Why government fails in business
Our government acts like a businessman. Sometimes like a terrific businessman. More often than not, that posturing is not supported by substance. Government in business is a tale of misery.
The government has good intentions. It knows that generally, Malays are not seasoned yet in business. Most Malays prefer to recite poems under the coconut tree. They make merry in the moonlit nights by their perahus. They like to sing Terang Bulan or the Keroncong hit Di Bawah Sinar Bulan Purnama. The Malays have not developed the acquisitive mentality nor developed the Protestant Ethic. Islam Hadhari is still fuzzy.
So the government does business on behalf of the Malays. This, says the government is to compensate for lack of Malays in business. The government seeks to achieve this aim by incorporating companies and carry out a host of business activities. In the 1970s and 1980’s this strategy was viewed as one the most effective ways to spur Malays into the modern economy. The board of directors of these companies were usually composed of government-niks and sitting-down-looking-foolish politicians. The Malay economy was and is actually dependent on the government.
The companies are called state owned agencies. Sometimes they are called State Economic Development Corporation(SEDCs). They get involved in all sorts of business. In timber, agriculture, fisheries, mining, land ownership, property development and so forth. Whatever businesses that fancy the leadership of the gomen business outfits. It’s a good feeling worthy of cheapskate adulations to list on a plaque, the number of companies under its stable. It gives the impression of something heavy going on. And even more self congratulatory to hang a plaque of a certificate of attendance at one of fee guzzling executive courses institutions.
Announcing that they want to do business, they seek out to behave like private enterprise. That means, first and foremost, profitability was the paramount aim. In theory, they know that profitability depends on competence, abilities, skills and dedication to the bottom line. ( not bottom ok).
In reality, and we are jumping ahead here, private means far from the prying eyes of the public and busybodies like me. Private also means, government companies were treated like personal fiefdoms. Nowadays, maybe because we desire to call them by a more respectable name, we rename them as government liked companies. GLCs for short.
And so, acting on behalf of Malays who are ham-fisted and unskilled in modern commerce, the GLCs are given preferences to do whatever business they choose. In Pahang for example, the ‘gomen’ has decreed that only GLCs can open up oil palm estates. Hooray for the administrative mandarins who know next to nothing about business. They all gather spittle and froth just like Shabery Cheek, at the prospects of milking the cow.
In the past, one GLC was given the monopoly over timber concessions. Ever since I was a school boy, I have never seen any GLCs in Pahang that were given absolute monopolies in their respective fields achieved greatness. PKNP which came into being since the 1970’s did not develop into a mighty conglomerate. The rest of the GLCs have also remained by and large stagnant. Instead what I see and hear are closures after closures. It’s a never ending tale of public shame.
One such story relates to ASPA- the business entity charged to develop and administer Pahang’s timber industry. When I was serving Shell Malaysia in the mid 80s, the GM of ASPA was driving around in a Porsche earning at that time RM 40,000 a month. The east coast area manager of Shell then, was earning RM 11,000 per month despite Shell being 1000 times bigger than ASPA.
Perhaps the authors of From Good To Great may want to study the perils of ASPA and why its jewel in the crown, Mentiga Corporation has failed and failed and failed again? 30-40 years ago, in the hey days of administrative business mandarins that would put the pirates of the Caribbean to shame, I remember this particular ASPA group having sawmills in every district. Today, all of these have gone under. They remain as distant memories of something that could have been a boon to the state. The China men loggers who had to buy logs from ASPA concessions went on to become millionaires and even billionaires. They all laughed at the Malay Pegawai Kerajaan looking stupid and acting stupid, pretending to be businessmen. We Malays too laughed nervously at our own stupidity.
Ah ha- I can see the eyes-popping-out and fire-through-nostrils ‘panglima’s in the Dewan springing up in defence. Necks outstretched, veins showing and faces turning blue, Treachery they say, balderdash says I .
Why is that, as a general rule, government has failed in doing business? Witness the many failures of state owned agencies or GLC. GLCs- government linked companies, are essentially companies doing business which are either fully owned, partly owned or even minority owned by our government.
Even if a government through one of its appendages owned a minor portion of a company, say 20%, the company can still be classified as an GLC. That would be because, decisions made must still secure the government approval as it is a stakeholder. For practical purpose, any company with government equity can be termed as an GLC.
If we were to look closely, then we will realise that in the majority of cases, the companies failed and have to be rescued time after time by the government. Either in the form of injection of capital, or of adding new assets which are eventually sold to raise capital.
Mentiga Corporation for example, having failed in its timber business ventures is now given as a matter of right, iron ore mining concessions. The present MB of Pahang has likened Mentiga Corporation to its namesake. The butter easily melts just as Mentiga Corp’s businesses did.
But notice too, no persons were ever held accountable for the losses. Some were even re assigned to head other government businesses so that they can continue Blackbearding the money pots.
I am cynical and do not share enthusiasm is praising the performance of some state owned agencies. For example, in Pahang, the profitability of the Lembaga Kemajuan Perusahaan Pertanian(LKPP) Pahang is often hailed as a success story. It is repeatedly showcased as an example that government can be successful in business. Whereas my own personal view is, the government has no business in actually doing business. It can have a stake in an ongoing business but its equity must never be more than 30% and that the operations of the business must operate of business principles.
Now, if one were to scrutinise LKPP’s profitability, one will see that its profitability is probably saved by the fact that it happens to be in a universally profitable industry. Palm oil. Its profitability is not related to efficiency and quality management. This can be readily seen in the productivity of its palm oil estates. Sadly, its harvest per acre averages around 0.6-0.7 tons per acre against and industry average of 0.8-1.0 ton per acre.
Why is this so?