Only A Good Beginning

by M. Bakri Musa

Prime Minister Najib Razak’s liberalizing some segments of the service sector is a good start. However, it is merely good but not excellent, and only a beginning but not the total solution.

Najib must remember that a half-cooked meal is often not only inedible but could also poison you; likewise a half-baked solution.

For Najib to have an excellent and comprehensive solution would require him to address the more difficult underlying issue of what prompted the instituting of quotas in the first place. Unless that is resolved, his new policy will not be politically sustainable – meaning, not sustainable at all –regardless how eminently sensible it is economically. Ameliorate it and Najib would be able to liberalize not only the whole service sector but also the entire economy, if not every facet of Malaysian life. That would bring his “1Malaysia” aspiration that much closer.

On the other hand, if he fails to resolve that fundamental problem, he would have succeeded only in triggering a severe backlash among Malays, the bulk if not his only base of support. Were that to happen he would push back race relations; the half-cooked meal poisoning him!

Already we are seeing some interesting and unlikely coalition of opposing forces. The Bar Council, the self-styled champion against discrimination and a vociferous and relentless opponent of Malay “special privileges,” suddenly becomes protective of its members when the government tries to liberalize the legal profession to allow for the entry of foreign law firms.

The objective of reform is to enhance Malaysia’s competitiveness. Malaysia cannot be competitive unless Malays, who constitute the bulk of the population, are also competitive. Increase Malay competitiveness and you enhance the nation’s competitiveness.

This being Malaysia, with its “monkey see and monkey do” culture, Najib’s half-baked move will be echoed by others eager to imitate and flatter him. We already have one monkey in the person of Khir Toyo, the discredited former Mentri Besar of Selangor, now suddenly discovering “reform” religion. Rest assured that these guys are merely mouthing what is popular (or think is popular); they have no clue of the profound implications or associated difficulties.

Quotas were instituted to dismantle “the identification of race with economic activities,” to borrow the eloquent phrase of the New Economic Policy. I would have expected that after nearly 40 years, the announcement of the lifting of quotas of a small segment of the service sector would have been greeted with unbridled joy. That it was not points to potential troubles ahead. Najib ignores this at his own peril, especially considering that his hold on power is at best tenuous.

The response is not to suspend the liberalization process rather to address its opponents’ concerns. The first step involves answering the basic question of why, sans quotas, there were so few Malays in that sector. If there were but they had no sustaining power, the next line of inquiry should be to focus on why those Malays were not competitive.

Next would be to examine the failures of the current quota system. Why does it fail to nurture a class of enterprising Malays? It could be that the current policy perversely encourages the emergence of pseudo entrepreneurs and ersatz capitalists, thus oppressing the genuine variety, much like lallang to lengkuas.

Unless answers are found to these questions, we are guaranteed to muddle through yet another half-baked solution. I have yet to hear sensible discussions from our leaders on these fundamental problems.

The key to making Malays (or any group for that matter) competitive is in revamping the schools and universities, and altering the reward system so as to encourage genuine entrepreneurs and risk takers.

Revamp Our Education System

Graduates of our schools and universities have limited language abilities, abysmal quantitative skills, and are incapable of critical thinking. In short, they lack the very skills needed to survive in the marketplace.

There is only one “official” language in the marketplace, and that is the language of your customers. Those Chinese hawkers peddling their goods in the kampongs intuitively know this. That is why they speak fluent Malay.

The bulk of our customers speak English. This applies to our domestic as well as foreign markets. Hence fluency in that language is essential, especially in the service sector. This is where Malays are sorely lacking. We have erroneously and successfully indoctrinated our young, and also ourselves, that learning another language (especially English, the language of our former colonizer) equals contempt of our own.

The average non-Malay speaks three languages: their mother tongue, Malay and English. The majority of Malays however are monolingual, in Malay. This did not happen by accident; our education system deliberately created this sorry mess.

Language skill is a good beginning, but by itself is not enough. To be a successful entrepreneur one must be able to manage risks. This requires an ability to quantify it. A business plan is nothing more than a formalization of your assessments and assumptions of those risks.

A project that would be economically viable when the cost of borrowed funds is 5 percent would not be so if it were to double. Likewise, a profit margin of 1-2 percent may be generous where the turnover is fast and high as with a retail store, but not when the volume is slow. To evaluate all these would require some mathematical skills.

This does not mean one needs higher mathematics to be successful. Indeed the current meltdown of Western financial firms is attributed in part to the uncalled for faith and reliance on higher mathematics. You do however have to appreciate the difference between simple versus compound rates, or when the interests are calculated on a declining balance, or whether it is calculated weekly, monthly or annually.

In my book An Education System Worthy of Malaysia, I suggested innovations to our schools so they would produce graduates who are trilingual (Malay, English, and Arabic), have high mathematical skills and enhanced science literacy. In some instances, I suggested bringing back the old English-medium schools, especially in rural areas. Currently those kampong students are the weakest academically and least prepared for the marketplace. And they are mostly Malays.

I also suggested reforming the undergraduate years so our students would be exposed to a broad-based liberal education regardless of their ultimate career choices. These reforms in education must go in tandem with if not precede our opening up the economy lest we would return to the bad old days.

Alter Our Rewards System

After we have prepared our young rigorously through better schools, then we must align our cultural values, in particular our reward system, so as to encourage our young to be entrepreneurs.

One is our cultural attitude towards failure. In Silicon Valley, California, a bankrupt entrepreneur wears his failure as a badge of honor, as a war hero would his battle scars, and moves on. To him, failure is a learning experience. In our culture, a failed businessman is viewed with contempt. Worse, he is seen as a caricature of the collective weakness of our race, forever stereotyped and stigmatized.

We must have a healthy attitude towards failure, looking upon it not as a reflection of a mortal defect in our national character but part and parcel of the entrepreneurial process and indeed of capitalism. Hence bankruptcy courts; it is an integral part of a vibrant capitalistic society, Schumpeter’s “creative destruction” formalized.

To be sure, entrepreneurs have their own value system. To them, the success of their ventures is reward enough. Their satisfied customers are the rewards, expressed in the profits of their enterprises. What we hope to achieve by aligning our reward system would be to encourage other would-be entrepreneurs and risk takers by honoring those who have succeeded.

The remarkable observation on successful entrepreneurs in America is that no one begrudges them of their wealth. On the contrary, they are our role models. When we think of Bill Gates, we think of his many wonderful inventions to make our work more productive; his fabulous wealth is therefore well deserved.

On the other hand, when we think of Malay billionaires, we have nothing but contempt for them. It is not so much their obscenely ostentatious lifestyles that offend us, rather we could not think of any useful service or product that they have produced that had improved our lives. Their wealth comes through their rent-seeking activities, not economic creation. They are parasites sucking the life out of our economy.

In the same vein, we see similar contempt in America today for those highly compensated financiers because we cannot see the positive tangible results of their “work.” Instead we suffer through the destructions they wreck.

Peruse the list of honorees of our royal awards (focusing only on Malays), we would find that the overwhelming majority are civil servants and politicians. It is rare for Malay businessmen and entrepreneurs (those rent-seekers excepted) to be honored. As for the creative producers like artists and scientists, they are never on the list.

The honors list is one measure; examine the list of beneficiaries of our generous loan programs disbursed by MARA and other public agencies, or the allocations of import permits and company shares. Rarely are the subsidized loans given to those who have completed their apprenticeship programs so they could start their own small enterprises. None of our agricultural graduates get loans or land grants to start their farm businesses. Instead those mega millions grants and valuable state land are given the politically well connected who would then just as quickly sublease them to others for hefty fees.

If we do not revamp our education system and realign our rewards, there is real danger that liberalizing our economy would only aggravate inequities. That would bring us back to those earlier ugly days of economic activities closely identifiable with race. That would be unhealthy economically, politically and socially. We paid dearly for that in 1969; we need not repeat those grave mistakes.