GLCs The Problem, Not The Solution

Bakri Musa
22.3.2016

Last of Six Parts

Malaysia is today paralyzed – and polarized – by the scandal of One Malaysia Development Berhad (1MDB), a government-linked company (GLC). Rest assured that this debacle will not be the last. The other certainty is that future ones will carry even far greater costs.

The only sure way to prevent this is to get rid of GLCs. Sell them, and use the proceeds to enhance the quality of our human capital. In the final analysis that is the only matrix that matters.

GLCs are now very much part of if not the problem, as exemplified by 1MDB. They are not the solution, not even part of it.

As massive as the price tag of the 1MDB fiasco is (and it’s still growing), far more consequential is the accompanying erosion of our institutions and degradation of our values. You cannot quantify those damages.

We have ulamas now saying that we should tolerate corrupt leaders; to throw them out is haram or un-Islamic! The integrity of the Anti-Corruption Agency, the Attorney-General’s office, Bank Negara, and hosts of other key institutions is now shattered. They are less guardians of public trust, more enablers for a corrupt leader.

Restoring our previous values will be no easy task. These corrupt acts are now viewed as otherwise; they are our new norms.

Tun Razak introduced GLCs in the 1960s to achieve three objectives. First, he wanted to level the economic playing field by challenging and giving much-needed competition to the existing monopolies and monopsonies of large primarily colonial and a smattering of Chinese-owned companies. Doing so would pave the way for new entrants, in particular Malay entities. Only the government then had the might to take on those massive established enterprises.

This is the same rationale China uses to justify its GLCs, to take on the giant global companies that are now entering the country as a result of Deng’s economic liberalization policies. China, being new to capitalism, has no domestic enterprises with the financial might or managerial expertise to compete with these global giants.

Second, GLCs were to spearhead Malay entry into the private sector.

These two objectives were integral to Razak’s larger scheme of “restructuring society to eradiate the identification of race with economic activities,” the foundation of his New Economic Policy.

Third and last, Razak wanted to bypass the byzantine ways and sluggish pace of the civil service. The civil service of yore, despite the nostalgic memories to the contrary of its now-retired members, was never the paragon of efficiency or innovation. They, like their counterparts today, epitomized their motto, “Kami menurut perentah” (We follow orders!), only too well.

Six decades later, those three objectives have yet to be accomplished. Worse, GLCs have created many new and even more serious problems as exemplified by 1MDB, quite apart from their being a drag on the Treasury and thus taxpayers.

Consider Malay participation in the corporate sector. Today the figure is stuck at under 20 percent, stagnant if not declining, and far below our share of the population. GLCs have succeeded only in breeding an entrenched class of rent seekers and ersatz capitalists among Malays, while squeezing out the genuine variety. Far too often GLCs compete with genuine Bumiputra entrepreneurs.

Of relevance here, how many Malay entrepreneurs have these GLCs spawned either in their supply chain or through the ranks of their employees?

As for leveling the economic playing field, far from achieving that GLCs further distort it. These GLCs also suck in Malay talent that would otherwise be the initiators of their own enterprises, or find their way up in the private corporate sector. When these GLCs comprise 40 percent (by value) of the Stock Exchange (KLSE), they make a mockery of the free market dynamics.

Nor have these GLCs succeeded in bypassing the inefficiencies of the lumbering civil service. On the contrary those non-productive practices of the civil service are now the norms in GLCs. What do you expect when the governing bodies and upper echelons of these GLCs have now become the cushy preserve of retired, compliant senior civil servants?

The prospect of a lucrative post-retirement appointment in GLCs is a pernicious influence on the behaviors of top public servants. Be too critical of the stupid ideas of your political superiors and you blow your chances of such lucrative assignments. It is not hard to miss that those retired civil servants who are now so critical of the government are also the ones who had been denied their plump post-retirement appointments.

At another level, what these former senior government officials now working in GLCs do not or refuse to acknowledge is that they are “double dipping.” They “retire” and draw their pensions from their old government job and then work in another government entity and accruing a fresh set of pension! If they have any sense of ethics or basic fairness they should not draw on their civil service pensions and instead consider themselves as continuing their employment but at another governmental entity. These selfish individuals are oblivious of the burden they impose on taxpayers. In fact, they are ripping off the taxpayers. This should stop.

Sell these GLCs to the highest bidders. I could not care less whether they are Malays or non-Malays, Malaysians or foreigners. Focus on getting the best price.

The first and immediate positive impact of such a move would be the removal of a major and continuing source of public corruption and political patronage. We would be spared of future 1MDBs. Political has-beens like Isa Samad (head of FELDA’s FGV) and retired senior civil servants like Sidek Hassan (Petronas) would now have to prove their executive talent to secure lucrative corporate jobs instead of banking on their loyalty to their political superiors.

Have professional managers, local or foreign, manage those funds generated from the sales. Divest these GLCs slowly and deliberately to avoid a “fire-sale” psychology, like spreading it over a decade or two and selling only a portion of a company at a time. That was how Canada privatized its PetroCanada. The Canadian government received increasingly premium prices with each subsequent sale.

Stipulate that the bulk of the funds be invested domestically. Apart from investing in our schools and colleges, part of that local investment should include funding individuals to start their own enterprises in a manner of a venture capitalist, as well as investing in physical infrastructures, from the lowly pasar minggu facilities to modern shopping plazas, to encourage trading among our people.

When Prophet Muhammad, s.a.w., started his community in Medinah, the first thing he did was build a marketplace where citizens could trade. He knew the importance of trade in promoting harmony among the then plural societies of Medinah, between the immigrant Muslims from Mecca and the host Muslims, and between Muslims and non-Muslims. To signal the importance of trade, the prophet did not charge for use of the facility, considering it a public good.

Examples of venture capital investment could be the financing such low-ticket items like helping taxi drivers buy their own cabs or fishermen their outboard motors. Imagine the boost to their income if our taxi drivers owned their vehicles. Taxis in Malaysia should be owner-operated. We can do without another layer of unnecessary costs as with having non-operator owners skimming the profits off the drivers’ backs.

However, instead of just giving the money and then see those dealers jack up their prices, negotiate on behalf of those taxi drivers and fishermen to get massive fleet discounts and then pass the savings on to them. Leverage the clout of the investment company to extract the best deals from the dealers.

The recent example of Selangor’s religious department using zakat funds to buy food trucks for lease or sale to hawkers is an excellent example.

From there venture on to bigger ticket items, like funding furloughed but enterprising MAS pilots to buy planes to start their own private jet or cargo services. Or an enterprising group of physicians or teachers wanting to build their own private hospitals or schools.

What I would not do is start companies or in anyway resurrect the GLC concept. Doing that would only perpetuate the makan gaji (“salary man”) mentality of Malays. Instead actively seek out entrepreneurial Malays and fund them to start their own ventures. Governments should not start companies; only enterprising individuals should.

We should instill in Malays the wisdom of our Prophet Muhammad, s.a.w., that is, it is far more meritorious to be the dispensers rather than the recipients of salaries.

When you fund these individuals, do not give them the total lump sum right away in the manner of the disbursement of the RM250 million to a minister’s spouse to start that infamous cattle ranch in Gemas. Instead make the disbursements contingent upon satisfactory performance or progress at every stage. Had that been done we would not have the expensive embarrassment of the National Cattle Feedlot scandal.

As is apparent, there are many potential recipients of those investments funds. Think of the graduates of MARA catering school who could start their own restaurants, agricultural graduates who wish to start their own sheep ranch or durian dusun, and the hundreds of mechanics, plumbers and electricians, the products of our technical institutes, who wish to have their own workshops.

Even if we do not spawn a class of entrepreneurial Malays from these funds, getting rid of these GLCs would at least achieve the major goals of removing a major and expensive source of embarrassment to the nation and the nidus for corrupt political patronages. We would also discourage the parasitic class of Malay economic rentiers. Those would be achievements enough.

Speech delivered at the launching by Tan Sri Rafidah Aziz of my book, Liberating The Malay Mind, on January 30, 2016, at Shah Alam.