NEP’s Failure to Nurture Malay Entrepreneurs

by Bakri Musa
Chapter 11 : Embracing Free Enterprise
Encouraging Entrepreneurialism

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.

I suggest that if the Malaysian government were to invest in future business tycoons it would be more fruitful to seek these individuals at our Sunday and night markets rather than nurturing those armchair “entrepreneurs” in their business suits who frequent UMNO’s divisional meetings and general assemblies. In 1976 I read a book written by a Canadian economist who was in Malaysia documenting the economics of these small-time hawkers. I would have expected that pioneering research to spawn other studies, but I have not come across many.

Let us take the simple enterprise of selling fried bananas. This simple business has all the ingredients of a major corporation. There are all the details of cash flow, marketing, sales, expenses, and inventories. These hawkers could all be taught the basic concepts of a business enterprise by using his roadside stall as a ready and concrete example. Thus someone could organize them into a purchasing group so they could buy their supplies (flour, cooking oil, gas and other perishables) in bulk to effect substantial savings. And lowered costs would contribute directly to the bottom line. This is true with multinational corporations as well as roadside hawkers.

Then someone could teach these hawkers to expand their “menu.” They could for instance, expand into providing cold drinks or tea. That would directly add to the revenue. Or to use the sophisticated business term, diversifying their product line. Additionally they could plant their own bananas instead of buying them. To put it in business terminology, bringing their suppliers in house; or vertical integration. That would definitely reduce their costs and boost profits.

The improvement or learning process does not stop there. The more enterprising hawkers might consider offering a gourmet menu by using the sweet tasty variety of bananas like pisang raja (royal banana), charging extra of course for the premium product. Or they might cater to health-conscious customers by using low-salt, low-calorie, and low cholesterol ingredients. They might even go further upscale and make not the routine fried bananas but instead baked them in molasses, and then serve them in nice plates just like they do in fancy American restaurants. Call the new product banana flambé! They can even add rum to the concoction for their non-Muslim customers. Or serve them as ala mode combination with ice cream. All these product enhancements would serve to increase the value and hence the price that could charge. There is literally no limit to the potential with even the lowly fried banana business.

To those who dismiss such possibilities, think what they have done with the simple cup of coffee. It spawned the Starbucks chain, where the humble 50-cent cup of coffee now goes for a couple of dollars! There might just be a enterprising hawker out there who, with the proper encouragement, support, and skills, could spawn a banana ala mode chain of convenient snack foods.

What could be done for the lowly fried banana sellers could be also be done to other low level entrepreneurs like the small time service providers: barbers, cosmeticians, tailors, mechanics, plumbers, and the like. I would provide them with low-cost loans to start and or expand their businesses. With the tailor, for example, I would fund him to further his skills so that he could update his fashion designs. Similarly with barbers and hairdressers, so they can charge more for doing more creative and personalized hairstyling and cutting, instead of the usual tempurong (straight cut) style for every one.

Next: Starting Small