Meaningless Controversy Over ASLI’s Study
M. Bakri Musa and Din Merican
On reading ASLI’s report, “Corporate Equity Distribution: Past Trends and Future Policy,” we are struck by the familiar refrain of its findings and conclusions. We too have frequently expressed them in the past.
While our commentaries hardly caused ripples, ASLI was forced to withdraw the study. One reason to the different reaction could be that nobody reads our writings. Our egos however dissuade us from accepting such a pat explanation.
Judging from the ensuing shrill and polarizing comments, we reach another conclusion, one more sobering and discomfiting. That is, as Malays we can critique the NEP with relative impunity; non-Malays do so at their peril.
An equally distressing observation is that the report’s lead author is now a cause celébrè in the Chinese community. You guessed it; he is a Chinese! Likewise, Malay politicians and academics who condemned the report portray themselves as latter-day Hang Tuahs.
A few even dismiss it as “rubbish” or attribute sinister motives to its author. Such despicable performances reflect the sorry state of the nation’s leadership.
Fifty years after independence and Malaysians have yet to escape their tribalism trap. While we do not expect the average villager or hawker to be open minded and liberated from their clannish mentality, we do expect better from our intellectuals, pundits, and leaders.
There are exceptions, to be sure. Sociologist Rahman Embong rightly called for greater tolerance of dissent. Economist Ismail Salleh cautioned about being myopic, and advised us to look at the bigger picture. Shahrir Samad was sensibly more concerned with leakages in the NEP. Unfortunately such isolated sane voices are drowned by the cacophony from the ill informed and the intolerant.
ASLI ambitiously seeks out to assess the NEP, its achievements and delivery mechanisms, in particular the equity ownership of GLCs. A tall order indeed, especially for a report that is only 40 pages long, and half of that is filled with references and useless lists of GLCs together with their elaborate interlinking ownership charts. Valuable space in the comment section is also wasted on serial raw data that could have been better presented though space-saving and readily comprehensible graphs.
The crux of its findings, and what triggered the raging controversy, is that GLCs’ and Bumiputras’ stake in the stock market is not 18 percent as claimed by the government, but closer to 45. The stir that these figures caused matches those referring to Dolly Parton’s bust measurements! Never have so many been so riled up and with so much emotion over such meaningless statistics.
The only reason for the controversy is that the two figures are on opposite sides of the magical 30 percent set by the government. Neither ASLI nor the government addresses the rationale or wisdom of that target. Why not 15 or 50 percent? If either had been chosen, there would not have been any controversy, with ASLI and the government both agreeing that the target had been achieved (with 15) or yet to be (with 50). The reality on the other hand would not have changed. Therein lies the fallacy of the obsession with such figures.
More significant is what the ASLI study reveals but does not address. If the government through its myriad GLCs has such a major presence in the KLSE, is it truly an open market? How fair would the regulatory agencies be, and how would minority shareholders’ rights be protected?
More Commentary Than Scholarly
In style and substance the report is more commentary than scholarly, despite the data, references, and appendices included. We agree with many of its observations, for example, corporate equity is not representative of the national wealth.
The stock market is for those who have money to invest. The economic problems of Bumiputras however, are far more basic, like having food on the table, or even having a table.
Stock market investors are financially sophisticated; they do need the government to hold their hands. Its role is to ensure that the market is orderly and transparent, with no collusion, insider trading, and other shady practices.
We heartily agree with the Report that the selective patronage afforded through NEP (in particular through the GLCs) resulted in serious intra-Malay cleavages while undermining interracial social cohesion and equitable economic development. We go further and assert that such intra-Malay divisions pose a far greater threat to social stability than the familiar interracial variety.
Like ASLI, we too note approvingly the promising development of genuine Sino-Malay ventures. Unlike the old Ali Baba arrangements, these new enterprises make full use of the talent of their participants, each bringing added value to their joint ventures. The government is better off in encouraging such ventures by preferentially awarding them contracts and public tenders.
We disagree with the Report’s recommendation that the NEP be need- rather than race-based. Yes, race is today no longer as valid a surrogate indicator of need as it was a generation ago. Then, the giving of a scholarship to any Malay would mean a greater than 90 percent probability that he or she would be someone poor, the first in the family to go to university, and would not have been able to do so without the extra help. Today that probability has dropped to below 50 percent.
That is the good news; the bad news is that we have not changed the ways we disburse these scholarships and other programs.
Extending the NEP to the poor of other races would not solve the poverty problem; it would only enlarge it. If NEP had been unsuccessful in ameliorating poverty among Bumiputras, there is little hope that it would be any more successful with non-Bumiputras. There is nothing inherently special about them that would insulate them from developing the same subsidy mentality. Worse, the program would suffer even greater leakages than it already now has.
NEP is meant to empower, not entrap Malays; to make them economically competitive, not turn them into permanent wards of the state.
We are for restricting the application of the NEP with a view of eventually getting rid of it. We can begin by “means testing” Bumiputras in order for them to qualify for affirmative action. That would greatly increase the program’s efficacy and reduce its leakages, while simultaneously minimizing non-Bumiputras’ resentments.
Competitiveness, Not Percentages
This obsession with percentages is misplaced; it is essentially a “zero-sum” exercise. Malays can increase their share only by others reducing theirs. If non-Bumiputra including foreign companies were to abandon KLSE and list elsewhere, the GLCs’ and Malays’ percentage would rise very quickly to 100 percent! That would be disastrous for the economy and a hollow victory for Malays.
Instead of being fixated on the capitalization percentages (whether at par or market value is irrelevant), the focus should be on enhancing the competitiveness of GLCs and Malay enterprises. Except for Petronas, Tabong Haji, and maybe MAS, the brand names of their products have no impact in the marketplace. The market share of companies like Tenaga and Telekom is purely a function of their effective monopolies.
As for return on equity (another measure of competitiveness), many are loss ridden. We would rather have fewer but more competitive Malay companies. ASLI, like the government, offers little on addressing this issue.
Regardless of which figures were used, the pattern is clear. There is no appreciable improvement, in fact a decline since 1990 and especially floowing the 1997 economic crisis.
In its estimations, ASLI uses the nominal (face value) ringgit. Obviously the 1996 ringgit is very different from the 1998 because of devaluation. Had ASLI adjusted for this and also for inflation, or better yet expressed the values in constant US dollar, the pattern over the years would be even more dramatic and stark, even if that does not change the percentage distribution.
When the NEP failed to reach its target in 1990, the immediate question should have been on how to enhance Malay competitiveness so we could participate effectively in the modern economy, including the stock market. Had that been asked, then we would have paid more attention to our schools and universities so they could produce trained, skilled, and employable graduates.
Instead, the government pumped more money into GLCs in an attempt to artificially inflate the figure. That would be akin to giving a patient aspirin to treat the fever. More important would be to address the underlying infection, then the fever would subside. If Malays were competitive that would translate into increased participation in the stock market as well as other sectors of the economy.
GLCs the Problem, not the Solution
The crucial but unasked question is what right has the government to squander precious public funds in the stock market? GLCs as instruments of the NEP are meant to facilitate Malay entry into the private sector. The aspiration was that they would be like McDonald’s Corporation; it creates more Black millionaires through its franchise system, or FedEx that spawned thousands of small entrepreneurs who own their trucks to service the company’s deliveries.
GLCs and set-aside shares for Bumiputras have degenerated into nothing more than “get rich quick” schemes for the privileged “UMNOPutras.” While there may have been some vicarious pride in the past on seeing Malays joining the millionaires’ club, hitherto the exclusive preserve of non-Malays, such reflected racial glories have long since vanished, speeded up by the obscenely ostentatious lifestyles of these newly rich Malays. Their flaunting their unearned wealth grates ordinary Malays (and Malaysians) raw.
Implicit in ASLI’s study is the assumption that GLCs are Bumiputra companies, meaning, owned by Bumiputras. That is certainly a surprise to us, as it would be to the poor Malay fishermen in Kelantan or Kadazan padi farmers in Sabah. Perhaps ASLI could use its good offices to ensure that those poor folks (and us) do get the dividend checks!
GLCs are more obstacles against than catalysts for Malay progress. They breed rent seekers and “ersatz capitalists.” GLCs, by using their size and might of the state, muscle out legitimate entrepreneurs – Malays and non-Malays.
These GLCs do not even serve as useful training grounds for would-be Malay executives and managers. The work culture is such that a stint with them is a stigma; it does not enhance your resume in the marketplace. It is instructive that one of the stated requirements when Abdullah Badawi was seeking new heads for these GLCs is that they have significant experience with multinational corporations.
Our solution to the mess is simple: get rid of the GLCs. Sell them to the highest bidders and use the proceeds to improve rural schools, build low cost housing for the poor, and erect vital infrastructures like roads and water treatment plants. That would do more good to more Malaysians, in particular poor Malays.
We could not care less who owns Malaysia Airlines. We care more that we train many Malays as pilots, managers, and mechanics so they could work not only locally but also at other airlines of the world.
There is nothing inherently wrong with the concept of GLCs and crown corporations. America has its Fanny Mae, and Canada, its Petrocanada. Nearby, Singapore has plenty of ready examples of competitive GLCs. Competently managed and with clear missions, they would be wonderful. Otherwise get rid of them and use the funds for other useful pursuits.
Getting rid of GLCs would also remove a major source of corruption, money politics, and influence peddling. Those are good enough reasons to dump these companies, and at the same time spare the nation an unnecessary divisive controversy.
M. Bakri Musa’s latest book, Towards A Competitive Malaysia: Development Challenges in the Twenty-first Century, will be released in early 2007 (www.bakrimusa.com). Din Merican is Senior Research Fellow, Cambodian Institute for Cooperation and Peace, and Visiting Professor, University of Cambodia, Phnom Penh. (email@example.com). The views expressed do not implicate these institutions.