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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, May 20, 2009

Towards A Competitive Malaysia #104

Chapter 15: Examining Past Policies

Assessing the NEP

To his credit, Tun Razak had measurable objectives (30 percent Bumiputra participation in the equity market) and an endpoint (sunset clause). NEP was to end by 1990. As admirable as these quantitative goals are, the danger is that one could easily be obsessed with and distracted by the numbers alone and then lose sight of the underlying assumptions and overall objectives. If those numbers do not represent reality, or progress towards that reality, then the overall exercise could easily get sidetracked.

The NEP’s objective of 30 percent participation in the corporate sector is one such fallacy. That figure is meant to reflect active Malay participation in that sector, which in turn would reflect the Malay role in the modern economy. To invest in the stock market means not only that you have more than adequate disposable income, but also a certain level of financial sophistication. One has to be comfortably in the middle class and have some familiarity with the market and modern investments instruments. If people are still at subsistence living, forget about the stock market and other modern finances. The problem then would be much more basic, like having adequate food and shelter.

There is nothing magical about that 30 percent figure except that it would reflect a “critical mass.” From then on, the numbers would grow on their own momentum without further support. That figure is arbitrary; more important is to create the environment and momentum such that achieving the second 10 percentage points gain (decile) would be easier than achieving the first, and the third easier than the second.

That 30 percent figure was picked out from thin air with no good rationale. Why not 40 or 20 percent? However, if we remember that the 30 percent figure is meant to reflect significant Malay participation, than we should not be too concerned with the exact level as long as Malays are economically competitive. Artificially inflating that figure with state interventions would give a false picture; it would not accurately reflect reality. Worse, it may delude you.

Once Malays are economically competitive, that would automatically be reflected in the equity share ownership figures. When the 30 percent figure was not achieved, the immediate question that should have arisen was how we could effectively enhance the competitiveness of Malays, not simply pump more money and artificially inflate that figure.

The first strategy would require a more enlightened albeit difficult approach on how best to equip Malays with the necessary skills and tools to enable them to compete in the modern economy. The second strategy, while tempting, is nothing more than short-term political expediency. It may get you more votes and the immediate hoorah, but would only steer you further away from your objectives.

Instead of wasting more precious resources on existing and new GLCs, we should have provided enterprising Malays with the necessary support services and capital so they would be encouraged to start their own businesses or expand existing ones. When they succeed, we should reward them, not so much to encourage them, as success is its own reward, but to encourage others. If Malaysia had taken this approach, Bumiputra participation in the economy would have automatically increased.

It is like treating a patient with fever; that fever merely reflects an underlying infection. The focus should be on eradicating that infection and then the fever would automatically subside. Pumping the patient with aspirin would bring the fever down, and we may need to do that to make the patient comfortable. If that were the only thing we do, then the fever would surely return with a vengeance once the aspirin is stopped.

Failure to meet the 30 percent target meant that Malays were not yet economically competitive. Instead of throwing more money buying shares on behalf of Bumiputras or creating more GLCs, the equivalent of giving aspirin (and a very expensive one), we should invest in the training Malays in order to better prepare them for the marketplace. Besides, the beneficiaries of the bounty that the government was pumping to inflate the magic figure were political cronies with no skills or experiences to benefit from the support. Worse, it encouraged the development of pseudo entrepreneurs and rent seekers, the “ersatz capitalists.”

The recent scandal over the issuance of import permits for foreign cars exposed by former Prime Minister Mahathir is illustrative. The overwhelming majority of the permits were given to retired civil servants who did not have a viable business or even a showroom. A better alternative would have been to auction off those permits to the highest bidders (regardless of whether they were Malays or non-Malays, locals or foreigners) and then use the proceeds to train Malay mechanics and finance their auto-related businesses. Alternatively, distribute those permits based on the previous year’s sales performance. The recipients would have to show some talent at selling before getting those permits. As it was, those permits were quickly sold off, an easy source of ill gotten gains for the lucky recipients.

In implementing the NEP, especially towards its second half, emphasis was on achieving those hallowed numerical targets and less on equipping Malays to be competitive. Instead of building more polytechnic and vocational schools, and improving the quality of our schools and universities, the government bought more shares and created more expensive GLCs. The latest, a two billion-ringgit boondoggle, would invest in real estate. They never learn!

Undoubtedly the process I describe would have been slow and the gains incremental, but the progress would have been sure and enduring. Of course there would not be the headlines of one Tajuddin Ramli, the son of a poor padi farmer, strutting in his double-breasted suit on the hot tarmac inspecting a new Boeing 747 as Chairman of Malaysia Airlines, or a Halim Saad bragging about puffing an expansive Cuban cigar that would cost his father a month’s pension. Neither Tajuddin nor Halim made it on their own; they were being puffed up by public funds to be the poster boys of the New Malay “entrepreneurs.”

The final truth has yet to be revealed. Recently (mid 2006), Tajuddin and the government are entangled in multiple mega lawsuits. The public may yet get to hear the sordid details during the trials.

Malay leaders, like their followers, are an impatient lot; they have a penchant for the immediate, the spectacular, and the expensive. They want to jumpstart the process and create instant Malay millionaires by pouring money into buying established companies, often at inflated prices. That would have been praiseworthy if those companies were to serve as training grounds or incubators for budding Malay entrepreneurs.

Today these GLCs have become just another massive government bureaucracy, complete with its own ministry. Instead of becoming true commercial enterprises and spearheading the Malay entry into the private sector, these GLCs have degenerated into another massive and exorbitantly expensive political patronage system.

The 1997 Asian economic crisis brutally exposed the weaknesses of these Malay ersatz capitalists. The nation and Malays have yet to recover from that expensive delusion. They have yet to learn the necessary lessons.

Next: NEP and Quotas


Blogger genesispassion said...

i read yr articles with ardent interest some of yr thoughts ideas are real...do i have any hope in this country ? its up to me and each one of us...for this country to "survive" it definately need major surgery.would u kindly provides some definate plans ideas ?

9:58 PM  

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