Viewpoint: Breaking a Malaysian taboo
International Herald Tribune
OCTOBER 25, 2006
Bloomberg News
Andy Mukherjee

VIEWPOINT

By Andy Mukherjee

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 the Bumiputeras, mostly Malays and some indigenous tribal peoples.

That is because politicians like Musa Hitam, a former deputy prime minister, say they believe that debates, even academic ones, can turn emotional and degenerate into race riots, like the ones that took place between the Malays and Chinese-Malaysians in 1969 and became the justification for subsequent affirmative action.

And that really was the crime of a Malaysian economist, Lim Teck Ghee - to dispute the government claim that the Bumiputeras, literally "princes of the earth," own less than 19 percent of Malaysian 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 Center for Public Policy Studies, in Kuala Lumpur 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 discontinue it.

Prime Minister Abdullah Ahmad Badawi of Malaysia denounced the study as "irresponsible." Mahathir bin Mohamad, a 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 Center 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 said he may not get another job in Malaysia, in which case, he would have no option except to leave the country.

And that would be a pity, not only because a good academic cannot freely air the views he says are 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.

Supermarkets 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 is 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, power producer Tenaga Nasional, ship owner MISC and phone company Telekom Malaysia. 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 Malaysian population of 26 million; ethnic 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.

Abdullah said he does not mind divulging how the 19 percent figure is calculated, but added the opposition has to stop insinuating that the government's number is fudged.

Then again, it does not really matter whose estimate is right.

The competitive landscape in Asia has changed a lot since 1970. The appeal of Malaysia to investors has been dimmed by the emergence of China and India.

Malaysia must acknowledge the altered reality. The 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.

Copyright © 2006 the International Herald Tribune