Bumpy road to Bangsa Malaysia

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malaysia flagEthnic-based economic policies will undermine the objective of promoting national unity, warns Terence Gomez.The problem of growing intra-ethnic inequalities is evidence enough that government policies should be aimed at helping all groups in need, regardless of race.

In his appointment as prime minister, Abdullah Badawi declared his intent to promote a ‘Bangsa Malaysia’ and to reform the economy. Few Malaysians doubted his sincerity, as was evident in the Barisan Nasional’s subsequent resounding victory during the 2004 general elections. But the much-anticipated Ninth Malaysia Plan (9MP), Abdullah’s first blueprint for moulding a new Malaysia, characterised by a ‘developed and united nation…confident in its own capabilities’, has been widely acknowledged as a disappointment.

A number of grounds have been cited for this disappointment. But the primary flaw with the 9MP is that it appears to be inspired by a Malay – or an UMNO – agenda, rather than a vision that would serve ultimately to unify a country that, if recent polls are correct, is still deeply divided along racial lines.

There are other criticisms that can be made about the 9MP. The first problem is that Abdullah remains convinced by two ideas that have long characterised policy planning of an UMNO-led government. First, that sustained economic growth is fundamental to resolving social inequities in Malaysia. And second, that through its policies, the government can achieve its different goals, with few trade-offs. For example, the government believes that it can simultaneously promote social cohesion and Bumiputera capital without jeopardising either endeavour.

The second major problem with the 9MP is that, while former Prime Minister Mahathir Mohamad was obviously fixated with the idea that the solution to sustained economic growth was private sector liberalisation and privatisation, Abdullah’s major policy recommendations also conform with this idea – although he originally appeared to be somewhat of a different bent. The 9MP does include the reforms proposed by Abdullah when he rose to the premiership. But the Plan’s economic recommendations remain largely couched within the framework of previous policies that have resoundingly failed to achieve their objectives.

 

Growth and equity

The major economic policies proposed by the Mahathir administration included privatisation, the promotion of Bumiputera capitalists, and the creation of Malaysian conglomerates. With the exception of the need to support the rise of conglomerates, the 9MP persists with the other two policies.

The failure of privatisation, which was closely linked to the promotion of Bumiputera capitalists, is now well recorded. The re-nationalisation of major projects – such as the Bakun Dam and the national sewerage project, and the government’s decision to acquire control of major privatised enterprises such as Malaysia Airlines, Celcom, and United Engineers (M) (UEM), which operates the North-South Highway – are outstanding examples of such costly mistakes. There is little evidence to suggest that privatisation has improved efficiency, nor has the private sector shown the capacity to finance projects involving a high capital outlay. Furthermore, implementation of privatisation has been replete with allegations of favouritism, nepotism, and patronage involving business people closely aligned to UMNO leaders.

One of UMNO’s major objectives has long been the creation of a new breed of dynamic Bumiputera entrepreneurs, known in policy terms as the ‘Bumiputera Commercial and Industrial Community’ (BCIC). The BCIC continues to be promoted in its original form with only one substantial change: there is now a new emphasis on small – and medium-scale enterprises (SMEs), a sector largely ignored by Mahathir. The 9MP insists that the BCIC will serve as the primary mechanism for ensuring greater Bumiputera participation in the economy, though it is also supposed to aid the government’s endeavour to restructure society and eradicate poverty.

To achieve these goals, the government’s methods include the promotion of Malaysian-type industries, such as the production of batik and songket. This is an innovative idea as it helps draw attention to potentially lucrative cottage industries, dominated by poor and rural Bumiputeras. Similarly, the 9MP will attempt to encourage focus on Islamic-type products, for example, by developing a niche market in halal food. Enterprises in this sector, the government believes, will be able to create export capacity if well developed.

These new industries promoted by the government to encourage Malay capital and eradicate poverty are novel. But the BCIC, now nearly two decades into its implementation, has failed to advance the rise of an independent Bumiputera business community. This is evident in the government’s own figures on the number of businesses in key sectors of the economy owned by Bumiputeras.

 

Entrepreneurship

One solution to this problem has been the establishment of the Institut Keusahawanan Negara (National Entrepreneurship Institute) as a means to help train the young and to cultivate entrepreneurs. It is extremely doubtful, however, if entrepreneurship can be nurtured through the sort of training provided by such institutes.  More importantly, the poor state of Malay capital in the country reflects the inability of government institutions such as the Entrepreneur Development Ministry to cultivate new entrepreneurs – a lesson that has not yet dawned on the government.

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By continuing to focus primarily on the promotion of Bumiputera capital and the creation of a new breed of competent Malay business people, the 9MP has missed the opportunity to create alternative mechanisms for promoting domestic capital and entrepreneurship in Malaysia. By persisting with the BCIC, the government is reinforcing an old problem – the bypassing of potentially lucrative entrepreneurial ventures, merely because these do not involve Bumiputeras. Moreover, if the government hopes to build domestic entrepreneurial capacity, it cannot afford to continue to marginalise the most dynamic businesses. The government is also now probably well aware – based on the experience of having implemented the New Economic Policy (NEP) and witnessing the rise of Ali-Baba firms – that inter-ethnic business partnerships, forced or coerced into being by the dictates of policy, are simply not going to be sustainable.  

To help nurture and develop small firms, the only new major recommendation in the 9MP is the establishment and active promotion of the SME Bank. The reason SMEs have not been able to develop in a manner that equips them with export capacity and the ability to develop brand products is not their inadequate access to loans. These deficiencies prevail among SMEs primarily because they have not invested adequately in research and development (R&D). It is also well known that many SMEs owned by the Chinese are reluctant to approach banks for loans for fear of the need to divulge information that they feel can be used to their detriment. Cash flow-based funding by the SME Bank, as is being recommended by the government, is in itself an inadequate measure to help promote the rapid development of a vibrant SME sector.

 

Vendor system

Another policy mechanism that has long been implemented with little success and now repeated in the 9MP is the use of the vendor system. In this case, however, the government plans to tie SMEs to large-scale enterprises and government-linked companies (GLCs), to help small firms gain greater access to the market. The government has also encouraged companies which produce disposable goods to market them through hypermarkets, most of which are controlled by foreign firms. One drawback to this recommendation is that it could stifle foreign investment.

The vendor system was a core component of Malaysia’s car project, Proton. To promote Bumiputera enterprises, firms owned by members of this community were chosen to supply Proton with locally produced goods for the national car. This vendor system was not, however, successful in developing the rise of Bumiputera firms in the car industry. Neither did it help ensure that Proton model cars were equipped with quality material produced at affordable rates, ultimately undermining the national car project. The Proton vendor system suggests that an attempt to anchor fledgling firms on to established enterprises may end up only weakening the prospects of the latter.

 

Reforming GLCs

Apart from the promotion of SMEs, the 9MP’s other major departure from the Mahathir administration’s approach is Abdullah’s attempt to utilise the GLCs more efficiently to generate economic growth. Reform of the GLCs is imperative as one outcome of the failure of privatisation was the use of government-owned entities to acquire failed privatised enterprises. The GLCs are currently among the major shareholders of a number of Malaysia’s leading listed firms, including utilities such as TM (Telekom Malaysia) and power supplier Tenaga Nasional; the country’s leading banks, Malayan Banking and Bumiputra Commerce Bank; the national oil corporation Petronas’ gas producer, Petronas Gas; the national shipping line Malaysian International Shipping Corporation (MISC); and well-diversified Sime Darby.

Reform of the GLCs through the mere introduction of key performance indexes (KPIs) is, however, not sufficient to get them to perform efficiently and resourcefully in the economy. The question of the pattern of control of the GLCs is one that is crucial. One persistent criticism of the GLCs is that the professionals appointed by the government to manage these firms have reputedly little autonomy when it comes to decision-making on major matters. This issue of control is also significant as there have been persistent allegations of interference by senior or influential politicians in the running of the GLCs. Since the government owns and controls the GLCs that have an enormous interest in companies quoted on the Bursa Malaysia, an independent watchdog would need to be established to ensure that these firms are independently and professionally managed. This would also help the government counter allegations of abuse of the GLCs for the vested interests of influential politicians.
 

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Ethnic relations and wealth inequities

While the 9MP espouses the goal of unifying the nation, it continues to perpetuate a discourse on equitable wealth distribution along racial lines. For example, on the issue of wealth disparities, the 9MP expresses concern that the Chinese have twice the volume of equity owned by Bumiputeras. The Plan does not, however, go on to explain why this is the case even though affirmative action has long been instituted to achieve wealth parity among all ethnic groups.

A number of reasons can be cited for this disparity in wealth between these two communities. These include the decline of Bumiputera capital following the 1997 currency crisis because of their over-dependence on loans to finance growth, the failure of privatisation to promote Malay-owned enterprises, and the re-nationalisation of conglomerates controlled by Bumiputeras. The government also fails to note a point that Mahathir recognised and acknowledged rather belatedly during his long tenure: that the Chinese have continued to thrive in business in spite of the NEP because they have persistently been exposed to the rigours of competition. The emphasis of the 9MP should have been on exposing Bumiputera-owned firms to competition, to enable them to hone and secure the skills they need to survive independently.  

Although the 9MP maintains that the Bumiputeras are still a long way off from attaining the NEP goal of owning 30 per cent of Malaysia’s corporate equity, the government’s figures on wealth distribution can be disputed. For example, individual Bumiputeras and the government were said to own 51.7 per cent and 31.2 per cent respectively of privatised entities, which would presumably include firms like TM, Tenaga Nasional, and MISC, at the end of 2005. Non-Bumiputeras, on the other hand, owned only 8.9 per cent of such equity. Since the government holds this equity on behalf of Bumiputeras, the total volume of privatised firms attributable to this community would amount to a colossal 82.9 per cent. Yet, the Plan also insists that the volume of corporate assets owned by Bumiputeras has not increased from 19 per cent between 2000 and 2004.

It is also odd that even though the GLCs are majority shareholders of the largest companies quoted on the Bursa Malaysia, it is the non-Bumiputeras who are listed as owning more equity than the Bumiputeras. The 9MP also states that nominee companies own a massive 8 per cent of corporate equity, even more than that owned by Bumiputera institutions, which hold only 2.2 per cent of such wealth. Numerous studies have noted that well-connected business people, politicians, and political parties use nominee companies to shield their ownership of corporate equity from the public view. If the government now claims to advocate a more open and transparent corporate system, it tarnishes this assertion by continuing to retain and permit the practice of using nominee companies.

While the government maintains that non-Bumiputeras, in particular the Chinese, own more than double the equity attributed to Bumiputeras, the perception among non-Malays is that they have little control over the economy. Non-Bumiputeras also harbour insecurities about property rights over their assets. This is a serious problem because such perceptions and insecurities will ultimately lead to lost opportunities for the government to promote the rise of dynamic domestic entrepreneurs who can drive economic growth.

As for the ethnic Indian community, the government has noted that its ownership of equity has not increased in any appreciable manner since 1970. The 9MP now proposes to ensure that this community will come to own 3 per cent of total national wealth within the next decade. The government’s continuing fixation with figures like 3 per cent for Indians and 30 per cent for Bumiputeras is baffling. Even if the government achieves its target of Indian ownership of 3 per cent of corporate wealth, it is highly unlikely that this equity will be evenly distributed among all members of this community. In the case of the Bumiputeras, one outcome of their increased ownership of corporate wealth, from 2.4 per cent in 1970 to 18.9 per cent in 2004, has been the creation of a serious intra-ethnic class difference. The government appears unaware or unwilling to accede that ethnically based corporate ownership figures such as 3 per cent or 30 per cent mean little or nothing in terms of ensuring equitable wealth distribution for Malaysians.

These figures in the 9MP also reveal that the government remains convinced that it can develop Malay capital, eradicate poverty, and achieve national unity simultaneously. It is highly unlikely that these objectives can be achieved concurrently, especially if there are policies favouring one community over the other.

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Good governance and 'Bangsa Malaysia'

The issues raised here, such as the manner of privatisation, the limited independence of the GLCs’ executives, and the use of nominee companies indicate that one issue that needs serious consideration is form of governance. According to the 9MP, ‘good governance’ will be encouraged through a review of legislation and by establishing new institutions. Abdullah’s administration has shown a proclivity for establishing institutions to deal with a whole gamut of issues, including promoting entrepreneurship, improving quality of education, and instilling integrity in governance.

These institutions are, however, an inadequate – even unnecessary – response to the problems that the government faces in dealing with the poor quality of entrepreneurship, declining education standards, and rampant corruption in the country. If the government hopes to create a more open and accountable government, there must be devolution of power to agencies such as the Anti-Corruption Agency (ACA) and the Securities Commission (SC) to allow them to act autonomously. The media must be liberalised and oppressive laws such as the Internal Security Act (ISA) and the Official Secrets Act (OSA) must be repealed. Malaysians cannot be expected to take seriously the government’s pledge to enforce transparent and accountable governance when power remains concentrated in the office of the executive arm of government.

The 9MP devotes one chapter to creating an ‘efficient public service delivery system’, a clear acknowledgement of the decline in the quality of the civil service. While the government acknowledges the difficulty it faces in terms of institutional capacity to enforce policies, it appears that the mechanism to deal with this problem is greater oversight over the performance of public servants. But the pledge that the ‘big stick’ will be wielded if the civil service does not perform cannot be the solution. The reasons for the noticeable drop in the quality of public service over the past two decades need to be honestly assessed if the government hopes to improve its delivery system.

 

Towards Bangsa Malaysia?

As for ethnic relations, the 9MP reveals little about how the government hopes to create a ‘Bangsa Malaysia’, one of its key missions. Neither does the Plan appear to create a sense of opportunity for all even though the government claims otherwise. The primary assumption appears to be that if wealth and income are more equitably distributed between all communities, it will then not be difficult to foster national unity. Although this is not explicitly mentioned in the Plan, the government believes that until economic parity between communities is attained, affirmative action will remain a major prerequisite in the implementation of its policies.

For this reason, the 9MP comes across as a Plan that has been framed along racial lines, reinforcing the point that policies are largely conceived and implemented based on (political) consideration of the needs of particular ethnic groups. This ultimately undermines the professed objective of creating a ‘Bangsa Malaysia’. The government should be reminded that the issues of nation building and sustainable economic development are closely inter-related and remain inter-dependent on each other. The ‘brain drain’ problem and the limited capacity of domestic enterprises to compete internationally are some of the repercussions of the long-standing implementation of policies that favour one ethnic community over others.

The problem of growing intra-ethnic inequalities, especially serious among Bumiputeras, is evidence enough that government policies should be universal in orientation, developed to help groups in need, regardless of race. Universal-type policies, rather than those that target specific ethnic groups, are also necessary if the government hopes to inspire confidence in all Malaysians that they belong to this nation. Affirmative action, while important and justified when introduced in 1970 to rectify social injustices, can no longer play a vital role along racial lines in helping to promote national unity and identity. The government’s promotion of a unified ‘Bangsa Malaysia’ will only succeed if all Malaysians truly and genuinely believe that they are equal members of their nation.

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Terence Gomez, formerly at the Faculty of Economics, University of Malaya, is now on secondment as Research Coordinator with the United Nations Research Institute for Social Development (UNRISD) in Geneva.

 

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