Malaysia in the Era of Globalization #51

The government can still effectively help Bumiputras without special privileges. If it were to announce a program to help rural dwellers and members of the civil service, police, and military, the beneficiaries would in all likelihood be predominantly Bumiputras. We would have achieved the same goal yet such a program would not reek of racism. Additionally, doing so would also encourage non-Bumiputras to join the police and armed services so as to benefit from these privileges.

By M. Bakri Musa

Chapter Six: Malaysia: Assets and Liabilities

Enhancing Special Privileges

To enhance the efficacy of special privileges I would first focus on the bottom 50 percent (better still, bottom 25) of Bumiputras. I agree with Grameen Bank’s Muhammad Yunus who feels that development should be defined to mean positive changes in the economic status of the bottom half of the population. Consequently I would cut off the top quartile Bumiputras (or those with certain net worth or income) from special privileges. Such a modification would effectively target special privileges on truly needy Bumiputras. At the same time it would reduce the resentment felt by non-Bumiputras. Disqualifying ministers, top leaders, royal families, and affluent Bumiputras would also have the additional salutary effect of forcing them to be self-reliant.

This “means testing” at the gross level would not entail much administrative costs or erecting another huge bureaucracy. A simple statuary declaration under sever penalty of perjury and intent to defraud the government would deterrent enough. For added weight, have those applying for benefits of special privileges submit their or their parents’ previous year’s tax returns.

For the royal class, I would eliminate many of their present tax-free privileges. Make them pay their share of income, property, road and other taxes. If Britain’s Queen Elizabeth has to pay income tax, Malaysian sultans should also do likewise. The aggregate impact of such measures on the Treasury would be minuscule, but the psychological benefits to members of the royalty would be immense. For one, they would share in the pain suffered by ordinary citizens, always a salutary experience. For another, if they had to pay their share of taxes on their luxurious toys, that would likely rein in their obscenely flamboyant lifestyles. Malaysia should not have to put up with such nonsense as when the Sultan of Kelantan drove off with his impounded luxury sports car without paying the necessary road tax.

Lastly, seeing families of leaders, royalty, and aristocrats being kicked off the dole would appease immensely the social sensibility and sense of justice of ordinary Malaysians. At the very least that would eliminate the current hypocrisy where many of these leaders would with nauseating frequency exhort the masses to be berdikari (self reliant) while they and their families are the first to hog the public trough. I am astounded at how many members of the immediate families of ministers are getting government scholarships, aids, subsidies, or otherwise dependent on public dole. They have no shame. If they cannot be independent on their ministerial income, then they have no right to lecture the masses on being berdikari.

The government can still effectively help Bumiputras without special privileges. If it were to announce a program to help rural dwellers and members of the civil service, police, and military, the beneficiaries would in all likelihood be predominantly Bumiputras. We would have achieved the same goal yet such a program would not reek of racism. Additionally, doing so would also encourage non-Bumiputras to join the police and armed services so as to benefit from these privileges.

Current special privileges are ineffective because they lump all Bumpiputras together. As Muhammad Yunus observes, “Like good old Gresham Law, it is wise to remember in the world of development, if one mixes the poor and the non poor within a program, the non poor will always push out the poor, and the less poor will drive out the more poor, and this may continue ad infinitum unless one takes protective measures right at the beginning.”

Gresham Law is an observation in economics where if two coins are of equal value officially but unequal in intrinsic value, then the one with the lesser intrinsic value will remain in circulation while the more valuable one will be hoarded. Or more succinctly stated, bad money drives good money out. More generally, this means inferior practices will eventually displace superior ones. This is happening to special privileges. Initially it was meant to help Malays who were deserving of help, now the program helps those who already have it, the well-to-do Malays pushing out their poor brethrens, as predicted by Gresham Law.

Gresham Law is a modern version of the biblical wisdom, “For everyone who has, more will be given, and he will have an abundance. Whoever does not have, even what little he has will be taken away from him.” (Matthew 25:29) In the west, the cowboys have it more succinctly, “Dem dat has, gits!”

I would also radically change the present special privileges programs in the following manner. First I would total up all the costs of all the programs for the preceding ten years. This would include not only the direct expenditures in terms of scholarships, grants, aids, etc., but also the indirect costs (loss of import Approved Permit revenuess, subsidies on various state corporations as well as the added costs of having public contracts reserved for Bumiputras). Included also would be the costs of bailing out the Tajuddin Ramlis and Halim Saads (Malay corporate figures). Then I would adjust the nominal total to the 2001 ringgit. Obviously a 1991 ringgit was worth considerably more than a 2001 one. I would not be surprised to find the total to be truly staggering if the accountants were competent enough to factor in all the costs.

Assume that figure to be RM X billion. Next I would calculate the rate of inflation and population growth for the past decade and extrapolate the same rates for the next decade. This would roughly be 4 and 3 percent respectively per annum. Now factor the same rates for the next decade and apply them to X. That figure would now be about RM 2X billion, according to my rough calculation (X growing at a compounded rate of 7 percent per annum). This is the amount that we would be spending in the next decade, assuming the same rate of inflation and population growth.

Now here is the radical part of my plan. Instead of using the money to create phony Bumiputra “businessmen” and “entrepreneurs” or bailing out the likes of Bank Bumiputra, I would spend them on rural schools, kampongs, and poor Bumiputras (the bottom half). I would rebuild rural schools so that they would be air-conditioned and have first class libraries, laboratories, and computers. I would provide the children with nutritious breakfasts and lunches. Like Tun Razak in the 1970s, I would use the money to bring in by the planeloads, competent science, mathematics, and English teachers from abroad to teach in these rural schools.

I would give zero or even negative interest rate loans for rural people to improve their dwellings where they could have indoor plumbing and septic tanks. I prefer such loans to outright grants. One, that would teach citizens on the handling of credit. Two, grants tend to foster dependency. With loans the recipients are not made to feel or treated as wards of the state. There is as element of self-dignity there. Use negative interest loans to start a massive rural development program similar to that which General Park did in South Korea. I would use the funds to provide extensive rural electrification program comparable to the Tennessee Valley Authority, with subsidized utilities for the villagers.

I would have Proton (the national car company) start a national tractor project to build cheap reliable machines Malaysian farmers could afford, again using negative interest rate loans to help them buy those machines. I would also have the same loan programs for rural dwellers to start their own businesses. For example, fishmongers and fried banana sellers should have subsidized loans so they could buy their ingredients in bulk and at a discount. But instead of giving them the money directly, I would negotiate on their behalf the best deals from the vendors. I would do the same for the Sunday market hawkers to buy pushcarts and small trucks to haul their wares. I would do this for other merchants so they could expand their businesses and inventories.

I would also set aside special funds for students now taking vocational studies like auto mechanic and cosmetology to start their own enterprises. Before doing that I would supplement their training by giving elementary business lessons. I would suggest to Petronas that its petroleum station franchises be given only to trained auto mechanics. Such a program would also expand the capabilities and thus revenue stream of many Petronas stations to include the more lucrative repair business. With such a program more Malays would be enticed to take up vocational training.

What I would definitely not do is lend them money for their children’s wedding or trips to Mecca. These subsidized loans must be for productive purposes, that is, for income-producing activities. Car loans would only for those who intend to purchase their own taxis or use the vehicles for commercial purposes. With such a scheme, all Malay taxi and truck drivers would own their vehicle.

As an incentive to keep their children in school and to pay attention to their education, I would pay rural and poor parents as well as their children for attending schools. This idea was mooted by the Nobel laureate in Economics Gary Becker, an expert on human capital, and has been successfully tried in Latin America. I would go further and reward students (and their parents) who had perfect attendance or scored above the 90th percentile in national examinations.

At the apex, I will automatically award any Malay who gets accepted to top universities, with no bonds whatsoever – reward for their excellence. What I would not do is spent the money on buying company shares in trust for Bumiputras or bailing out Bumiputra corporations. Indeed I would sell MAS, Pernas, Petronas and other ‘Nases and use the proceeds in the manner described earlier.

At the end of the decade in 2010, I would compare the results of my program to what we have today. I am certain that Malaysia would be much further ahead. So would Malays.

There is an art in helping people. Properly done we help them achieve their maximal potential; poorly executed and they become hopelessly dependent. Increasingly, special privileges are turning Bumiputras into hopeless dependents of the state.

In a globalized world, Bumiputras will not be competing against non-Bumiputras in the protected sphere of Malaysia, rather all Malaysians will be challenged against the rest of the world. We should go beyond seeing special privileges in terms of Bumiputra/non-Bumiputra dynamics. Otherwise the policy will serve only as a barnacle not only on the country but also more specifically, on Bumiputras.

The more important goal is to make all Malaysians, Bumiputras especially, competitive. In the next chapter I will amplify on the specifics of this issue.

Next: Chapter 7: Enhancing Human Capital