or Malaysian bankers are a reckless lot, oblivious of their fiduciary responsibility in protecting their depositors’ assets. One also wonders of the oversight role of the central bank.

Next: Strengthening Financial Intermediaries

Sunday, July 13, 2008

Long Goodbyes Are Only For Lovers

Despite the apparent standing ovation Prime Minister Abdullah received upon announcing his retirement in front of UMNO members on July 10, 2008, there was no love lost between them. Likewise, despite the effusive tribute heaped upon Abdullah by his chosen successor Najib Razak on that same occasion, there is also no love lost between the two.

In announcing his resignation so far ahead, and thus ensuring a long drawn-out transition, Abdullah ignored a fundamental element in human (and also political) relationship. That is, long goodbyes are only for lovers! Abdullah should ponder the lyrics of the chorus line in Ronan Keating’s song, “The Long Goodbye.”

Come on baby, its over, let’s face it!

All that’s happening here is a long goodbye!

[For an accompanying music video, please click this link: www.youtube.com/watch?v=H5_k2pdvNTU ]

While it may be sentimental (and hence tolerable) for lovers breaking up to have long goodbyes, such a protracted political transition would be disastrous for a nation. Far from clarifying the leadership crisis, it only compounds the uncertainty.

Let’s face it. This belated ‘love’ between Abdullah and Najib will not last; neither will they, politically. The world of politics is like the animal world. When you are seen as weak, your predators will quickly pounce in for the kill. While it would be obscene to celebrate such an outcome, nonetheless it would be therapeutic for UMNO, Malays, and Malaysia.

I am uncertain of what a standing ovation after Abdullah’s announcement means. Perhaps they wanted to hear yet another statement reaffirming the same, only this time for him to make the date much earlier. They would then continue giving him ever more enthusiastic ovations – thus calling for even more announcements – until he declared his withdrawal right away! At which point he would bring the house down!

The Limp and the Crippled

As perverse as it may seem, Abdullah’s announcement was meant to reassure UMNO members as well as the public. The result was anything but; the speculations continue, only more intense and interesting!

In truth, the party and country would be better off without these two top leaders. This pact, conveniently arranged by the pair and purportedly “endorsed” by the party’s Supreme Council, was meant to strengthen the top leadership by portraying a public picture of seeming unity.

The limp and the crippled clutching each other would not result in a steady ambulating couple. Far from giving strength to each other, the pair would succeed only in bringing each other down. No marks for guessing who is who here!

That Abdullah is a limp leader is now obvious; made more so by his coalition’s recent electoral thumping. Yet there are still otherwise perceptive pundits who feel that if only those UMNO warlords and ministers would let him lead, Abdullah would do wonders!

If Abdullah had not shown his leadership talent by now, especially after he received the massive mandate in 2004, rest assured there is no talent, hidden or otherwise. Abdullah just does not have it; two more years would not miraculously produce one. The sooner he, UMNO, and the pundits accept this reality, the better it is for Malaysia.

Previously the pair was consumed with neutralizing each other. This desperate last minute union of convenience is brought on by fears that both would be wiped out by a third element.

Before that, Najib Razak, egged on by unconcealed endorsements from former Prime Minister Mahathir, had been making some uppity remarks on challenging Abdullah. Mahathir however now seems to be changing his tune; he has openly chided Najib for not standing up to Abdullah.

Najib’s trajectory was also rudely interrupted by sordid revelations relating to the murder of the Mongolian model. One has it that Najib allegedly had an illicit sexual relationship with the victim; another, Najib’s wife Rosmah was somehow involved in the murder itself. She has denied the allegation, but curiously has not seen fit to sue Raja Petra who made that serious allegation.

Najib denied “knowing” the model, a proclamation of innocence reminiscent of and equally unconvincing as President Clinton’s “I did not have sexual relations with that woman!” statement.

Perhaps Najib, a consequence of his early British education, was using the word “know” in its narrow biblical sense as, “Joseph knew his wife, and she conceived.” There was earlier false speculation that the murdered model was pregnant, with the fetus’s paternal origin the subject of intense gossip.

Anwar Ibrahim has as usual read the political situation well. He has shrewdly aimed his guns not towards Abdullah but at Najib. He knows that Abdullah will implode sooner or later. Besides, Anwar’s nemesis Mahathir is doing a pretty good job demolishing Abdullah. It is not that “the enemy of my enemy is my friend,” rather if my enemies are bent on destroying each other, sit back and relish the scene!

Abdullah also faces a more formidable challenge from Tengku Razaleigh. The Tengku has been getting some traction in his attempt to secure nominations to challenge Abdullah.

Malaysian Politics Hit New Bottom!

With the series of sordid sexual allegations involving senior political figures, Malaysian politics seem determined to hit new bottom (pun intended). The authorities and the public have been distracted by the salacious details, real and fantasized. Indeed, the police are now consumed with this useless investigation, at the expense of fighting crime and corruption.

Malaysia’s political problem is clear: it’s UMNO, specifically its leadership, or lack of one. It is a problem because UMNO is the biggest party, in Parliament as well as in the ruling coalition. UMNO is now rotten to the core.

It is instructive that the only fresh young talent attracted to UMNO these days are such characters as that college dropout Saiful Bukhari Azlan and the lost soul (politically) Ezam Noor. Saiful received an endorsement from no less than Najib Razak, while Ezam was feted by Abdullah himself! Such low standards!

Saiful was the pretty boy who hitherto successfully passed himself off (at least to the gullible) as a “personal assistant” to Anwar Ibrahim. This young man is determined to bring Malaysian politics down to new bottoms, literally and figuratively!

Ezam Noor meanwhile successfully (he thinks) passed himself off as a pretentious warrior against official corruption. He also fancies himself as possessing an oratorical gift matching that of Barack Obama, but minus the intellect. Ezam’s brain, judging by his utterances, could only be slightly bigger than that of a grasshopper, which may explain his frequent political hopping. Nonetheless that was enough to impress UMNO’s top echelon.

Like Saiful, Ezam is threatening to reveal other presumably equally sordid details involving Anwar Ibrahim. Rest assured that when Ezam does that, his standing in UMNO would be significantly enhanced. Such is the rot in UMNO.

Some sympathetic commentators (or perhaps they are just eager to ingratiate themselves to Abdullah) lay the blame for UMNO’s problems on the party’s “warlords” and its essential conservatism. If only the party would accept Abdullah’s “reforms” and the warlords get out of his way, these pundits insist, why there would be a renaissance of the party and wondrous things would magically happen!

These pundits missed the point. Those warlords flourished precisely because of Abdullah’s ineffectiveness. Far from embracing reform, Abdullah is the greatest obstacle towards it.

One badly needed reform is for the party to open up its election process by doing away with the current onerous nominating process. Do away with nomination quotas and you would invite more candidates. That would be the only way to discover new talent.

Abdullah however, is determined to keep this barrier, in fact anything that would help keep him in power. He is a Malaysian Mugabe in the making, if we let him be.

UMNO’s Abscess

There is a malignant abscess in UMNO; it needs to be lanced soon lest it metastasizes and kills the party corpus. The nidus of this putrefaction is the limp Abdullah and the crippled Najib. Both have to be lanced and the associated pus around them flushed out. The sooner this is done, the less complicated the surgery would be and the earlier the healing could begin. The more swiftly the process is accomplished, the less pain (and mess) there would be.

The scalpel is now in the hands of UMNO Supreme Council. If it fails to exercise its solemn responsibility, then the tool would be quickly taken out of its hands and then given to the membership. If they too fail to use it, as by giving candidates like Tengku Razaleigh and others the necessary nominations to contest the party’s elections or doing away completely with the quotas, then they would also lose the privilege of using that knife.

The dye would be cast long before the party’s elections in December. During July and August the party divisions will be selecting their delegates and choosing the party’s nominees. If the members too become limp and crippled by the directive from above, and if they fail to exercise their independent judgment, that would seal the party’s fate. This month and next will be their last chance to redeem the party they love.

Keadilan’s Wan Azizah’s “no confidence” vote against Abdullah scheduled for tomorrow [July 14] has little chance of success. Nonetheless it would serve as a warning thunderbolt, signaling the coming of a severe storm.

The sound of a lightening bolt is a much more reliable predictor of upcoming events than that of a standing ovation.

Wednesday, July 09, 2008

Towards A Competitive Malaysia #61

Chapter 9: Institutions Matter (Cont’d)

Judicial System

The decline in foreign investments in Malaysia is in part attributable to the fact that investors lack confidence in the integrity of the judicial system. Investors feel they would not have a fair shake especially when the other party to their dispute is someone well connected politically.

Since the government is a major player in the marketplace through its myriad GLCs, there is a high probability that in any commercial dispute, the government or its proxy would be the adversary in litigation. The lack of confidence by foreign investors directly impacts Malaysia’s economic performance, and the government ignores this at its peril.

Malaysia inherited its judicial system from the British. For some time following independence, Malaysians could still appeal to London’s Privy Council, but nationalistic pride soon put an end to that. The immediate practical impact was minimal as judges then had impeccable integrity and scholarship. They were also highly respected. The nation’s first “native” Chief Justice, Tun Suffian Hashim set demanding standards. His successors for the most part fell far short.

In normal times such a gradual deterioration would hardly be noticed, or could be self-correcting. In the 1980s however, Malaysia faced a constitutional crisis over Prime Minister Mahathir’s attempt to clip the powers of the sultans. What should have been a mature political debate, with the judicial system acting as the arbiter between what was essentially a power struggle between the crown (the sultans) and the executive branch, quickly degenerated into an ugly public broil. The justices themselves were entangled in the dispute. The already weakened judiciary could not hold up to the stress.

The upshot of that and other crises (specifically the deregistration of UMNO) was that a few senior judges, including the chief justice, were fired. That in turn precipitated uproar. Judges, unlike ordinary mortals, apparently are immune from such a human fate. An eminent body of chief justices from fellow Commonwealth countries was empanelled to review this sordid affair and, much to the surprise of everyone (especially the fired judges), found for the executive.

A reflection of the caliber of the fired chief justice (Salleh Abbas) was his post-bench career. He tried politics and was soundly trounced by a woman lawyer decades his junior in age and experience. The humiliation did not end there; it was also her first try at elective office! The judge is now a junior functionary with the opposition Islamic Party PAS. When that party won the oil-rich state of Trengganu in the 1999 elections, it sued the federal government over the suspension of payments of oil revenues. That former chief justice was a mere ceremonial appendage to the party’s legal team that lost.

That embarrassing episode should have been the impetus for Prime Minister Mahathir to be more careful in selecting senior judges. On the contrary, the reverse happened. Mahathir, chastened by this bitter experience (and a man who does not think highly of lawyers, a trait common among physicians), decided to nominate only judges who were sympathetic to his views. That is nothing radical; I would not expect President Bush to nominate a flaming liberal to the Federal Bench. Mahathir’s error was not that he picked judges who shared his political views (that was his prerogative), rather that he chose mediocre ones. Perhaps he reasoned that an incompetent but pliant judge was better to a competent but independent one. Thus the rot in the judiciary accelerated.

Surveys confirmed this decline.17 Locals do not need such an affirmation. An encounter with the system will confirm it. Savvy local lawyers are known to shop around for sympathetic judges, and brazenly brag about it. While there are no blatant exchanges of cash, as seen in some neighboring countries, such shopping around nonetheless erodes the integrity of the system.

There is not much deliberation in the selection of senior judges. The Prime Minister does not seek the views of practicing lawyers, fellow judges, or legal scholars. Judges are almost exclusively drawn from within the civil service, rising up through the ranks as magistrates, public prosecutors or some administrative positions. Few have significant private sector experience. They are essentially civil servants in experience and mentality. They follow orders only too well, unable to think independently, the very opposite qualities needed to be a good judge. In reviewing the backgrounds of senior judges, this is what strikes me—their narrow and shallow experience.

Their work reflects this. These judges complain that their judgments are not cited enough. That is like asking why someone does not quote your articles. If you have something sensible or important to say and have said it well, your peers will quote you. Their judgments do not have precedential value because they are poorly written, lack solid legal reasoning, and worse, delivered late, very late. Judges’ working conditions and pay are such that the talented would not be attracted. For a successful lawyer, it would be quite a financial sacrifice to be “elevated” to the bench.

Visit a Malaysian court. There are no court recorders; judges have to scribble furiously to record everything. They do not have time to assess the demeanor and credibility of witnesses. As trials in Malaysia are not by jury, these judges are missing an important element in judging. Judges, including senior appellate ones, do not have legal clerks to help them with their research and writing. The courts are also way behind in ICT applications.

All these problems are obvious, yet there is minimal attempt at rectifying them. The government has yet to acknowledge the importance of a fair, functioning and efficient judicial system in a modern economy. Malaysia needs to improve both the system and personnel. There are a few judges who on their own initiative have modernized their courts by putting their judgments and schedules on the Web and otherwise make their work transparent. They are the exceptions.

There are minimal steps that can be taken, like providing court recorders, legal clerks, and computers. Legal clerks are usually recent law graduates who help judges research and write judgments. The pay scale of judges would have to be substantially upgraded to attract experienced lawyers. Senior judges should be earning as much as cabinet ministers, and the chief justice on par with the prime minister. Judges should be selected from the widest possible pool, not just from the ranks of the civil service.

Never underestimate the importance of personnel. When Mahathir appointed Dzainuddin Abdullah to replace the crisis-prone Eusoff Chin as Chief Justice, the sense of relief was palpable. Even junior judges picked the cue immediately; they suddenly had the courage to be more assertive in rendering their judgments. The October 2005 successful appeal by former Deputy Prime Minister Anwar Ibrahim over his sodomy conviction was to many an affirmation of this greater judicial independence. The task of rejuvenating Malaysia’s justice system however is still very much work in progress.

Next: Financial Intermediaries

Sunday, July 06, 2008

Rationalizing The Role of Government

M. Bakri Musa

Prime Minister Abdullah and his civil servant accountants delude themselves into believing that the government could actually “save” RM2 billion merely by reducing ministerial allowances. The only way to effectively and substantially reduce the cost of government is to first rationalize its function.

As for any savings, Abdullah would achieve considerably more by getting rid of his luxurious Airbus corporate jet. If he were to do so, the jet would become a revenue producer instead of at present, a costly expense item. He would effectively move it from the liability to the asset column.

The British Prime Minister does not have a private jet, despite leading an economy and nation considerably larger. To think that this Imam of Islam Hadhari, only a generation away from the poverty of the kampong, having such an obscenely extravagant taste, at public expense!

In the wisdom of the kampong, Abdullah, his ministers and senior officials are tak sedar ekor (lit: not aware of their tails; fig: oblivious of their greed).

Proper Role of Government

The government should focus on doing only those things that are properly within its purview, and do away with extraneous activities. This would streamline its machinery, reduce its size, and trim its costs. We would also have a more efficient government that could serve the citizens more effectively.

In this Age of the Internet, the government has no business owning a television station or news agency. Dispense with the Ministry of Information. Likewise we do not need a ministry trying to produce athletes or encourage sports. About the only champions that ministry could produce were profligate spenders of public funds, as evidenced by the ministry’s recent debacle over its training facility in London. That now-abandoned project cost the government hundreds of million of ringgit.

Then there is the Ministry of Entrepreneur Development. The pretensions of these civil servants to think that they have the competence to select or train future entrepreneurs! Get rid of that ministry and we would see a blossoming of entrepreneurial activities.

In the same vein, do Tourism Ministry officials really think that they are responsible for tourists visiting our country? The operators of Club Med and Hilton hotels do a far more credible job. They have to as the success of their businesses depends on these tourists. As for those civil servants in the Tourism Ministry, all they can think of is their next posting abroad, or when they would undertake a “promotional” trip overseas.

I have taken many vacations in Malaysia and have never found the Tourism Ministry or its many agencies useful. Canvass foreign visitors, or better yet, stay at one of Tourism Malaysia’s facilities, and you would reach the same conclusion. Abolishing the ministry would have no negative impact on the industry. On the contrary, freed from bureaucratic hassles, the industry would grow even faster.

Those impressive statistics the ministry puts out are uninformative. Millions of the “tourists” coming through Johore Baru or Padang Besar are nothing more than aunts and uncles visiting their relatives across the border.Eliminating these ministries and combining others would reduce by half the number of ministers, together with their accompanying Secretaries-General, Directors-General, and hordes of Deputies and Assistants. These savings would be instantaneous as well as cumulative. Think of the future savings in salaries, medical costs, and pension liabilities.

Bloated Public Sector

By any measure – relative to the economy, population, or labor force – the public sector in Malaysia is bloated. Being primarily a Malay institution, the impact of the civil service on the psyche, labor dynamics, and cultural values of Malays is disproportionately huge.

Young Malays are conditioned not to look beyond the civil service for employment. Our universities and colleges too are unresponsive to the demands of the private sector as most of its graduates are Malays whose career horizons rarely extend beyond government service. Perversely, the obsession with Ketuanan Melayu makes the civil service’s hold on Malays even more tenacious.

Civil servants enjoy considerable subsidies, from subsidized car loans and home mortgages to below-market rents on government quarters and paid pre-retirement vacation packages. Children of civil servants are also over represented among those admitted into our residential schools (again highly subsidized) and recipients of government scholarships. This makes ridding of the subsidy mentality among Malays that much more difficult.

To these civil servants, gyrations in interest or foreign exchange rates will not impact them. Insulated from the realities of the marketplace, it is no surprise that the policies they design and implement are similarly far detached from reality.

If we reduce the public sector, Malays would be forced to look into the marketplace. They would then have to prepare themselves adequately. That could just be the needed incentives for them to pursue relevant subject matters in schools and universities. Instead of looking forward to being a kerani (clerk) at the land office, they could instead take up auto mechanics for example, and in the process contribute more to the economy.

The public sector is nothing more than overhead, and a very expensive one at that. It does not add to the economy; on the contrary it is a burden. It is people, individually or through their enterprises, that produce the goods and services. Reducing the size of government would also discourage corruption and influence peddling. Plot the size of government (adjusted for population and economy) and incidence of corruption, and the correlation would be startling.

A large public sector inhibits the development of a vibrant private sector. The many government-linked companies (GLCs), far from stimulating new independent contractors and entrepreneurs, actively compete with and stunt their development. These GLCs have not nurtured their share of entrepreneurs. How many employees of GLCs leave to start their own enterprises?

More important is what the government does with its size and power. The Scandinavian countries all have large governments, but they use their power and resources to emancipate their citizens through providing superior education and healthcare. Mothers, for example, enjoy subsidized affordable government-run childcare centers.

In Malaysia, the government uses it size and power to snoop on citizens, making sure that they do not hold hands in public. Significant government personnel and resources are diverted to controlling what citizens read and view, all non-productive activities.

There is however, one good thing about Abdullah’s reducing his ministers’ holiday allowances. They will now know how much those fancy vacations cost. If Abdullah goes further and dispenses with his Airbus jet and uses Malaysia Airlines instead, he would experience firsthand the type of service it provides. Apart from saving the government a considerable sum of money, it would also help disabuse him of the “sultan syndrome.” Anything that would bring him closer to the real world is a good thing.

Thursday, July 03, 2008

Towards A Competitive Malaysia #60

Chapter 9: Institutions Matter (Cont’d)

Property and Contract Rights

[Note: This installment was initially posted on June 18, 2008 but it was lost, together with the accompanying readers’ comments, when my website was disrupted. I am reposting it here.]

If we plot the pace of economic development over time, the remarkable finding would be that economic progress within the last hundred years far overshadowed all previous developments over human history. Scrutinizing the graph further, we would note the paucity of economic activities during feudal times.11

If we were to plot the pace of development across societies within the last century, we would have an equally interesting finding. Countries that adopted capitalism or market-oriented policies (Western Europe, the Anglo Saxon world, Northeast Asia) made remarkable economic progress, while others (Africa, Latin America, the Soviet empire, Arab world) remained stagnant. The graphs of this second group of countries resemble those of medieval Europe.

Capitalism involves not only the trading of goods and services between people but also freedom and democracy. People are free to pursue trade. Medieval Europe did not progress because there was very little trading among the citizens, only among the lords. When the lords were not engaged in trading, they were preoccupied with trying to get by force what the other lords had, that is engaging in wars, a destructive and economically non-productive pursuit.

There was little trading among the peasants because they had no rights to their property or labor, hence they could not exchange or barter it. Even their bodies belonged to their lords. If there were some enterprising peasants who could engage in raising crops and animals on the side when they were not serving their lords, those peasants risked losing them all to their greedy lords. A definite disincentive!

For society to progress, its citizens must be free to engage in the exchange of goods and services. The farmer must be able to exchange his excess rice for a hoe from the artisan. In this way the farmer gets to cultivate more land and produce more rice, and the artisan now has the energy to produce even more hoes and other implements. Both benefit from the exchange. Multiply such exchanges a thousand times, and you get progress on a societal scale.

Before such exchanges could take place, another condition must exist. The farmer must have confidence that the hoe rightly belongs to the artisan, and the artisan in turn must be certain that the rice is rightly the farmer’s to sell. There must be clearly delineated property rights.

The Peruvian economist Hernando De Soto in his book, The Mystery of Capital, argues that capitalism fails in the Third World precisely because there is no respect for property rights, especially by those in power.12 In the old days it was the sultans who grabbed the peasants’ prized buffaloes; today it is a ruthless dictator seizing a flourishing enterprise. Even educated leaders are not free from this feudal lord mentality. Armed with their Cambridge law degree they would expropriate land belonging to the people without proper compensation under the precept of “eminent domain” or some other arcane legal doctrine, as happened in Singapore to land belonging to the Malay minority. Regardless of mechanism, the results are the same: the trampling of property rights.

We can appreciate property rights when they apply to tangible assets like land and property. Before you buy a piece of land you must be sure that the owner really owns it, and that after paying, the land would then belong to you. There must be reliable institutions to record these transactions to prevent that land from being simultaneously bought and sold by different parties. There would be unending chaos were that to happen. Resources would be consumed untangling the mess instead of devoting to economic activities.

Malaysia’s land office, the agency responsible for recording titles, is a mess. The process of transferring title that would take a few days in California would consume months if not years in Malaysia. There have been cases where the transfers were never recorded, giving rise to unending conflicts.

Property rights extend beyond tangible assets. If I were to discover a new way to plant rice efficiently, I should reap the gains of my discovery. Others who wish to benefit from it should compensate or at least share with me their added bounty. This is not only fair but would also encourage others to partake in new discoveries. If others simply sponge off on my discovery without compensating me, the damage would be as if they had stolen my property.

In the Third World there is rampant stealing of intellectual property. When Sheila Majid records her beautiful songs, and others freely bootleg them, they too are stealing from her.

Intellectual property rights and patent laws are especially important in the K-economy. On one hand are the concerns of innovators and creative talent that their contributions be adequately rewarded; on the other are the scientists and intellectuals who fear that too rigid enforcements would stifle innovation and research. New knowledge and technical innovations do not arise out of the blue; they are incremental, building upon existing knowledge, products and processes. Too restrictive a protection of intellectual rights would inhibit the diffusion and creation of new knowledge, and thus progress. The challenge is in striking a balance.

Property rights should also extend to the rights we have over the fruits of our own labor. Slavery and indentured labor represent the ultimate loss of these rights, and those practices are rightly condemned in civilized societies.

One would think that if we use slaves—free labor—costs would be lowered and profits correspondingly increased. Not so! China seems determined to resurrect the economics of slavery by using forced prison labor. Thus far none of the Chinese enterprises are world leaders either in quality or price. Companies like Microsoft and IBM that pay their workers handsomely produce premium products.

There is another economic aspect to paying workers well. Henry Ford intuitively knew this when he set about to lower the prices of his cars and simultaneously raise the pay of his workers so they could be among his best customers.

One aspect of property rights often overlooked is what ecologist Garrett Hardins termed the “tragedy of the commons.”13 He used the example of the free grazing of cattle on public land, a common practice in western United States. If every rancher were to think only of maximizing his own profit, he or she would simply increase the number of cows. That would not involve much additional cost, as the land is communally owned. However, if every rancher were to do likewise, soon the whole land would be overgrazed to the point of ecological disaster. Everyone would then lose—hence the tragedy of the commons. As the land belonged to everyone (publicly owned), it did not belong to anyone, and no one took responsibility caring for it.

The fallacy of socialism is exactly this. With the state owning everything, no one bothers to take care of anything. If something does not belong to you, you do not have the sense of pride of ownership, and behave accordingly. This is encapsulated in the pithy wisdom that no one ever washes a rented car. The wisdom of capitalism is this recognition of private property.

I recently visited a senior civil servant living in one of the old-style palatial government bungalows in a secluded area of Kuala Lumpur. He had been there for decades, yet in all that time he did not plant a single flower, fruit tree, or in any way tried to enhance the landscaping. The reason? The property was not his, even though he would get to enjoy the fruits of his labor. As for cutting the lawn, he depended on the Public Works Department even if that meant enduring overgrown weeds!

That civil servant’s behavior is no different from the tenant dwellers of the Council flats of Liverpool or public housing projects of Southside Chicago. They have no pride of ownership. Margaret Thatcher tried to eradicate this destructive mentality with her policy of selling those units to their dwellers, that is, encouraging private property ownership.

Related to and an integral part of property rights are contract rights, the freedom of individuals to enter into a contract with one another.14 This does not mean anyone can enter into any contract with anyone to do anything. There are issues of ethics, religious norms, and public good to observe. The freedom to enter into a contractual agreement with my fellow citizen does not extend to allowing my selling my kidney to him. It is for society, and thus the political institutions, to set such limits. In India such contracts are apparently quite legitimate.

Regardless, when people trade goods and services, such exchanges are often transacted over days if not months or years. There is the element of promise and trust. A homeowner may enter into contract with a builder over constructing a new house. The contract may specify terms and conditions that have to be executed by each party. If there is no mechanism to enforce and honor such contracts, there will be chaos. No meaningful trade could take place under such circumstances. Even under the best of conditions, disagreements do arise; hence the importance of having a fair, honest and inexpensive system to resolve them.

The K-economy, with its global and instantaneous connectivity, have changed the dynamics of intellectual property rights and put a new twist to the tragedy of the commons. ICT has transformed markets with the democratization and decentralization of information. In the medieval era, information was the exclusive preserve of the clergy; that was also the way the clergy effectively controlled the flock. The printing press upended all that. With the masses now literate and reading materials readily available, the controls wielded by the clergy soon gave way. That did more to end feudalism and brought in democracy and capitalism.

Capitalism’s success brings its own problems. With news and information now increasingly controlled by big media corporations, we are reverting to medieval times with corporate chieftains replacing the clergy. Their stranglehold seems unassailable, as the economic barriers for new players are prohibitive. While it would take only a few thousand dollars to start a newspaper a hundred years ago, today that figure would be in the hundreds of millions.

The good news is that ICT, specifically the Internet, is again upending the status quo. Today I am reaching more readers through my website and other Internet outlets like Malaysiakini and Malaysia-Today than when I was writing for the mainstream papers.

ICT is challenging traditional economics and business models with its decentralization, diffusion (thus lack of control), open platform, and open-source software. Linux, started by volunteers spontaneously collaborating via the Internet, is fast challenging Microsoft Explorer. Google is offering its most important and most widely used product, its search engine, for free. Wikipedia, again free with its contents contributed voluntarily by millions worldwide, is more widely used than the venerable Encyclopedia Britannica. And the latter is a subscription service! Wikipedia is as reliable as the Britannica at least with respect to its science entries, according to the journal, Nature.15

Whether such successes would herald a new way of doing business to challenge or even complement the traditional capitalist model remains to be seen.16

Next: Judicial System

Tuesday, July 01, 2008

Continue Teaching Science and Mathematics in English

Dear Readers:

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Thank you for your patience. M.

M. Bakri Musa

Continue Teaching Science and Mathematics in English
M. Bakri Musa

The government’s decision to revisit (and most likely do away with) the current teaching of science and mathematics in English is an instructive example of how an otherwise sensible policy could easily be discredited and then abandoned because of poor execution. Had there been better planning, many of the problems encountered could have been readily anticipated and thus avoided, or at least reduced. The policy would then more likely to succeed, and thus be accepted.
Ironically, only a year ago a Ministry of Education “study” pronounced the program to be moving along “smoothly,” with officials “satisfied” with its implementation. Now another “study” showed that there was no difference in the “performance” (whatever that term means or how they measure it) between those taught in Malay or English.
The policy was in response to the obvious deficiencies noted in students coming out of our national schools: their abysmal command of English, and their limited mathematical skills and science literacy. They carry these deficits when they enter university, and then onto the workplace.
The results are predictable. These graduates are practically unemployable. As the vast majority of them are Malays, this creates tremendous political pressure on the government to act as employer of last resort. Accommodating these graduates made our civil service bloated and inefficient, burdened by their deficient language and mathematical abilities.
This longstanding problem began in the late 1970s when Malay became the exclusive language of instruction in our public schools and universities. Overcoming this problem would be a monumental undertaking.
The greatest mistake was to underestimate the magnitude of the task, especially in overcoming the system’s inertia. Today’s teachers and policy makers are products of this all-Malay education system. Change would mean repudiating the very system that had produced them, a tough sell at the best of times.
In their naivety, ministry officials convinced themselves that such enormous obstacles as the teachers’ lack of English fluency could easily be overcome by enrolling them in short culup (superficial) courses that were in turn conducted by those equally inept in English. Or by simply providing these teachers with laptops programmed with instructional modules!
Even if we had had the best talents devoting themselves exclusively to implementing the policy, the task would still be huge. Unfortunately we have Hishammuddin Hussein as Minister of Education shepherding the change. An insightful innovator or an effective executive he is not. Being simultaneously an UMNO Youth Chief, he was also distracted in trying to pass himself off as the champion of Ketuanan Melayu.
These factors practically ensure the initiative’s failure. The tragic part is that the burden of the failure falls disproportionately on the rural poor, meaning Malays, a point missed by these self-professed nationalists. I would have thought that that alone would have motivated them to succeed.

A Better Way

Teaching science and mathematics in English would solve two problems simultaneously. One, considering the critical shortage of textbooks, journals, and other literature in Malay, teaching the two subjects in English would facilitate the acquisition of new knowledge by our students. With the exponential growth of new knowledge, it would be impossible to keep up solely through translations, even if we were to devote our entire intellectual resources towards that endeavor.
The other objective was to enhance the English fluency of our students. Of course if that were the only consideration, there are other more effective ways of achieving it, like devoting more instructional hours to the subject.
If, as the recent Ministry’s “study” indicates, there is no difference in performance between those taught in Malay or English, that in itself would favor continuing the program because of the twin benefits discussed earlier. Besides, changing course midstream would not only be disruptive but also counterproductive. Our educational system needs predictable stability and incremental improvements, not disruptive U-turns and faddish changes, especially in response to political pressures.
A more important point is this. Altering a politically pivotal and highly emotional public policy requires careful preparation and deliberate execution. If I were to implement the policy, this is what I would do. Lest readers think that this is hindsight wisdom on my part, rest assured that I had documented these ideas in my earlier book, long before the government even contemplated the policy.
Being prudent, as we are dealing with our children’s and nation’s future, I would begin with a small pilot project, analyze the problems, correct the deficiencies, and only then expand the program.
First, I would implement the policy initially only at primary and selected secondary schools, like our residential schools. The language requirements as well as the science and mathematical concepts at the primary level are quite elementary, and thus more readily acquired by the teachers. And at that level the pupils would not have to unlearn much as everything would still be new.
In schools where the background English literacy level of the pupils is low as in the villages, I would have the pupils take English immersion classes for a full term or even a year. We had earlier successful experiences with this with our Special Malay Classes and Remove classes. This strategy has also been tried successfully in America for children of non-English-speaking immigrants. Another idea I put forth in my earlier book is to bring back the old English schools in such areas. As the Malay literacy level in the community and at home is high, these pupils are unlikely to “forget” their own language.
At the secondary level, our residential schools get the best students and teachers. Consequently the program could be more easily implemented there as the learning curve would be steep, and mistakes more readily recognized and corrected. Once the kinks have been worked out, expand the program.
Second is the issue of teachers. Fortunately Malaysia has two large untapped reservoirs of talent: recently retired teachers trained under the old English-based system, and native English speakers who are either spouses of Malaysians or residents of this country. Given adequate compensation and minimal of hassles, they could be readily recruited.
I would add other incentives especially if they were to serve in rural areas where the need is most acute. Thus in addition to greater pay, I would give them first preference to teachers’ quarters.
A permanent solution would be to convert a number of existing teachers’ colleges into exclusively English-medium institutions to train future teachers of English, science, and mathematics. As the present teacher-trainees have limited English fluency, I would begin admitting them right away in January following their leaving school in December of the preceding year.
From that January till the regular opening of the academic year (sometime in July), these trainees would undergo intensive English immersion classes where their entire 24-hour day would be consumed with learning, speaking, thinking, and even dreaming in English. With the subsequent three years of additional instructions exclusively in English, these graduates would then be fully fluent in English.
With such quality programs, these graduates would be in great demand within and outside their profession. With their heightened English facility and mathematical competency, their educational opportunities would also expand as they could further their studies anywhere in the English-speaking world. With such bright prospects, these colleges would have no difficulty recruiting talented school leavers. Our teaching profession would also be enriched with the addition of such talents.
As for textbooks, there is no need to write new ones. The contents of these two subjects are universally applicable. Meaning, textbooks written for British students would be just as suitable for Malaysians, so we could select already available books. With its purchasing clout, the government could drive a hard bargain with existing publishers.
I hope Ministry of Education officials, including and especially Hishammuddin, would heed these factors when they review the current policy. They should continue the current policy, correct the evident errors, and strengthen the obvious weaknesses. The success of this policy would also mean success for our students, and our nation. That is a worthy pursuit for anyone with ambitions to one day lead the nation.