Malaysia in the Era of Globalization #95


Chapter11: Embracing Free Enterprise

Encouraging Entrepreneurialism

NEP’s Failure to Nurture Malay Entrepreneurs

As a long distance observer, let me suggest some reasons for NEP’s failure in this endeavor. They all boil down to that basic defect of too much central planning and too rigid top-down command. Instead of trying to create an environment where budding Bumiputra entrepreneurs could thrive, the government went much further to actually select which individual Bumiputras would thrive and succeed.

These central planners presume to know the traits of a successful would-be businessman. That these planners—politicians and bureaucrats—have no experience in starting or running a business is conveniently ignored. Such hubris! No surprise then that the pseudo entrepreneurs that the system produced were more adept in cashing in their close association with the politically powerful rather than being true creators and builders of wealth. They in turn perpetuated that same system in choosing their own set of suppliers, subcontractors, and vendors. Thus was born a class of Bumiputra entrepreneurs and businessmen more skillful at commercializing their political ties rather than being true wealth creators; a class of rent seekers and economic parasites rather than of genuine entrepreneurs.

These individuals with their new wealth and political clout began flexing their power. They easily convinced the government that juicy public contracts and privatization projects be reserved for them in the belief that their enterprises would quickly reach a sufficient size and strength that they could then take on the world. They wanted to create their own kampong version of the Japanese keiretsu and Korean chaebol. These big Bumiputra companies would then act as a locomotive to carry the rest forward. That at least was the theory.

The reality, as with all centrally hatched plans, was far different. The relationship these new companies had with their suppliers and vendors down the feeding chain was more predatory than supportive. These companies acted less like locomotives and more like the head of a serpent devouring every competitor, Bumiputra and non-Bumiputra alike. They effectively snuffed out other new entrants.

One example would suffice to illustrate the massive clout of these new Bumiputra pseudo entrepreneurs and their destructive predatory behaviors. In Kuala Lumpur of the 1970s, the government issued a number of bas mini (mini bus) permits to provide transportation services to the many small suburbs sprouting around the capital city. These new settlements were too small to merit regular bus services. Thus the bas mini was an ideal compromise between cheap public buses and the more expensive taxis.

That brilliant strategy resulted in many mini bus owner-operators. The program succeeded in creating a class of true small-time entrepreneurs not only in the form of owner operators but also in the supporting services, including repair shops and coach builders. The public too benefited from the frequent and convenient bus service. It became a point where these mini buses became ubiquitous in the capital city, and plans were afoot to introduce them at other major urban centers. They also have a cute acronym, BMW – Bas Mini Wilayah (Federal Mini Bus). It would certainly impress your co-workers when you assert that you come to work in a BMW!

It did not take long for the powerful government-sponsored pseudo entrepreneurs to muscle in. They convinced the government to cancel those permits and to give the franchise to their major bus companies instead. Overnight these owner-operators saw their investments became worthless. The government decided, persuaded undoubtedly by the politically connected entrepreneurs, that the big bus companies could provide a better service than the mini bus operators. Of course the government never bothered to ask the consumers.

A better strategy would have been to let them battle it out in the marketplace. Whoever provides the better service would win. This hubris of top government officials presuming to be able to pick winners in the private sector is major factor in the economic crisis of 1997. Sadly, the government has yet to learn its lesson. It continues with the same pattern. Only this time some other new favored players are replacing the Tajuddin Ramlis and Halim Saads of yore. Contracts and projects are still being awarded sans competitive bidding. A decade hence the story would be the same, only the characters and ventures would change.