Meaningless Controversy Over ASLI’s Study

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 celebre 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 from our senior politicians
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 rightly 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’s Report

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,
was that GLCs’ and Bumiputras’ stake in the stock market was 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 too 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?
We cannot begin to solve them until we first ask the right questions.


More Commentary Than Scholarly

In style 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, the pattern is clear. There is no
appreciable improvement, in fact a decline since 1990, especially
following 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 inflation, or better yet
expressed it in constant US dollars, 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 own 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 vanished,
speeded 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.
Getting rid of the GLCs would 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. (dmerican@yahoo.com). The views
expressed do not implicate these institutions.