I had this exchange with an old friend recently – obviously (and thankfully)
he has some sympathies for my views, which I have been sharing with him for
years.
Regards
Ian
—–Original Message—–
From: Ian Teh [mailto:ian@sharrockpitman.com.au]
Sent: Monday, 13 February 2006 4:15 PM
To: ‘ ‘
Subject: RE: bts – Whither Malaysia’s NEP?
The topic below is on wealth distribution. Sure, NEP had some social agenda
behind it (or some pretext of it anyway) but that agenda can no longer
support the rationale for NEP. If anything, NEP must be seen as a failure if
it is still needed as a core policy to distribute wealth across races, after
more than 35 years.
Apart from wealth distribution, there are other discriminatory policies and
decisions. All these are brought about by a bloody mindedness which say
whatever the issue, bumis must have the first pick. I am reminded of an
argument I had in a car park in BBK. I had just parked my car in front of
some shops in BBK when a Malay guy came up and insisted he saw that spot
first. I was sure I was much nearer and signalled first. When he started
being unruly, I told him there was no bumi quota for car parks and he can go
hang.
We see bumi preferences in education, jobs, promotions, housing allocation,
house pricing, licences, permits, and every other aspects of life. So much
so that the chinamen neighbours of ours (or in my case, ex-neighbours) in
Berkeley Garden were sure police didn’t care about crime rates there because
it was a Chinese area. These bumi preferences have so deeply permeated each
of those areas it is unbelievable. Again in BBK, there was this cendol
seller who sold fantastic stuff. We used to buy from him on Sunday
afternoons. His cart was just outside Maybank in BBK, and he knew his stall
was illegal, even as he expanded and put up more chairs and tables. When I
asked him if he had trouble from the MPK, he said no. He said he was a Malay
and that should be alright.
I don’t know how anyone can justify these other discriminatory acts.
Certainly I am confident the panellist cant.
Regards
Ian
—–Original Message—–
From:
Sent: Monday, 13 February 2006 3:00 PM
Subject: bts – Whither Malaysia’s NEP?
http://business-times.asia1.com.sg/sub/premiumstory/0,4574,185761,00.htm
l?
Whither Malaysia’s NEP?
Published February 11, 2006
OVERVIEW
MALAYSIA’S New Economic Policy (NEP) has been its over-riding economic
ideology for over three decades. A sweeping affirmative action policy
designed to uplift poorer ethnic Malays, who form the majority (62 per
cent)
of Malaysia’s 24 million people, into economic parity with their richer
non-Malay countrymen, the policy has been controversial because of its
discriminative features but successful: it’s created a large Malay
middle
class, crucial for stability, and kept the peace in South-east Asia’s
most
multi-racial country.
Over the years, the policy has evolved but its key feature – growth with
mandated redistribution – remains. How will, or should, it mutate going
forward?
PARTICIPANTS in the roundtable
Moderator: S Jayasankaran, KL Correspondent for BT
Panelists:
– Ramon Navaratnam, former top civil servant and chairman of
Public Policy Studies, an affiliate of ALI, a think tank
– Zainal Aznam Yusoff, adviser, the National Economic Action Council
– Ridzuan Halim, lawyer and newspaper columnist
– Tan Teng Boo, chief executive, I Capital
– Fui K Soong, deputy director, Insaf, a think tank
S Jayasankaran: Dr Zainal, maybe you can start off by summarising the
results – its successes and failures – of the New Economic Policy over
the
last 35 years.
Zainal Aznam: The policy has wonderful catchphrases. The eradication of
poverty, irrespective of race and the restructuring of society to remove
identification of race with economic function.
On poverty eradication, nobody disputes that it’s been a phenomenal
success.
>From 50 per cent odd of households below the poverty line in 1971, it’s
gone
down to 5.1 per cent. There are still some warts and it’s got to do with
the
eradication of absolute, hard core poverty. The second prong of the
policy
has been contentious – the target of 30 per cent of wealth which got
translated into 30 per cent of share capital.
All the controversy has revolved around this figure. Then the concept of
a
Bumiputra Commercial and Industrial Community, a capitalist middle class
if
you like, got wedded to this idea. But the point here is that the
discussion, the controversy, was zeroed in on the 30 per cent.
There was also the employment side, to restructure society so that
employment would reflect the racial composition of the population.
That’s
dynamic in the sense that the population, the demographics, keep
changing.
That’s been a partial success.
On the equity side, it’s been mixed. It’s around 18-19 per cent now.
What
happened? It’s due, ironically, to the success of the non-Malays. The
Chinese and Indians over-achieved, they got about 45-46 per cent while
the
Bumiputras under-achieved. If you remember, the original target was
30:40:30
for Bumi-non-Bumi and foreigner respectively.
Ramon Navaratnam: The NEP was the right thing after May 13, 1969 to
bring
political and social stability to the country. But what’s gone wrong is
that
it may be bringing about disharmony. Racial polarisation today is worse
than
it ever was. Why? We forgot that our main emphasis should have been on
poverty eradication. To my mind, the NEP was hijacked by some vested
interests to focus on the 30 per cent targets at the expense of poverty
eradication. We say we’ve eradicated poverty substantially. Is that
right?
The poverty line here is RM592 a month for a family of five. How do you
survive on that? If you compare us to Third World countries, we are
outstanding. But do we want to do that?
It’s such a pity that 90 per cent of our attention has gone to the 30
per
cent target. If it had all gone to the state trust agencies like
Permodalan
Nasional Bhd or Tabung Haji, I think that the 30 per cent target would
have
been reached long ago.
The official figure is now 19 per cent which is arguable. If you take
government linked companies, property ownership, etc, add it all up, I
suspect Bumi equity may be near 50 per cent. To harken back to this 19
per
cent will cause injustice and I suspect domestic and foreign investors
are
not going to buy it any more.
Ridzuan Halim: The economy is so very different now. In 1969, the share
capital was RM4.7 billion versus over RM700 billion now. The population
was
11 million to 25 million now. Gross domestic product was RM11.5 billion
compared to RM400 billion last year.
Events conspire to affect us in one way or another. Computerisation, the
1997 crisis, the rise of China and India, immigrant labour – all these
events have affected the NEP in ways we don’t really know. We should.
I believe very much in the power of compounding. It explains much about
the
steady increase in Chinese wealth. The Chinese had wealth before and it
compounded over time. It explains why the Malays were hit
disproportionately
hard after the Asian crisis.
On concessions and awards, a lot of mistakes have been made. Take the
case
of Indah Water (a concession for national sanitation), or Fomema
(immigrant
labour medical check-ups), the Approved Permits (licences for the import
of
cars). Having said that, some of the concessions to non-Malays are
automatic
money machines. I refer principally to gambling. The concessions to the
Malays, in contrast, aren’t that lucrative and are more capital
intensive.
Fuel subsidies are another serious problem. Almost a quarter of our
RM100
billion in oil revenue goes towards subsidising fuel and diesel prices.
I
consider this to be a major mismanagement of resources, money that could
be
better spent elsewhere, on education especially.
There are also inherent weaknesses in the Malay community that should be
addressed. There should be social reform, a revamp of inheritance laws,
perhaps a lessening in the over-concentration on religious education,
even
wealth management schooling. The Chinese are far better at managing
things
like wealth preservation. The Asian crisis showed that clearly. And I
agree
with Tan Sri Ramon’s view that equity should perhaps have been given to
the
trust agencies rather than individuals, some of whom have let the
country
down badly. You know, the CBTs, the squandering that has taken place . .
.
Tan Teng Boo: The NEP has succeeded in many ways. The earnings gap
between
the Chinese and the Malays has narrowed considerably. It used to be over
two
times, now it’s over one. Employment progress, especially in the
creation of
professionals, has been remarkable.
But the obsession with ownership and control is self defeating. Take the
case of MMC Corporation. Twenty-five years ago, the government acquired
it
from its foreign owners. It was then the world’s largest tin mining
company.
Now it has no mining operations to speak of. On hindsight, we could have
used the money to set up a mining institute to train professionals to
run
mines in Australia and China.
Here control remains an obsession. We talk of Malay SMEs and Chinese
SMEs
but never about Malaysian SMEs. It’s a brutally competitive world out
there,
we should be talking about Malaysian companies versus the rest but we
don’t.
And that could be the greatest tragedy of the NEP.
Fui K Soong: The times have changed. In the 1970s we were one of the
first
few economies that hit on export-led growth. Now everyone is doing it
and we
are no longer competitive in some areas. The world is entering a new
phase
now and it’s all about services. Be it information and communications
technology, biotech, value added manufacturing services – it’s a new
ball
game out there. It doesn’t require much capital, it’s footloose and it
hinges on intellectual property and knowledge. It requires networking.
But here when you ask for 30 per cent, I’m not sure. You can’t divide up
knowledge or people’s brains. Is the NEP still relevant here? I am not
sure
but politically, it sends out the wrong message. It raises all sorts of
fears and uneasiness which we don’t need as the competition is out there
and
not within.
Zainal: Just to touch on Tan Sri Ramon’s point which is a bit
controversial.
There have been attempts to tot up Bumiputra-controlled KLSE stocks and
add
it to government linked companies and then say, as a whole the Bumi
equity
is, let’s say 45 per cent. That is contentious. I don’t know the real
figure
but I suspect it could be slightly higher than the current 19 per cent.
I’d also be careful about attributing cause to effect. There is a
tendency
to get carried away and you get a situation where three quarters of our
problems are due to the NEP. That’s not quite correct or fair.
I would agree with Ms Fui that the direction of global growth has
changed.
But I would hesitate to agree when she says that because of the unique
nature of services it does not make sense to talk about equity. In fact,
I’d
take issue with it. If restructuring of society to reduce inequality is
to
be continued, then it should include the services sector as well. There
are
ways to do it; there are tremendous opportunities for restructure.
With things like our commitments to the World Trade Organisation, I’d
agree
that it’s more difficult for Malaysia to pursue NEP-type strategies. But
it’s doable; it’s not impossible, it just becomes more challenging.
Jaya: At a time when Malaysia needs foreign investment, isn’t there a
danger
that a renewed emphasis on restrictive policies like the NEP could repel
investment?
Zainal: That’s an attribution problem again. Capital had already begun
flowing out of South-east Asia by the late 1990s. Singapore, Thailand,
they
don’t have an NEP, but all these countries suffered investment falls.
And
even when China was sucking up all that capital, Malaysia was
liberalising.
Under (Prime Minister) Mahathir, a lot of NEP type things were put on
hold
and even then we could not attract capital.
There are some people on the fringes of the Malay right who say we
should
re-instate the old style restructuring policies under the Industrial
Co-ordination Act. But the majority says no, we can’t do that because
things
have changed.
But there is room to manoeuvre. Even with WTO, there is still room
around
it. There are still chunks of services – professional services, for
example – that we haven’t opened up. We aren’t a signatory to opening up
government procurement either. What I am assaying is that despite WTO,
despite liberalisation, there is still room to manoeuvre, refine and
revise
a (NEP style) policy in an efficient manner.
Ridzuan: On globalisation, it seems to benefit the non-Malays more and
that
is because of the rise of China and India, and the Chinese diaspora in
South-east Asia. This is not meant to denigrate, all credit to them as a
matter of fact. But it’s a reality that the Malays must face, which is
why
it’s vital they master English, even more than the non-Malays.
About the civil service – if they don’t buck up, it’s not just in the
implementation of the new economic policy or whatever I am worried
about,
it’s the entire nation’s future.
Tan: The key strategy going forward has to be ‘a rising tide lifts all
ships’.
Zainal (interrupts): But the leaking ship sinks.
Tan: We can go back to those days of 8 per cent growth with the right
polices. It doesn’t matter if the key industries are services,
manufacturing
or even agriculture, the main policies have to stress productivity
efficiency and competitiveness. Our growth now is nothing much. Given
that
the labour force is growing around 2 per cent, 5 per cent growth is
really
nothing to be proud about. And I feel that these five-year plans should
be
junked. It’s outdated, archaic and only exists in command economies.
Navaratnam: I feel we agree on some issues. One, there must be growth.
Two,
it seems to me that the policy must continue but it needs to be modified
to
suit the times, it has to inspire confidence and, three, we don’t need
the
rentier class and rent seeking economic behaviour. Speaking for myself,
I’d
like to see an emphasis on a ‘Malaysian’ agenda and not just a ‘Malay’
agenda.
The new policy should attempt to reduce inequality by targeting poverty
eradication and Malay equity allocations may be better served by
parceling t
hem out to the trust agencies.
KEY POINTS
– Economic growth has to be paramount.
– Rent seeking behaviour has to be eliminated.
– The policy’s broad aims, especially poverty eradication, have to be
continued but it has to be modified to suit the times.
– Equity allocations, awards, should go to trust agencies rather than
individuals.
____
Ante 