By Emmanuel Samarathisa
PRIME Minister Tun Dr Mahathir Mohamad may want to revive a pet policy synonymous with his first stint as Malaysia’s leader but political observers have raised the spectre of patronage and crony capitalism if the Cabinet followed through with the plan.
Mahathir said on Feb 10 that the government would be resurrecting Malaysia Incorporated, a public-private partnership policy, to provide a stable business environment for investors through a series of “open for business” policies.
Two political analysts have raised concerns over the policy, citing the lack of checks and balances. “The lessons learned do not appear to be applied in Mahathir’s thinking on his presentation of Malaysia Inc as it will be instituted today,” Professor Edmund Terence Gomez of the University of Malaya, a political economy specialist, told FocusM. “That is my concern.”
Gomez did not deny the rationale behind Mahathir’s first rendition of Malaysia Inc which ran throughout his first stint as prime minister (1981-2003).
“The principle behind Malaysia Inc was because Mahathir was enamoured of the Look East Policy, basically inspired by the way a country, which is Japan, after being decimated by World War II, became an economic powerhouse, second only to the US at that time,” Gomez said.
“So there was a logic to his approach at that time,” he added. “Just like how Japan had its Nissans and Sonys, so did Mahathir want to create strong brand names of international repute.”
But Gomez highlighted that the policy, “through the benefit of hindsight”, failed on two scores: growth was neither based on entrepreneurship nor merit.
Some of the conglomerates and corporations “grew by mergers and acquisitions. They didn’t build new enterprises but took over companies,” he said, citing the likes of Malaysia Airlines Bhd and Telekom Malaysia Bhd.
As for merit, Gomez highlighted that the trouble with Malaysia Inc happened when it was fused with the National Economic Policy (NEP) which led to “unequal redistribution of wealth” and “selective patronage.”
Malaysia Inc was introduced in 1981 and included a slew of measures such as large-scale infrastructure projects and a privatisation programme that ran from 1983.
Some of the mega-projects that were borne out of Malaysia Inc include the North South Expressway and Tanjung Pelepas Port. Also created were publicly listed companies Tenaga Nasional Bhd and Telekom Malaysia Bhd, monopolies in the energy and telecommunications sectors.
But the beneficiaries of these projects were names with close ties to powerbrokers, which, back then, included Mahathir, then deputy prime minister Datuk Seri Anwar Ibrahim and former finance minister Tun Daim Zainuddin, the same as now.
Initially the thrust was to create a class of Bumiputera corporate captains. Names that made vast inroads in Corporate Malaysia in the late 80s and early 90s include Tan Sri Halim Saad, Tan Sri Tajudin Ramli and Tan Sri Abdul Rashid Hussain.
But other non-Malay businessmen also benefited from Malaysia Inc in the early 1990s. They include Sir Francis Yeoh and Ananda Krishnan.
Yeoh’s company YTL Power International Bhd would become Malaysia’s first independent power producer after winning the concession in 1993 while Ananda Krishnan would go on to build a multimedia powerhouse including the likes of Astro Malaysia Holdings Bhd, which was granted an exclusive licence to be the country’s sole pay-television provider until 2017.
“Before the 1997-98 Asian financial crisis, Mahathir was successful in creating Bumiputera corporate captains,” Gomez said.
But it was the same financial crisis that marked a turning point where growth based on debt “was not sustainable during times of crisis,” he added.
Indeed, after the financial crisis, Malay corporate captains, such as Halim and Tajudin, lost control of their corporate assets. Their non-Malay counterparts fared better, argued Gomez.
Critics charge that Mahathir’s policies of patronage led to a series of bailouts post-Asian financial crisis, including the likes of Konsortium Perkapalan Bhd, which was run by Mahathir’s own son Mirzan.
Maritime giant MISC Bhd paid US$220 mil to buy the shipping assets of Konsortium Perkapalan. The perception of a bailout then arose as MISC is owned by national oil company Petroliam Nasional Bhd (Petronas).
Also, according to a May 1998 Wall Street Journal article, accusations of a bailout were also levelled as Mirzan said the sale would reduce his company’s debt to almost zero.
Political analyst Professor James Chin of the University of Tasmania had panned the idea, saying it would be “bad” for the country. “It will lead to state crony capitalism and bad outcomes for all,” he told FocusM.
Chin said under the Malaysia Inc policy, only a few businessmen would be allowed to bid and work on large projects, regardless of whether they were “Bumiputera or non-Bumiputera.”
Mahathir was reviving the idea because “he thinks he can succeed, exactly like what he did the first time during the privatisation days of the 1990s,” Chin said. “But the good public utilities were sold off while the loss-making ones were kept in the public sector.”
Ever since he took over the helm after the May 9, 2018, general election, Mahathir had evoked Malaysia Inc as an economic policy of choice.
On March 12 last year, he said the privatisation policy of Malaysia Inc was still “relevant” in tackling “an oversized civil service.”
He cited the case of Telekom Malaysia Bhd. The telecommunications company was made private and subsequently listed on Bursa Malaysia. This led to a reduction in the civil service as staff were recategorised as private employees.
“We find that this strategy is still relevant in tackling the issue of an oversized civil service, which has burdensome financial implications,” Chin said. “Focus must be given to increase in productivity and optimal use of labour.”
But sovereign wealth fund Khazanah Nasional Bhd managing director Datuk Shahril Ridza Ridzuan told the Public Accounts Committee (PAC) last year that Telekom’s earnings had sagged due to, among others, a high staff cost.
“I think we all acknowledge basically that a company like TM (Telekom) could do a better job in terms of being more efficient but a lot of that cost is historical. I know a lot of that cost basically is essentially people cost [sic].
“The reason I said that is because if you think about TM today and where its profit level is after basically the policy changes, one of the easiest ways to essentially get back to a reasonable profitability for TM would be to essentially do a very large cost restructuring immediately,” he was quoted as saying in a Oct 23 PAC report.
According to Shahril’s estimates, Telekom would need to “look straight away at cutting maybe 40-50% of the workforce immediately.”
Moving forward, Chin and Gomez charge that transparency had to be front and centre of any government dealings with the private sector.
“All of them, when they (Pakatan Harapan) were in the opposition talked about transparency and how the previous Barisan Nasional hid everything, now they are in power, they are doing the same thing and worse,” Chin said.
He pointed to the Council of Eminent Persons (CEP) 100-day report which has been stamped an official secret. The CEP report is believed to have detailed comments and findings on institutional reforms as well as public mega-projects.
Gomez questioned whether there were sufficient transparency and accountability especially with divestments and future privatisations. “I am worried about real accountability. That has not really come through, that he has recognised the mistakes of the past and will not replicate them now.”
Gomez also highlighted that while the political dynamics have changed, where Mahathir is part of Pakatan Harapan (PH) and his party Bersatu is among the smallest in the coalition, the prime minister might have “reacquired the position of having hegemonic power in the Cabinet.”
The realignment of government-linked investment companies and agencies, said Gomez, alludes to the fact that other political parties might have been silent in raising questions of Mahathir and Bersatu consolidating power to themselves.
“Why agree to Mahathir taking control of Permodalan Nasional Bhd (PNB) and Khazanah Nasional Bhd? That relinquishes any checks and balances. And, remember, PNB and Khazanah are some of the largest enterprises in the country,” said Gomez. – Feb 17, 2020
