Paths to Prosperity

The very cerebral Din Merican in his latest posting has a few video clips about Milton Friedman and Naomi Klein. He has invited a few bloggers including myself to a debate/discussion on the ideas of Friedman and Klein. In all humility I am afraid I will not be able to do justice to a direct and exhaustive analysis of the ideas of the two protagonists based on the video clips. However, as many readers have noticed, I am more interested to test the applicability of Friedman's ideas in the local context. Here is another gloss on Friedman's ideas.

The role of government is a central theme in Friedman's ideas as a public intellectual. His insistence on minimal government interference into the economic affairs of people reaches a point of 'nuttiness'. The last remark was made by another Economics icon, Paul Samuelson. Just to mention: Paul Samuelson entered University of Chicago at the age of 16 and in 1941 produced his highly technical (calculus and high maths) in his Doctoral thesis- Foundations of Economic Analysis. A first reading of this thesis can be intellectually overwhelming as it did me in 1981. The two have vastly different approaches in managing the country's economy.

We see two differing paths to economic prosperity adopted by Malays and Chinese. I think it's worthwhile to examine how the different paths adopted have led to different outcomes. On the whole, the Chinese are more prosperous than Malays. Malays lag behind as a result of excessive government while Chinese despite minimal government interference have surged ahead. Or perhaps the Chinese thrived because of minimal government involvement?

Just recently, a former prime minister of Malaysia, reminded us of the stark reality. The Chinese since 1970 has emerged to control about 50% corporate equity while Malays owned 20%. That 20% share of corporate wealth, represents the economic aspiration of 14-15 million Malays or 60% of the population. The Malaysian Chinese who constitutes 25% of the population controls 50%. Although, not exactly true of the reflection of wealth in this country, the distribution of equity wealth, is taken as representative of overall wealth distribution. The Chinese in fact owned the greater part of this country's wealth. The Chinese are recent immigrants to this country, as the populist explanation promotes it. Yet they have come to dominate us? Who let this happened?

In this short article, I don't propose to ask the question often asked by one group in Bernad Lewis's scheme of things. (See Bernard Lewis- What went wrong?). According to Lewis, when people faced calamities, hardships, extreme problems, they fall into 2 groups. The first will ask how and why these things happened to us. The second asks who did this to us? The second looks for some one else to blame. The first wants to investigate the causes behind the things that happen. I choose the first group's approach. By looking out for causes, we choose to be objective.

Similarly, we face the same choice in the issue of wealth ownership in Malaysia. We can debate the politics of wealth distribution endlessly till we are blue in the face and the cows come home. We can ask who caused us to be poor or we can inquire as to the causes of unfair wealth distribution.

Let's examine why the two different approaches led to 2 different outcomes. Malays operate their economy under extensive government patronage. Chinese operate under minimal government intervention. Prosperity for the Chinese occurred under a climate of least government intervention. Malay economics actually slowed during excessive government participation.

Allow me to provide a more specific example. In Kuantan, there is a Chinese property developer- ALAM TENGGARA SDN BHD. It competes with a GLC owned property developer; let us refer to as X Corporation. On its own, X-corp. can never compete with ALAM TENGGARA nor I suspect with any other china man owned property developer. X corp. recently has shown business activism but only after having JV's with other china man owned businesses. Even in JV's X-corp. is reduced to a minor partner. In a massive property development venture, developing a gargantuan mall on a state owned land, our GLC managed to obtain a 17% share. This is a JV on a very prime land where a kampung makcik can be expected to demand at least 30% share. But our GLC, in its infinite wisdom which is not to be questioned by any public spirited individual such as you and I, says, 17% is best.

On its own it can never compete. There was one particular year, its turnover was RM20 million, big perhaps for a GLC (which is accustomed to registering habitual losses). What was the turnover of AlamTenggara? RM 200 million. So in the Pahang state assembly, I suggested that this GLC may as well wound up.

Ok, that's a slight diversion to drive the following point. That chinaman company operated on their own, without any government assistance, clout or officious protection. X corp. gets land either free or on transferred prices, easily gets approval from government departments. With all the assistance from the government, it should have pulverized its competitors. X corp.'s performance is representative of the general performance of almost all GLCs in this country.

I was reading a book by Tan Pek Leng, Land to Till. It is a book that chronicles the contribution of the Chinese on the agricultural economy of Malaya. It is a rich account of the major Chinese planters in Malaya who thrived in spite of minimal government assistance. During that same period, there weren't any Malay plantations of any repute.

I have only one explanation for these two different outcomes. The Chinese practise more capitalism than Malays. They operate under a more permissive laissez faire economic regime than Malays. The extent of governmental intervention or participation through Chinese based political parties is minimal. Chinese political parties function basically as representatives to ensure the rules of economic game are not unduly and excessively disturbed. After all the Chinese will say- they just want to cari makan. Chinese businessmen actually prefer to left alone pursuing Adam Smith's 'their own self interest'.