NEM and NEP – Only One Letter Different!

By M. Bakri Musa

With threatening clouds overhead, there are no prizes for predicting the flood, only for designing or building the ark. The recently-released New Economic Model (NEM) Report draws our attention (not that we need it!) to the darkening Malaysian skies, and then goes on advising us to build an ark.

That is as far as the report goes. There are no hints on whether the clouds would bring a tropical drenching or just a midday sprinkle. There are also no suggestions on the type of vessel we should build. A barge, yacht or a sampan will all keep us afloat, but beyond that they serve vastly different purposes, not to mention their enormously varying costs. And if the forecast calls for only a light sprinkle, then a simple umbrella would do; no need to expend scant resources on an unneeded ark.

We are told that following “public input,” another report will be released by June, in time for its recommendations to be incorporated into the Tenth Malaysia Plan and the 2011 Budget. This second report, we are further assured, will contain specific policy prescriptions – the ark design, as it were.

The current report is silent on how this “public input” would come about. Before deluding ourselves that we could participate in robust public debates, let me intrude a cautionary note. Acknowledging that there will be opposition, the report urges the government to take “prompt action when resistance is encountered.”

You can be assured that those UMNO-Putras and others glutton on the NEP-spawned patronage system would be spared this “prompt action.” They as well as the Perkasa boys can continue with their shrill voices opposing NEM. For Pakatan folks and others however, be warned!

Major Conceptual Flaws

On a general level, this report suffers from three glaring conceptual flaws. One, it fails to recognize that the bane of past policies is in their implementation. Two, it ignores the major role culture plays in the successful execution of any economic initiative. And three, there is no attempt at learning from the successes and failures of earlier policies.

This last deficiency is surprising as well as disturbing. If NEM were to supplant NEP, then we should know the strengths and weaknesses of that earlier policy. Or if it was basically sound, then what or who perverted it, and where the failures were in its implementation.

No one argues with the twin objectives of NEP: eradicating poverty and eliminating the identification of race with economic function. Those are laudable goals; the second in particular for a racially diverse society like ours. Indeed, the report pays tribute to NEP for reducing poverty and minimizing inter-communal inequities.

Unfortunately, there the report ends. In an earlier chapter, the report duly lists the numerous problems facing Malaysia to day: widening inequities especially among Bumiputras; talented citizens leaving; the rise of a rent-seeking class; entrenched corruption; and the failure of our institutions.

What happened in between? Unless we know, there is little assurance that the laudable goals of NEM would not be similarly derailed. If we are unwilling to acknowledge and learn from the mistakes of the NEP, then we are bound to repeat them.

Thus there should be some critical analysis of the NEP, at least an elaboration of the positive elements and the highlighting of the negatives. The one chapter that should be in the report would be one titled, “How did we get in the mess we are in today?” I reckon that such a chapter would be filled with narratives on the failures of our institutions. It is this that doomed NEP.

On the role of culture, it is surprising that a committee made up of mostly Malaysians and those familiar with Malaysia would come up with a report that is totally oblivious of this reality. This cultural dimension is crucial not only in economics but also in management and healthcare. Of all people, Malaysians who are daily immersed in a diverse cultural environment, should be well aware of this.

An initiative that would be embraced by urbanite Chinese in Penang would fall flat among Iban rural dwellers of interior Sarawak. The solo entrepreneur model would probably find a fertile ground in Penang, but not in Kenawit. There, the social system would be more supportive of cooperative-like ventures.

Challenges for the urban poor regardless of race are radically different from those in rural areas; race only compounds those differences. The failure to recognize this dooms many an imaginative plan. When that happens, those policymakers would resort to blaming and stereotyping the poor victims. We have heard that many times.

The colonials brought modern schools to Malaysia with the best of intentions. Non-Malays responded to that gesture and benefited immensely. Malays did not, and suffered the consequences in terms of our economic and social development.

It would be wrong as well as cruel to conclude that Malays did not value modern education, as many (and not just the colonials and non-Malays) were wont to. For when those schools were named Tuanku Muhammad School instead of Convent of the Holy Infant Jesus, Malay parents readily enrolled their children. The content was still essentially the same but only the packaging was different; it was sensitive to the culture of the clients.

American consumers readily respond to their leaders’ exhortations to increase their spending to pull the country out of recession. For the Japanese however, the more their leaders urge them to spend, the more they save, and hoard. Same economic circumstances and the same economic rationale, but the responses and results are diametrically different. Culture explains that.

“Most of economics,” as Landsburg put it in his The Armchair Economist, “can be summarized in four words: ‘People respond to incentives.’ The rest is commentary.” Alas what are viewed as incentives in one culture can be definite disincentives elsewhere. That is the central challenge. Policymakers ignore this at their own peril.

The British, in an attempt to encourage Malays to save, duly increased the interest rates on Postal Savings Accounts. However, instead of increasing their deposits, Malays withdrew theirs! Malays viewed the increase as an inducement to a life of sin. Those sneaky white devils!

Ungku Aziz created Tabong Haji and labeled the investment returns as “dividends.” Malays swarmed to that institution, making it the largest in the region. Essentially the same content, but different packaging! The Ungku understood economics well and fully comprehended its central axiom: People respond to incentives.

An extension to this observation is that the incentives you offer would influence your responders. Offer honey, you get bees; rotten meat, maggots. When the committee decries the economic rent-seekers emerging under the NEP, it should carry the analysis further to find out the incentives offered. Rest assured that if NEM were to offer rotten meat as NEP did, NEM will too get its share of maggots.

On the crucial issue of implementation, the report only tangentially addresses the strengthening of our institutions when that should be the major focus. Our institutions are blighted with bloat, incompetence, and corruption; they simply cannot deliver.

Consider the current initiatives to improve the civil service, of which there are too many to count. First there was PEMUDAH, self-described as “a high-powered taskforce to address bureaucracy in business-government dealings.” It is chaired by no less than the Chief Secretary. Then there was the appointment of Koh Tsu Koon as the minister in charge of “Performance Management.” He had hardly warmed his seat when yet another minister, Idris Jalla, was made in charge of – you guess it – KPI!

Who is in charge here? Meanwhile the civil service continues its bloat and ineffectiveness, as exemplified by Najib’s own cabinet. And if you have to get your driver’s license, you would still need the services of runners and touts, as well as some duit kopi.

Corruption will not be dented – much less ended – merely with the report blandly declaring “zero tolerance” for it. Make the Anti Corruption Commission independent, answerable only to Parliament or the King, and appoint a seasoned professional to head it. If you cannot find a native, recruit from the FBI or Scotland Yard. That one move would more effectively curb corruption and improve our institutions than all the KPIs, National Integrity Institutes, and NEM’s and others’ declarations of “zero tolerance.” It would also be considerably cheaper.

Accurate Portrait, But No Revelation

This report is refreshingly different from the usual government publications in that it is highly readable and the content well organized. The chapter headings too are clear and simple; they accurately reflect the contents, with such titles as “Where We Are?” Where Do We Want To Be?” and “How Do We Get There?” An index would have been useful, but the well laid-out and sufficiently detailed “Table of Contents” made up for that deficiency.

This report is remarkably free of gross grammatical gaffes and awkward syntax. The committee staff has also done a credible job with the executive summary. The report was made available online almost immediately. These features are rare with our government publications, and thus merit special commendation.

The full report is available only in English, a glaring omission considering that NEM would supplant NEP. As everyone knows, NEP is dear to most Malays, especially those of the Perkasa persuasion. Any tampering of NEP, even if it involves only one letter of its acronym, risks raising the hackles of those folks. Having the full report in Malay would have been a splendid start at trying to influence them, quite apart from being a politically smart gesture. Malay after all is our national language.

As things stand, those proficient only in Malay would have to be satisfied with the Ringkasan eksekutif (Executive summary). My hunch is that they would find the going rough, what with such phrases as “Menginovasi hari ini untok hari besok yang cemerlang,” (Innovation today for a glorious tomorrow) and, “Inisiatif Pembaharuan Strategik” (Strategic Renewal Initiatives). I would have said it differently, “Cara baru untok menjamin masa depan yang cemerlang” (A new way to ensure our bright future).

Dark clouds there are – and many – hovering over Malaysia, from the hundreds of thousands of skilled citizens who have migrated, to the anemic growth in our productivity. The report rightly points out the lack of political will to overcome these myriad problems. Kudos to the committee for this forthrightness!

The report paints a gloomy picture for Malaysia if it were to stay the course. Again, few would disagree with that. I wish those luminaries would help us sketch and build the appropriate ark, one that would meet our unique needs and challenges, instead of merely warning us of the impending flood.

The report does not lack for specifics. For example, it aims for an economic growth of at least 6.5 percent annually. Its target too is specific, the bottom 40 percent of Malaysians.

One specific suggestion on improving the government machinery is the proposal to “corporatize” and rename the Malaysian Industrial Development Agency (MIDA) to Malaysian Investment Development Agency. The committee pats itself for the brilliance of substituting “Investment” for “Industrial,” as then the agency could continue keeping its acronym and logo!

If only they recognize that changing even a single letter in a corporate name would entail changing entire letterheads, advertising plates, and web pages. The exercise would consume as much effort as if you had changed the entire name. It would have been more productive if the committee had recommended changes to MIDA’s mode of operations and strategies. After all, Warren Buffett’s Berkshire Hathaway did not need to change its name in order to diversify very profitably beyond its initial textile roots.

The Report goes out under the signatures of all but one (Dr. Norma Mansor) of NEAC members. Of the ten who signed and thus responsible for the report, three are non-Malaysians while two are Malaysians (or at least born locally) who have spent their formative careers abroad.

Of the remaining five – the ‘natives’ – only one, the chairman Amirsham Aziz, has substantive private sector experience, having spent his time in banking. He had a brief political career as a cabinet minister, but that was through the appointive senate route rather than through elections. In short, the chairman, like the rest of his committee, is short on political acumen as reflected in the lack of a Malay version of the report.

Again referring to the ‘natives,’ all have formal training in economics except for one. The exception is Dzulkifli Razak, Vice-chancellor of Universiti Sains Malaysia; he is a pharmacist by training. Two of the ‘natives’ were former academics but now, government bureaucrats. The resumes of the committee members are impressive, with seven having doctorates, all but one in economics.

I have no quarrel with the committee’s assessment of our current dismal state. I concur with its observations. I just wish that the committee members would have been more forceful in pointing out whether the Najib Administration’s many recent moves were in the spirit of or contrary to the committee’s aspirations. For example, the committee wisely noted the need for devolution of authority to lower levels, yet Najib’s recent response to the request for local elections runs counter to that.

Similarly, the committee decries the failure of our educational institutions. Yet it does not address whether the recent rescinding of the policy of teaching science and mathematics in English would accelerate or reverse this decline.

I hope that in its final report the committee would be more forceful in addressing these contradictions. The committee owes this obligation not only to the Najib Administration but also to all Malaysians. Doing so would also help us design and build a better ark.