Malaysia's 'Riot' Bogey Quells
Economic Debate

COMMENT by Andy Mukherjee*
(From Bloomberg of October 24, 2006)

Oct. 24 (Bloomberg) -- There is a touristy Malaysia, which beckons visitors to "come experience the unique potpourri of Asia's great cultures -- Malay, Chinese, Indian and the many ethnic groups of Sabah and Sarawak."
And then, there is the other Malaysia, the one that investors deal with, where cultural harmony is just a veneer; scratch it off and you are left with a tightly packed powder keg of racial politics and politicking.
In this Malaysia, it is somehow immoral to question a longstanding policy favoring the economic advancement of "Bumiputeras," mostly Malays and some indigenous tribal peoples.
That's because politicians such as Musa Hitam, a former deputy prime minister, believe that debates, even academic ones, can turn emotional and degenerate into race riots, like the ones that took place between the Malays and the Chinese in 1969 and became the justification for subsequent affirmative action.
And that really was Malaysian economist Lim Teck Ghee's crime -- to dispute the government's claim that Bumiputeras, literally "princes of the earth," own less than 19 percent of Malaysia's corporate equity, far short of the 30 percent target set for them by the New Economic Policy of 1970.
The rationale for the 30 percent target was to remove a root cause of social strife by ending the concentration of wealth in the hands of non-Malays -- especially, the ethnic Chinese -- who in 1970 owned 96 percent of the Southeast Asian nation's economy.
The Centre for Public Policy Studies, the Kuala Lumpur-based think tank that Lim headed before his resignation this month, argued in the study that corporate equity controlled by Malays may be as high as 45 percent.
The political significance of this finding is simple: If the policy for redistribution of wealth has more than met its target, raising Bumiputera economic ownership to 45 percent from a meager 2.4 percent in 1970, then let's discontinue it.
Prime Minister Abdullah Ahmad Badawi denounced the study as "irresponsible." Mahathir Mohamad, former prime minister and Abdullah's most bitter critic, said a sudden end to affirmative action could cause political instability.
Mahathir's businessman son, Mirzan Mahathir, who indirectly controls the Centre for Public Policy Studies, apologized for the report and retracted it on Oct. 10.
Lim quit the next day, saying he stood by his study.
He now says he may not get another job in Malaysia, in which case, he will have no option except to leave the country.
And that would be a pity, not only because a good academic can't freely air views he believes to be true but also because the brouhaha about whether Bumiputera corporate equity is 19 percent or 45 percent -- or somewhere in between -- is irrelevant to the more pertinent issue raised by the study.
"Economic policies based on race do not serve as an incentive to disadvantaged segments of society to participate in the economy," the study said. "Equitable wealth distribution can only be achieved if the recipients are subjected to income and asset tests, regardless of race, a mechanism employed in countries that have adopted affirmative action."
To me, this is really the crux of the report.
Publicly traded companies in Malaysia are required to have at least 30 percent Bumiputera holding.
Hypermarkets must allocate 30 percent of their shelf space to products made by Bumiputera companies.
Many government contracts require companies to have a Bumiputera partner owning at least 30 percent of the business.
Foreign-owned companies are nudged to hire more Bumiputera staff whether qualified candidates are available or not.
All of these are rather clumsy attempts at social justice. A dogmatic pursuit of the 30 percent rule creates entitlements for the rich and the middle classes, who then trade them away.
If Malay investors use the equity acquired by them at initial share sales to buy real estate, does that mean there's no increase in Bumiputera wealth?
What mechanism is there to ensure that within the Bumiputera, the less privileged also benefit?
Lim's study also raises an important question about the government's wealth.
The four largest companies by market value in Malaysia are Malayan Banking Bhd., power producer Tenaga Nasional Bhd., ship owner MISC Bhd. and phone company Telekom Malaysia Bhd. In all four, the biggest shareholder is the Malaysian government, acting through investment holding companies and funds.
To which race should this wealth be attributable? Malays make up 60 percent of the country's population of 26 million; the Chinese account for a quarter.
To be sure, the 45 percent figure arrived at by Lim's researchers can at best be called a guesstimate. It counts 70 percent of the market value of publicly traded government-owned companies as Malay corporate wealth and adds it to the official estimate of Bumiputera equity, valuing the latter as a fifth of the combined capitalization of all shares listed on Bursa Malaysia, the stock exchange.
Prime Minister Abdullah says he doesn't mind divulging how the 19 percent figure is calculated, but the opposition has to stop insinuating that the government's number is fudged.
Then again, it doesn't really matter whose estimate is right. The competitive landscape in Asia has changed a lot since 1970; Malaysia's appeal to investors has been dimmed by the emergence of China and India.
Malaysia must acknowledge the altered reality. Its focus on redistributing wealth may now be coming in the way of creating it. Taking on a Bumiputera partner or sub-contractor who brings nothing else to the table is a cost to a foreign investor.
Rather than shouting "riot" to quell discourse, politicians should encourage a debate.

*Andy Mukherjee is a Bloomberg News columnist. The opinions expressed are his own.

Opinion: The nation's economic pie
in perspective

From New Straits Times Online of October 22, 2006

The Bumiputera equity debate whipped up by the Asli report goes to show that while it is fine to seek answers, there is only so far public discussion on sensitive topics can go, write ABDUL RAZAK AHMAD and CHOW KUM HOR.

A FIGURE just a tad more than the number of letters in the English alphabet is creating big waves in the country ó to be specific, it is 26.1.
That is the difference between the Asian Strategic and Leadership Instituteís (Asli) estimates on Bumiputera corporate equity ownership (45 per cent) and the governmentís (18.9 per cent).
But if viewed within the context of company shareholdings for the whole country, the 26.1 per cent difference magnifies many fold. And if taken within the context of political repercussions in a multiracial country, the different figures become a matter of even greater concern.
The dispute over economic data ó or specifically, how it was obtained ó has been a hot potato ever since Asli academic Dr Lim Teck Ghee claimed that the Bumiputera share of the corporate pie was as high as 45 per cent.
Limís findings were contained in his paper, "Corporate Equity Distribution: Past Trends and Future Policies". He has since resigned as director of Asliís Centre for Public Policy Studies after his paper came under fire. Asli president Mirzan Mahathir withdrew the study after admitting to flaws in its methodology.
For once, the public has taken an unusual interest in the usually dry subject of who owns how much of what. And it has become a talking point that stirs as much emotion as concern.
Pulai Member of Parliament Datuk Nur Jazlan Mohamed says Umno grassroots have been uneasy with Asliís report. He says a major point of contention is that the report assumes all government-linked companies (GLCs) are Bumiputera-owned.
"If Asli wants to see it that way, then all GLCs should be transferred to Malays.
"Unhappiness over this is apparent on the ground," says Nur Jazlan, who is Pulai Umno division chief.
The Asli report controversy is also expected to be a sizzling issue for delegates to the Umno general assembly, scheduled from Nov 13 to 17.
It is not only among Malays that the topic is hotly debated. The think-tankís figures have also drawn the attention of the Chinese community to the methodology used by the government to calculate equity.
So, what is the big deal about the Bumiputera share in Malaysian companies?
Universiti Utara Malaysia political analyst Dr Mohamed Mustafa Ishak puts the controversy in perspective:
"If Bumiputera equity is 45 per cent, then surely the next question is, why the need for Bumiputera rights? It has implications for government policy and it (removing indigenous rights) is one thing Umno will never accept at present."
In other words, if Asliís report is taken to be correct, then it means it is time the government did away with the affirmative action to help the Bumiputera.
The first of such programmes was the New Economic Policy (NEP), conceived after the May 13, 1969 race riots to combat poverty and restructure society. The NEP set a target of 30 per cent equity ownership for Bumiputera. Although the NEP ended in 1990, successive programmes under the National Development Policy (1990 to 2000) and the National Vision Policy (2000 to 2010) continue to stick with the 30 per cent goal.
This explains why Asliís report generated so much interest ó and emotion ó on the ground.
Universiti Kebangsaan Malaysiaís Institute of Malay World and Civilisation director Prof Datuk Dr Shamsul Amri Baharuddin says public reaction is understandable as this is the first time the methodology of calculating Bumiputera equity has been openly debated.
"In Malaysia, it is good to have discussions on issues. It doesnít matter what the issues are. We need discussions because the alternative is taking up our parangs," he says.
But Shamsul is concerned that much of the discussion on this topic has been ethnicised and people are beginning to view the subject from their own racial prisms.
He says the gap between Asliís and the governmentís figure is too big, and this creates the impression that the government massaged the statistics to suit its political ends.
This only infuriates the non-Bumiputera who feel cheated, Shamsul adds. Not surprisingly, calls for the government to make public its methodology for calculating Bumiputera equity came primarily from the non-Bumiputera.
Leading the chorus is Gerakan president Datuk Seri Dr Lim Keng Yaik, who is also Energy, Water and Communications Minister.
Dr Lim had said that while Gerakan stood by the official figures, transparency on the matter would not give room to other parties to question the governmentís findings.
But the veteran politicianís approach in making the request did not go well with some of his colleagues in government. Prime Minister Datuk Seri Abdullah Ahmad Badawi said it was all right to seek answers from the government ó just drop the sarcasm, insinuations and innuendoes.
Abdullah said the government did not "lead and lie" and wanted the best for all Malaysians, not a particular ethnic group.
In any event, discussion of this issue ó as with any other "sensitive" topic ó has taken on a racial slant, when it should have been dealt with coolly and clinically.
For example, debate over whether to use par value or market value to calculate share ownership has been hijacked by those who suggest that the government has a hidden agenda by using the former.
And this has riled historian Prof Datuk Dr Khoo Kay Kim.
He says it is good to openly talk about any topic, even sensitive ones. But when the debate shows signs of spiralling out of control or reaches a tipping point, the open discussion must end.
"We do not want to set peopleís emotions on fire. We do not want more ethnic champions to surface. What we want is for more people to build bridges between the different ethnic groups," adds Khoo, who helped draft the Rukun Negara.
What Khoo is saying is that after a certain point, discussions on explosive issues have to be done in a controlled environment where emotions are kept in check and facts looked into objectively.
Gerakan central committee member Senator Gooi Hoe Hin has a name for such a setting: the National Economic Consultative Council (NECC).
Given the direction debate over the subject has taken, Gooi, who is also Dr Limís former political secretary, suggests it is high time the NECC III was set up.
NECC I was established to deliberate the post-1990 economic strategies to replace the NEP. The NECC II helped draft the countryís 10-year economic blueprint, the National Vision Policy.
Both councils were made up of representatives from political parties and interest groups and their closed-door discussions are said to be just as inflamed.
"NECC III will allow all levels of society to participate in a meaningful way to bring about a more sustainable Malaysian economy to help face the challenges of a globalised world. It will also look into a fair and equitable distribution of wealth where the poor and underprivileged, irrespective of race, will benefit," Gooi says.
Gooiís Gerakan colleague Datuk Dr Toh Kin Woon says the racial focus generated from the Asli report fallout has diverted attention from the more serious problem of unequal wealth distribution within ethnic groups.
Toh, a Penang executive council member, says the Gini coefficient for all races had gone up between 1999 and 2004, with the Bumiputera experiencing the highest rise.
The Gini coefficient for Bumiputeras went up from 0.433 in 1999 to 0.452 in 2004, the Chinese from 0.434 to 0.446, and the Indians 0.413 to 0.425.
The Gini coefficient measures inequality of income distribution: The higher the figure, the more disproportionate the distribution.
"It is time we looked at unequal wealth distribution and played down the race factor. What are the causes? Is it because of leakages, too many privatisation projects or because the government has not played a big enough role in ensuring fairer distribution?" asks Toh, a former economics professor in Universiti Kebangsaan Malaysia.
But considering that emotion and narrow racial views have crept into the debate over Asliís contested findings, there is no assurance that discussions on related topics will not end up with the same fate.
That being the case, historian Khoo says there is only one way out: "If rational debate cannot take place in the open, you might as well call it off before it boils over."

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