Breaking up wealth concentration in Malaysia

The past year has seen the government and the opposition unveil their respective economic reform policies. Even if these reform policies and their attendant programmes are implemented, they will not be able to resolve the country’s economic problems. This is because the policies advocated by both sides of the political divide are merely palliative. They do not address the root or fundamental cause of the problem of structural deformation of the country’s economy.

How has this deformation come about? What are its characteristics? And what can be done to bring about a reversal or correction of the deformation so that we have a really transformed economic system that can live up to its full potential?

First we need to recognize that wealth in any country – and Malaysia is no exception – is created by economic activity engaged in by individuals or enterprises that bring profits or gains to the entrepreneur. Much of this wealth creation and subsequent accumulation is legitimate. It is based on material reward arising from work (or gift) and is socially and ethically acceptable. It comes from risk-taking and from the social utility and superiority of the products and services generated by the individual or enterprise.

Wealth generated and accumulated by individuals through legitimate means and conforming to the norms of justice and fairness is not only desirable but beneficial to society and the economy.

But what about wealth that is created or amassed by less than legitimate or by illegitimate or illegal means? Is it a minor or non-issue and do we just ignore it as is the case with the Barisan Nasional government?

Outflow of massive illegal wealth accumulation
One important clue to the massive wealth capture by illicit means in Malaysia was exposed recently by the Global Financial Integrity, a US-based watchdog.

In its study on ‘Illicit Financial Flows from Developing Countries’, it estimated that Malaysia was fifth in the world on cumulative total illicit financial flows (IFF) since 2000.

For 2009 alone, IFF (non-normalised) amounted to approximately U$47 billion (approximately RM145 billion at the exchange rate of RM3.1 = US$1) and over the cumulative nine years, total IFF amounted to US$350 (approximately RM1.09 trillion.)

Two methods of estimation were used in the study, one being the World Bank residual model (using the change in external debt or CED), and secondly, trade mispricing (using the Gross Excluding Reversals method or GER).

Through the balance of payments (a component of CED), it captures unrecorded capital leakages i.e. illicit transfers of the proceeds of bribery, theft, kickbacks, and tax evasion. Outflow of unrecorded transfers due to trade mispricing was captured under the GER method.

Based on the study, Malaysia’s nine-year average normalised i.e. conservative IFF, amounted to US$14.2 billion (42%; RM43.9 billion) due to CED while GER accounted for $19.6 billion (58%; RM60.8 billion). Meanwhile, average non-normalised IFF was US$15.4 billion (44%; RM47.5 billion) due to CED and US$19.6 billion (56%; RM60.8 billion) due to GER.

MNCs and Illicit Financial Flows
According to the study, “illicit flows involve capital that is illegally earned, transferred, or utilised and covers all unrecorded private financial outflows that drive the accumulation of foreign assets by residents in contravention of applicable capital controls and regulatory frameworks. Hence, illicit flows may involve capital earned through legitimate means such as the profits of a legitimate business”.

If taxes were levied on the illegal outflows, the country’s finances would have benefitted to the tune of close to US$100 billion. When the GFI’s findings were made public recently, the finger of blame for the massive outflows was placed by the MP for Kota Belud, Abdul Rahman Dahlan, on multinational corporations (MNCs). Indeed, MNCs have been a convenient scapegoat for transfer pricing woes in developing countries where they have major operations.

One local observer – a specialist in transfer pricing – has demolished this accusation in the context of Malaysia. According to his letter of 27 December 2011 to Free Malaysia Today, “transfer pricing has been the one of the most scrutinised subjects by the Malaysian Inland Revenue Board since the Transfer Pricing Guidelines was introduced [in 2003].”

He has argued that “more likely than not, where there are cases of transfer mispricing, MNCs would always step forward and rectify the situation. This is so because “getting caught by authorities in doing illegal activities will most likely cause serious damage to business integrity and reputation.”

He concluded that “compliance by MNCs is one of the most stringent as far as I understand from a corporate culture perspective, or at least for cases I have seen.”

So if MNCs are not the culprit for the illicit financial outflows, who are the real culprits?
The Global Financial Integrity study has noted that besides transfer pricing outflows – MNCs alone are not to blame for this; local conglomerates and GLCs also play the same game with greater insider knowledge – IFF was caused by illicit transfers arising from the proceeds of bribery, theft, kickbacks, and tax evasion.

Malaysia is in fact the only country where IFF is caused by a comparable proportion of transfer and non-transfer pricing transgressions.

Real culprits in illegal wealth accumulation and concentration
While the study has been helpful in providing some hard data on the quantum of the illicit financial outflows, it does not provide much assistance on other key details such as who are responsible for the outflow; the countries of fund relocation; etc.

At this stage, we can only hazard a guess as to the likely individuals or parties involved in the non-transfer pricing illicit outflow. The most likely culprits are those who have been able to accumulate enormous wealth and who for various reasons find it expedient or necessary to conceal their wealth accumulation as well as to diversity their wealth havens and assets away from Malaysia.

The GFI study does not cover the illicit wealth accumulated locally and not yet remitted to foreign shores. The size of this locally retained illicit wealth is likely to be several if not many times more than that sent abroad.

A crude estimate of the extent of legal wealth concentration in the country can be obtained from the 40 individuals identified by Forbes as the richest billionaires for Malaysia. Collectively this group was worth $62.5 billion in 2011. In addition there must be many other extremely wealthy individuals who have avoided making the list through their ability to conceal their wealth and others who though not making the top 40 list still possess enormous wealth.

The most widely rumoured name not making the Forbes list has to be Taib Mahmud, the chief minister of Sarawak, who together with his family is reputed to have shares in more than 330 companies in Malaysia alone and more than 400 companies around the globe worth several billion US dollars.

Various quarters have questioned the legitimacy of the wealth accumulation engaged in by the chief minister. A recent article in the blogsite Sarawak Headhunter provides in-depth details on what is alleged to be the income stream of the Chief Minister’s financial vacuum machine.

These include:

• Income from timber licences
• Surcharge on timber exports
• Kickbacks from timber shipping companies
• Agency and other fees levied on shipping companies
• Privatization of government companies
• Illegal logging receipts
• Federal government contracts
• Alienation of state land to plantations
• State contracts

The Sarawak chief minister has refuted these claims and has argued that that his daughter's considerable property empire was amassed through the daughter and son-in-law’s business acumen in investing wisely the gratuity which Taib earned from his earlier service in the federal government.

This may well be true but if so, it needs to be substantiated by an opening of the financial records and bank accounts of the family and the companies owned or controlled by the family in Malaysia and abroad. Only then can the authorities and public determine the truth of the allegations of financial and political impropriety.

That the chief minister and his family own an extraordinary amount of wealth – held locally and abroad – at least is not denied. Some idea of the enormous size of the Taib family wealth emerged when Taib’s daughter-in-law filed a RM400 million claim on her estranged husband Mahmud Abu Bekir Taib in court recently, including what she claims is her share of property worth RM300 million.

These tantalizing details of the extraordinary wealth accumulation by Taib and a small group of Malaysians show a common pattern. Firstly, they have all been beneficiaries of the Barisan Nasional government and its policy aimed at working with an elite few individuals in driving the economy forward.

Many if not all of the names that appear on the Forbes list are regarded as cronies of past prime ministers Dr Mahathir Mohamad, Abdullah Ahmad Badawi and the present prime minister Najib Razak, and are widely perceived as owing their considerable wealth to their political loyalty to the Barisan Nasional.

All the business empires of the former ‘Sugar King’ Robert Kuok, Genting Highlands’ late Lim Goh Tong, Public Bank’s Teh Hong Piau, YTL’s Yeoh Tiong Lay, Astro’s Ananda Krisnan, Air Asia’s Tony Fernandez and the rising Syed Mokhtar Al-Bukhary – deservedly or undeservedly – are seen as built on government preference and patronage. This connection is what has provided them with head starts and privileged monopolies without which their enterprises could never have come about, let alone flourish.

Getting to the bottom of how the business empires of our richest Malaysians have taken shape may be a useful way of dealing with the thorny question of how wealth concentration – whether legitimately derived or under a cloud of illegitimacy – has occurred.

We should have no illusions about the obstacles that lie ahead of such investigative efforts. We should also be mindful that in countries where illegal wealth accumulation by the leaders of impoverished countries has drawn national and international ire, attempts at recovery of the wealth, much of which has been spirited abroad and stashed in overseas banks and assets, has been a long-drawn and difficult process.

Admittedly the hope for any confiscation of illicit or illegitimate wealth is distant and dim. The time may not even be ripe to insist on a full-blown opening up of the records and having the truth come out on how the crème de la crème of our business and political leaders have accumulated their fortunes.

But there may be need for public scrutiny in a few special cases in Malaysia despite the concern that such efforts may be construed as an anti-capitalist or anti-Barisan witch hunt.

National discussion on wealth accumulation and concentration
The time is right at the least though for a national discussion on what are the pros and cons of the current economic system which encourages the concentration of wealth and its illegal outflows on such a systemic basis, and whether this is the right economic model for the country.

The time is also right to focus on sectors and processes which have been the main playgrounds of unfair or illicit wealth accumulation; and to implement actions aimed at decisively containing or neutralizing them.

Best practice examples are readily available for example, in the natural resource sector of countries with the same natural wealth as us. These countries, such as Norway for example, have been able to avoid the errors that we have made in the exploitation of our mineral and forest resources. Our mistakes have been in permitting opaque policies and procedures, and condoning corrupt or shady businesses that have reaped a windfall of illicit gains.

For the national discussion on wealth concentration and outflows to take place, we need to break the conspiracy of silence by our political elites that have befitted from the system and that have collaborated in the accumulation of illicit wealth and wealth generated from dubious means.

We need the professionals to play their role. We need more studies by academics and civil society to uncover where illicit and less than legitimate accumulations are taking place and what can be done to plug leakages and bring to justice the offenders and culprits. We need more whistleblowers to step forward.

Discussion needs to be followed by action, whether by the Barisan or a Pakatan government.

This action needs to be more than just the tweaking of economic policy as envisaged by the Pakatan parties. It needs to be a fundamentally new paradigm of development based on the de-concentration of wealth and its more equitable distribution.

New paradigm of development
The radically new paradigm of development that puts the spotlight on the wealth of the country (within and outside) as well as on the wealthy, and with a major focus on the eventual breaking down of wealth concentration illicit financial flows – beginning with illicit wealth – is needed for three reasons.

Firstly, it is a superior approach to the narrowly race-based New Economic Policy model that has dominated the country’s economic life and which is based on a simplistic caricature of affirmative action policy.

Secondly, our oil wealth is rapidly depleting and our treasury is depleted. Going after wealth that has been illegally accumulated or rightfully belongs to the state will provide the country some breathing space until we get our act together on the other pieces of the bigger economic transformation jigsaw.

The final reason is that the primary cause of poverty and stunted development in Malaysia is an economic system that promotes excessive concentration of wealth. So long as the excessive concentration of wealth exists, our poverty and deformed development problem will remain unresolved.

It has been said that economics is not only about production and wealth creation. It is also about morality, and the first moral principle is that the strong owe a duty towards the weak. It is the role of government to ensure that the strong and wealthy fulfil their duty and not to encourage them in wrongdoing in their obsessive wealth accumulation.






Written by Dr. Lim Teck Ghee

Racism and Corruption in Malaysia: The Ongoing Saga

Many of us may have asked: when and why did the racial divisions in Malaysia start and who is to blame? Obviously, the racial divide did not exist in old Malaya, where the different races could live together in harmony in the kampongs (villages) and small towns.

Now, it seems that we are forever at the brink of racial tension or even racial war. In fact, jihad (holy war) has been declared several times by the UMNO-linked PERKASA against the Christians as well as the Chinese.


The starting point
When UMNO was formed, Onn Jaafar who was one of the main founders and who was the then president, had to leave the party because a group of new faces disagreed and fought with him over the political direction to be taken. They insisted their ideas were better than his and this inevitably led to the changes in policies, rules and objectives.


Whereas Onn was more for uniting the Malays from all walks of life, with the Chinese, Indians and other migrants under one organsation, and then jointly struggle for independence, the group of UMNO leaders led by the late Tunku Abdul Rahman was more interested in meeting the qualifying terms set by the British for achieving independence – no matter how onerous.


The idea of a non-communal political party
Onn Jaafar (right) – the grandfather of the current Home Minister Hishammuddin Hussein – had indeed been farsighted and visionary; he felt the need for racial harmony and a non-communal political party was the best way to secure a prosperous future for Malaya. No doubt the British did create the Malayan Union comprising all races with equal rights, and even diluted the powers of the Malay rulers, but the British were not really sincere at all.

The British did not really want Malayans to be united as one, like in Onn’s vision. Neither did the British really want the Malayan Union to succeed. So the Malays were led into rejecting the Malayan Union, paving the way for its dissolution.

Had the British been sincere, they would have backed Onn’s idea. Instead the British supported Tunku when he was elected the new UMNO president after Onn resigned. Onn had to quit after failing to garner the majority support from the delegates on his multiracial vision after his speech in the UMNO General Assembly in Kuala Lumpur in August 1951 backfired. The Malays have never been united since then.

The idea of non-communal political party still lives on
But did Onn Jaafar really have so little support? The answer is no, he had the support of the Malays all over the country and at the grassroots level. In fact when Tunku tried to manage UMNO, he found out that most of the people were not aware that Onn had left the party. The staff manning the UMNO offices were also reluctant to work with Tunku as they still supported Onn. In the end, Tunku had to abandon the old UMNO office bearers and create a new set-up, appointing his own people to manage the party and its activities.

Further proof of the British ill-intent was when they told the Malayan entourage negotiating for independence consisting of UMNO, MCA and MIC that Malaya could not be given independence since the three major races were not united! Onn’s multiracial proposal was the best and it still is and the British also knew that. Yet, they managed to convince the Malayan delegates to agree on an Alliance with UMNO, MCA and MIC the pioneer members.

To their discredit, all three of them fell for it. Presumably this had been outlined by the British for Tunku to implement.

UMNO failed us from the start
Here UMNO has thus failed twice. Firstly, to unite the Malays and consolidate their political power and losing the opportunity to unite the various races under one non-communal party. Secondly, to really lead a more meaningful struggle. Unlike the other true independent struggles seen all over the world, UMNO just “negotiated” for a ‘walkover’ from the British.

UMNO may argue that it was the ingenuity of their leaders that helped Malayans gain independence without bloodshed. This is not true! There was indeed a lot of bloodshed but not amongst the UMNO people. What about the struggle led by other groups and individuals?

Let us also not forget that during this period there were many other groups and individuals struggling and fighting for independence and with the inevitable bloodshed. We were not informed about their struggle as if the Alliance was the only one who struggled. PAS Deputy President Mat Sabu had exposed this one-sided history for us. Besides the Communists, there were many others from all the races.

Nations that experienced, endured and managed to overcome all obstacles leading to the true sense of independence are usually of a different breed. The struggle instills real patriotism and their citizens really value what they have achieved unlike Malaysians too, who need to be lured to fly the Jalur Gemilang almost every time we try to celebrate the National Day.

In the end, the UMNO-BN celebration of the 31st August National Day has become something of a mediocre, wasteful, and meaningless effort, without zeal and substance, without the real feeling of patriotism at all. The annual procession is just for show as the number of people flying the Jalur Gemilang keeps dwindling year after year till the number of road vehicles flying the national flag can even be counted on our fingers. The national day celebrations are only being looked forward to by the Mat Rempits and the like.

UMNO and Malaysia under Tunku Abdul Rahman: Going Nowhere

Malaysia under Tunku was not really independent, it had to depend on the British and they were more than willing to maintain their support, mainly due to economic reasons. The British had invested so much in Malaya in plantations, mining, banking, media and education. Furthermore, Malaya was one of the growing markets for everything English.

After gaining independence, the Tunku was not able to really achieve anything more substantial. He was not even able to defeat the ragtag Communists, and Malaysia was still backward in every sense of the word. The young democracy and new nation was just at its infancy and without any coherent policy, objectives, vision and actions although there were some sort of localized economic activities in the towns, and racial harmony in the kampongs.

With the Communists still active not only in the jungles but also in the urban areas and their ideology spreading in the University of Malaya, real peace and unity as a nation were not attained during his administration. Even Singapore was separated from Malaysia. The economy was not doing well since Malaysia was more on a commodity-based economy, and at the mercy of the British who controlled prices and the trade itself.

At this stage of the nation building, Malaysians had nothing to celebrate or cheer about. There was nothing to hold on to, nor was there a sense of belonging. Not only were the business, finance and money still under the British, the Supreme Court was also in Britain. Nothing substantial belonged to Malaysia. The Malays in particular had nothing except for the small plots of land in the kampongs and the Malay rulers to be proud of. Tunku did not have any real plans for the Malays despite UMNO being so-called the United Malays National Organization.

Racism during Tunku’s period
The Tunku fell into the trap set by the British when the racial based coalition, Alliance was formed. He had not done enough to set any solid foundation for the country and he realized too late how fragile racial harmony was after the 1969 general election. The Gerakan and DAP had celebrated their wins with a victory parade in KL on May 12, 1969. Then UMNO led a counter march the next day, and this is when the racial riot known as the infamous May 13 racial riots erupted. May 13 also led to Abdul Razak Hussein taking over the nation’s leadership.

But was it really a racial riot? Were both the Gerakan and DAP really so insensitive to the political situation that they organized the march and failed to control their members? The Alliance managed to win 77 out of 140 seats in Parliament; UMNO still held power. Furthermore it was very interesting to note that Malay opposition parties saw a sharp increase in votes in the peninsula, rising drastically from about 15% in 1964 to 25% in 1969. UMNO did not have the full support of the Malays and apparently the Malays did not agree fully with UMNO even then!

UMNO under Razak: His inaction led to the next stage of failure

Razak, the father of current Prime Minister Najib Razak, was quite thoughtful and managed to bring about some changes. He started the process of nation building by introducing the word “pembangunan” which is development. For this, he was eventually bestowed the title of “Bapa Pembangunan”. After the infamous May 13 racial riot, he introduced the New Economic Policy (NEP) which had good and noble intentions although it was miserably abused to the core in later years.

The NEP was meant to restructure society, encompassing education, business opportunities, employment and preferences to eliminate identification of race with economic function anf eradicate poverty amongst Malaysians, irrespective of race.But UMNO leaders took advantage of this policy to fatten their coffers leaving both the Malays and other poor Malaysians behind. We can clearly see and understand the situation now.

Razak also empowered FELDA (which was formed by the British in 1956 for their own reasons) to aggressively embark on opening new land schemes and making Malays do something to upgrade and improve themselves. The FELDA story is still unfolding now.

As the Malays were earning some extra income, Tabung Haji ( the brainchild of Professor Ungku Aziz) was formed to inculcate the habit of savings for the rainy days and to help save enough money to perform the haj. Sad to say, as has been reported, Tabung Haji was not safe from the dirty hands either.

The siphoning of money that we see now, the unscrupulous civil servants and their abuse of power and unchecked corruption also started during Razak’s premiership. He was not able to closely monitor all the things that he had implemented.

One glaring example is the construction of the wooden houses for the FELDA settlers. But instead of houses, the settlers got what were basically just pieces of sawn wood nailed together with some sort of roofing to protect the inhabitants from the elements of nature. Yes, the ‘house’ was just a shed. These houses can still be seen in the FELDA settlements as a testimony to the plundering of the allocations by unscrupulous groups of people.

This was the beginning of the money-making schemes, and those in UMNO saw the doors opening to all the golden opportunities that had never existed for them before. The government officials too found the opportunity and took what they could and as much as they could.

When RISDA was formed to help the rubber smallholders, they were provided with free fertilizers, weed poison and other incentives like the money to keep the rubber plantation clear of all other plants, shrubs and small trees. This was to ensure improved rubber production, easy maintenance, safety and prevent the rubber plantation to be any form of hideouts for vermin, wild animals and the communists.

While they were supposed to be given the items free of charge, the officials still demanded money from the small holders and a substantial amount of the fertilizers and poisons went into the wrong hands and were eventually sold to the hardware shops to be re-sold to others. The money-making schemes were carried out openly to the extent the RISDA emblem on the sacks could be clearly seen. Yet, the authorities did nothing to stop the corruption.

Almost all the projects awarded to the UMNO-putras during this period was executed as Ali Baba schemes leaving the UMNOputras with just 5 percent of the profit which was too little. Since they were not real businessmen, they spent extravagantly within a few months finished all their gains. Thus more projects had to be given out to fulfill their lust. The Ali Baba business trend began here.

It was the same with other government projects and procurements. The instant noodles supplied as army ration were paid by the Ministry of Defense at RM0.65 per packet while the market price was just RM0.25 each.

The Police and the Army were also in a world of their own with free cigarettes, cheap alcohol, partying in their messes. They were oblivious to their surroundings. The police were so callous in their duties that the IGP was shot dead point blank by two assailants on a motorbike when his car halted at a congested road on his way to the office.

The inefficient civil servants were preoccupied with so many tasks in their offices. Hospitals and medical staff were few in numbers, and the school teachers were the most respectable group of people in society then. But unfortunately not anymore now.

The Biro Siasatan Negara (National Bureau of Investigation) was operational but they did nothing. At this stage, the UMNO government ignored all the warning signs of blatant corruption, misuse of funds and pilferage. As such, the next stage of failure was inevitable and more so under Hussein Onn.

First huge scandal under Tun Hussein Onn

Hussein Onn was like Abdullah Badawi and unlike Badawi, he was a reluctant politician. He was not able to fit into Razak’s shoes. Hussein Onn left the country on auto-pilot. Thus, more corruption and wrongdoing spread all over the country including to Sabah and Sarawak which had huge amounts of natural resources especially timber.

Sandakan in Sabah once held the world record of the highest numbers of millionaires (from the greedy rampage and corruption of the timber industry) per square mile. Sabah is now without a virgin forest except at the national reserve. This too will not be spared for long and Sabahans still remain poor today.

The first huge scandal for UMNO which was the RM2.5 billion losses by Bank Bumiputera Malaysia Bhd, which began in 1976 with its wholly owned Bumiputera Malaysia Finance (BMF) lending money to property developer Carrian Group in Hong Kong. The mess unfolded in 1983 kicked off the UMNO plundering tradition on a huge scale.

You see, no one was punished for the crime. UMNO leaders condoned such debacle creating a precedent that when one is a strong UMNO man and with proper connection, one can get away scot-free. The bailout tradition too began from this point on. Since Malaysia was on auto-pilot, the ordinary citizens had to survive on their own.

Mahathir: All forms of failure and a sad lack of vision

This was a very interesting period for UMNO. There were failures galore – all and every form of failure that could happen did happen. There was systematic failure at all levels of government to understand the magnitude of the situation, from stripping the Malay rulers of their powers, using the full force of the ISA on the opposition, breaking up UMNO, looting the nation’s funds, antagonizing the West, full-scale bailouts of cronies, destroying the integrity of the Police and Judiciary to being a dictator. Obviously, this resulted in resentment throughout the entire society leading to the formation of Pakatan Rakyat.

Mahathir was the one who broke the national piggy bank, blazing the trail to unmitigated government borrowings. He failed to provide enough funds for rainy days. Many of his supporters boasted that he was famous for his vision, but time has proven that Mahathir in fact lacked it. He lacked vision simply because he was not able to see beyond himself.

Mahathir failed to understand the inherent economic cycle and be prepared for eventual downturns. He knew Lee Kuan Yew had special funds to be used under the power of the President. But Mahathir siphoned out the only real funds we had in PETRONAS, thus even the once rich PETRONAS has to borrow money now.

The Police under Mahathir was for most of the time working for him and not much for the rakyat. The police was used to defeat the opposition, harass individuals, put people in jail using the ISA and determining the most suitable time for a general election. Crime was high since the PDRM was preoccupied with UMNO and Mahathir. Lawyers were know to be unscrupulous but it was during his time that the judiciary system was turned into shambles and judges could be openly bought, thus ending the integrity of the entire law and order of the country.

Mahathir also failed to defend the monarchy by stripping the Malay rulers of their powers. The Malays have lost their last bastion of pride and for the rest of the Malaysians the last bastion of justice, as can be seen in the awkward position of the Sultan of Perak being manipulated by UMNO in the Perak power grab of 2009. The Perak Sultan sanctioned UMNO’s coup d’etat, while the Agong only had enough guts to acknowledge BERSIH as legitimate, while the Sultan of Selangor had to play safe in the JAIS -DUMC case with UMNO breathing down his neck.

Mahathir in his endeavour to make Malaysia a developed nation by 2020 failed to safeguard the nation from being plundered by refusing to prevent and take action against corrupt people. This could be because he was himself a cohort in some, if not most of the fiascos. The Tajuddin Ramli-MAS scandal is an example and a living testimony to the failures of the Mahathir-era, while the RM12.5bil PKFZ scandal is still unfolding.

Mahathir also failed to see the inept capability of Badawi and the hopeless Najib who both have no real ability of their own. Nonetheless, one cannot turn back time or erase the systematic failures Mahathir caused. In any case, he was ready to pass the baton to Abdullah Badawi by 2003.

Badawi sleeping away

Badawi was not able to fit in the shoes of Dr. Mahathir. He tried to undo several of questionable projects started by Mahathir. But even this, he fumbled and bungled.

Badawi tried to create some economic corridors, have some fancy slogans like working together with him and Islam Hadhari, which he himself found difficult to explain. Till now, the questions ring: what are the corridors, the slogans and Islam Hadhari really all about?

The economy became stagnant and to spur development Malaysia had to borrow more money. He was able to create some sense of economic activities but just for the elections. Fortunately for him but unfortunately for the rakyat, he had the fourth floor goons headed by his beloved son-in-law, Khairy Jamaludin who made things worse.


Our nation was in jeopardy because it was being managed by a twenty-something de-facto prime minister. Although Khairy was an Oxford graduate, he was not savvy enough to run a country much to the disgust of Mahathir. Both the nation and UMNO are now in disarray. A classic example of a Khairy deal gone awry is the failure of the Shahrizat-linked Gemas NFC debacle.

Badawi did form the MACC but for what? They are just the same people from the Anti Corruption Agency (ACA) in different uniform.

Free for all, grab what you can now under Najib

Najib is long on ideas but short on action, thus has no results to show. Basically, this is due to his ideas being copycats of other systems, such as the Pakatan’s Buku Jingga or economic blueprint.

But first of all since he was not elected to his post and his image was tarnished by the useless and unsinkable Scorpene submarines that also led to the murder of Mongolian national Altantuya Shaaribuu.

Najib engaged APCO and FBC Media for a full scale image makeover, spending at least RM55 million of tax-payers’ money for expensive propaganda to glorify himself, his government and his policies and having it screened on international channels like CNN, CNBC and BBC.

To repair the damage to his image, Najib should have rectified the mistakes and not try to whitewash them and incurring more blunders in the process. There is really no point in putting on thick make up during the day when everyone can see the thick layer of ‘paint and powder’.

Transformation programs that go nowhere
Then Najib went on to try to transform several major things but he failed to see what the causes were that led to past failures. All the sounds and bombast of his Economic Transformation Program may have seem rather impressive to the layman, but what are the results so far? Unfortunately we have not been able to feel good about anything that Najib and his ETP people have announced.

His main showpieces are the six National Key Results Areas (NKRA), twelve National Key Economic areas(NKEA) – all part of his Economic Transformation Program. On November 23, Bernama reported that Najib underlined six high impact programs to boost the growth of the Small and Medium Enterprises (SMEs) to 8.7 by 2020 but, what about now or next year?

The economic policies that the UMNO-BN government under Najib have been undertaken but show no improvement in the economy. Thus, until now, it has been ‘nothing for nothing Najibnomics’.

As for Najib’s Political Transformation Program, it has proven to be a farce – heavy on proclamations and full of doublespeak as in the recent Peaceful Assembly Bill, which actually restricts our freedom and not grant greater democratic space as he had promised.

Old habits die hard
Even at this very critical juncture, in the last lap to the “Mother of all Elections”, UMNO still continues to award contracts without following the proper procedures. At present there are several projects under the various ministries that have been allocated to their cronies and when the time comes, by hook or by crook, these projects will come to light whether UMNO-BN wins the GE-13 or not. So too will all the money-making schemes planned with guarded secrecy, the PKFZ scandal, the Scorpene scandal and the Gemas NFC debacle.

The Najib government has also told the rakyat that it will not be involved in financing the mega-projects he has announced; they are mostly under the Private Financing Initiatives (PFI), he assures. But we were not told that the UMNO cronies will have to borrow from the banks and none of the clear minded private banks would ever lend them any money.

The private banks know that these projects are just money-making schemes without any guarantee of success and will eventually need bailouts. Thus all the burden of financing has been given to Bank Pembangunan, the government bank, with money from the government. Still the money will be taken from our already depleting EPF and Tabung Haji or borrowed somewhere and bringing Malaysia closer to becoming another Greece.

Chaos at the ministries
The Ministry of Defense has set the plan moving for the purchase of new fighter planes from Russia as reported in a defense magazine but Ahmad Zahid Hamidi denied this recently. The ministry will also continue with the building of the exorbitantly expensive naval ships and boats.

The Ministry of Education has embarked on building several campuses in Perlis and Pahang and even the HUKM pediatric hospital in KL and being awarded to their cronies.

The Ministry of Transport has already approved the KVMRT project, the Integrated Transport Terminal in Subang Jaya with another going to be in Gombak and in Melaka and as we all know Malaysia Airports Holding Bhd has a free hand to impose any charges on passengers and complete the KLIA2 tour at whatever cost.

The Ministry of Agriculture will eventually bail out the failed Gemas NFC project and the wasteful rice bowl “National Rice Bowl” project in Sarawak will get more money – some to be reinvested and the rest pocketed.

The Ministry of Finance will continue paying the PKFZ thieves and continue dumping more money into MAS despite the purported win-win share swap with AirAsia as MAS has already announced RM400 in losses recently. PETRONAS has been set to bail out TNB by absorbing the gas cost.

The Ministry of Tourism too have their money-making schemes through various advertisement projects, while the Ministry of Information uses FINAS through the loans and grants issued for movie productions and the misuse of FINAS assets for some influential individuals. The other ministries too have their problems and these could be revealed later.

Enough is enough

Najib has turned Malaysia backwards by not trying to reject the wrong doings of UMNO-BN. Where his father was too busy, Najib’s problem may be because he has his own scandals; thus a change of government is the only true means of saving this country. The recent UMNO AGM showed the country the party’s true colors; its racists/fascist bent and the fact that it had no real agenda for the country.

So after tracking through the 6 Prime Ministers, all of whom came from UMNO, it is clear the party is the cause, the main ingredient, the catalyst and the main element of all the failures that have befallen the nation.







by Nawawi Mohamad, Malaysia Chronicle

Malaysia's Slowing Performance

There are strong institutional reasons for the lagging performance against its regional neighbors








In the 70 years since World War II ended, East Asian economies, including Malaysia, appear to have largely got performance right. Malaysia was also one of 13 countries identified by the Commission on Growth and Development in its 2008 Growth Report to have recorded average growth of more than 7 percent per year for 25 years or more. Malaysia achieved this spectacular performance from 1967 to 1997.

However, since the Asian Financial Crisis of 1997 and1998, Malaysia’s economic performance when compared to previous decades has been lackluster and most macroeconomic indicators are trending downwards. This was confirmed by Prime Minister Najib Tun Razak himself in the publication on March 30, 2010 of the New Economic Model – Part 1. This was a very brave move but a necessary one by the premier as he acknowledged publicly the failures of Malaysia’s current economic model in order to demonstrate urgency for reforms.

The New Economic Model identifies domestic factors such as weak investor confidence, capability constraints (weak human capital, entrepreneurial base and innovative capacity) , productivity ceilings and institutional degradation and external factors such as a sluggish global economy caused by the global financial crisis of 2008-2009 and the rise of neighbors in the region in contributing to the declining growth trajectory.

If we were to revisit the determinants of growth and agree that proper institutions form the overall structure that determines long-term sustainable growth, then the logical response is to reform Malaysia’s institutional set-up, as it must be the deepest determinant of what is hindering economic growth.

This view is further strengthened as Malaysia’s other deep determinants, geography and trade, are favorable. The country has abundant natural resources, is shielded from natural hazards and is well-located strategically both geopolitically and economically. Malaysia has also benefitted tremendously from being an open economy, especially in the merchandise sector.

The New Economic Model also reports that regional challenges from China, India and Vietnam, etc. are a cause for Malaysia’s declining economic performance. What has changed about these countries? They have all undertaken institutional reforms: China since 1978, India since 1992 and Vietnam since 1986. They are reaping the benefits while Malaysia has stalled in its institutional reforms since the 1990s, regressed in some ways and is suffering from the consequences.

The above points stress the importance of institutional reforms in Malaysia, something that Najib has ironically neglected in his signature policies – 1Malaysia, Government Transformation Programme and Economic Transformation Programme.

According to the Growth Commission report, “…fast sustained growth is not a miracle; it is attainable for developing countries with the ‘right mix of ingredients.’ Countries need leaders who are committed to achieving growth and who can take advantage of opportunities from the global economy. They also need to know about the levels of incentives and public investments that are necessary for private investment to take off and ensure the long-term diversification of the economy and its integration in the global economy…”

Michael Spence, the Chairman of the Growth Commission, elaborated on his extensive experience working with developing countries on growth issues in his latest book by emphasizing two important characteristics for developing countries to ensure long term sustainable growth – the role of political leadership and democratic norms. He suggests four characteristics for governments that are necessary requirements to underpin long term growth:

1. The government takes economic performance and growth seriously.
2. The governing group has values that cause it to try to act in the interest of the vast majority of the people (as opposed to themselves or some subgroup, however defined)
3. The government is competent and effective and selects a viable sustained-growth strategy that includes openness to the global economy, high levels of investment, and a strong future orientation.
4. Economic freedom is present and is supported by the legal system and regulatory policy

Manifestations of Malay/Muslim Supremacy

Malaysia is classified as a non-democratic state by all international indexes measuring quality of democracy. This is also affirmed in academic circles. During the boom years, Malaysians accepted this tradeoff – restricted freedom for economic growth. Since 1997/98, this has changed as expected. The government has not delivered on growth, therefore the natural demand for reforms and by extension freedom.

There is consensus that Malaysia needs extensive economic, political and social reforms. This is all the more evident IF we agree that institutions are key to long term growth. Also, IF we agree with Spence, these reforms must come from a government with the four characteristics identified above.

Astute observers of Malaysia know the reasons why the present administration and the ones before were unable to make fundamental reforms. This has much to do with the ideology of Malay/Muslim Supremacy as defined by the United Malays National Organization (UMNO) and accepted by large swaths of Malaysians, Muslims and non-Muslims alike.

From the literature we can infer that the ideology of Malay/Muslim supremacy has provided the perverse incentives that have manifested themselves in many ways. The more critical ones are:

• Institutional degradation: The deterioration in the quality of Malaysia’s institutions, particularly during former Prime Minister Mahathir Mohamad’s years, such as the lack of independence between the branches of government; the politicization of the civil service, producing a culture of risk aversion and a lack of creativity; and the expansion of the non-transparent Government Linked Corporations (GLCs):
• Crony capitalism: Affirmative action in the name of Malays has become a smokescreen for crony capitalism. Affirmative action is the instrument for rampant elite-based (from all races, not only Malays) corruption. High levels of income inequality in Malaysia in general but more so within the Malay community prove this.
• Race based affirmative action: Race-based affirmative action in itself is recognized as one of the important reasons for Malaysia’s declining economic performance. Malaysia’s focus on the ex-post equalization of outcomes across ethnicities rather than ensuring effective ex-ante equalization of access to opportunities has had important direct efficiency implications, affecting growth by distorting incentives and thereby the competitive process.
• Excessive centralization: An interesting institutional feature is the lack of decentralization in the country, which is nominally a Federation and the top-down approach in public policymaking. This is a key disconnect in the reform rhetoric in the ETP and GTP. To strengthen public service delivery, local communities need to be empowered. Fiscal relationships between federal-state-local also demonstrates institutional failure.
• Feedback mechanisms: Related to Malaysia’s top-down approaches is an almost complete disregard for monitoring and evaluation. As a result there is little feedback from outcomes into policy design. The obsession with centralizing policy-making is also evident in lack of information sharing both within government and with the public.

The need to remove UMNO to create a new “people based ideology”

In relation to competency, the quality of the human capital base in Malaysia is suspect. This is due to the quality of education from preschool through tertiary and on-the-job training. It is linked with ethnicity issues and is exacerbated by the outflow of high-skill individuals and affected by the inflow of low-skill labor.

There are not only problems on the supply side of the market for skills, but also on the demand side, where firms may not be competitive enough to offer higher wages. The market for skills itself is also problematic in that the price mechanism does not work adequately and this is where wage-setting issues play a role.

A bigger and more important challenge than competency is the question of internal competition. This is quite distinct from external competitiveness, on which front Malaysia has scored relatively well in the merchandise sector given its stage of development and the nature of its manufacturing processes which are still dominated by competitiveness identified by low cost rather than high value.

Internal competition refers to the allocation of certain factors including labor, capital, land and product markets. Internal competition works well when there is good governance, openness and transparency. It relates to the need for deregulation, liberalization and competition policies especially in key areas such as government procurement and the activities of GLCs in the domestic economy.

All of these are also needed to produce effective competition for good ideas and good policies as well as competition in the political arena. This of course challenges the basic idea of meritocracy and affirmative action in Malaysia.

To reform these will ostensibly mean changing Malaysia’s embedded incentives and institutions. This definitely means undoing the manifestations of Malay/Muslim supremacy.



Can UMNO implement these reforms?

My hypothesis is that the present leadership in Malaysia within the Barisan Nasional framework is incapable of institutionalizing reforms as the present leadership does not meet the criteria set out by Spence for a simple reason – its ideology. This ideology that overrides and at the same time influences all other norms, rules, conventions, habits and values is the ideology of Malay/Muslim Supremacy.

As the Prime Minister of Malaysia always comes from UMNO it will be impossible for him or her to undo the cornerstone ideology of his/her political party and its adherents in the Barisan Nasional, which includes Malays and non-Malays.

The logic above is discussed extensively in the political science literature. To summarize, the Malay/Muslim ideology provides psychological and material benefits to its adherents. This makes it a potent force for groups that rely on this ideology. However, since it is deeply embedded, it is also extremely difficult to counter when needed. Malaysia’s present institutional equilibrium is a reflection of the strength of the adherents of Malay/Muslim supremacy, known by its Malay-language slogan Ketuanan Melayu.

There are many examples to illustrate Malay/Muslim supremacy but the one that is cited most often as holding back Malaysia’s economic reforms is affirmative action, the most comprehensive in the world. It has by inference been touted as the one of the key reasons for Malaysia’s declining economic performance although causality has not been explicitly demonstrated.

Supporters of affirmative action argue that Article 153 of the Federal Constitution provides the Bumiputeras the right to this extensive affirmative action. However this is factually incorrect.

Article 153 of the Malaysian Federal Constitution states that:

153. (1) It shall be the responsibility of the Yang di-Pertuan Agong to safeguard the special position of the Malays and natives of any of the States of Sabah and Sarawak and the legitimate interests of other communities in accordance with the provisions of this Article.

(2) Notwithstanding anything in this Constitution, but subject to the provisions of Article 40 and of this Article, the Yang di-Pertuan Agong shall exercise his functions under this Constitutions and federal law in such manner as may be necessary to safeguard the special position of the Malays and natives of any of the States of Sabah and Sarawak and to ensure the reservation for Malays and natives of any of the States of Sabah and Sarawak of such proportion as he may deem reasonable of positions in the public service (other than the public service of a State) and of scholarships, exhibitions and other similar educational or training privileges or special facilities given or accorded by the Federal Government and, when any permit or license for the operation of any trade or business is required by federal law, then, subject to the provisions of that law and this Article, of such permits and licenses.

In more simple words, the Federal Constitution limits affirmative action to placement in the civil service at the Federal level, scholarships and permits and licences for Bumiputras and only if necessary and in a reasonable manner by the Prime Minister who advises the Yang diPertuan Agung.



Does the Prime Minister have the power to revoke or reform affirmative action policies?

Yes, he does. Malaysia is a constitutional monarchy where the monarch reigns but do not rule. Article 153 is subject to Article 40 and Article 40 states that the Yang diPertuan Agung must act on the advice of the Cabinet.

40. (1) In the exercise of his functions under this Constitution or federal law the Yang di-Pertuan Agong shall act in accordance with the advice of the Cabinet or of a Minister acting under the general authority of the Cabinet, except as otherwise provided by this Constitution; but shall be entitled, at his request, to any information concerning the government of the Federation which is available to the Cabinet.

The decision to continue or reform affirmative action policies and the attendant institutions in Malaysia lies solely at the prerogative of the Prime Minister along with his colleagues in Cabinet as stated in Article 40.
With power centralized in the Executive (Cabinet), and with the Prime Minister already having six Ministers of 31 from the Prime Minister’s Department in the Cabinet, and with the Prime Minister himself holding two portfolios (Prime Minister and Finance Minister I), and legitimised by the Constitution (Article 40), the Prime Minister should on all counts, be able to implement these reforms without much difficulty.

Yet he has been unable to do so for the simple reason that the Federal Constitution may be the law of the land but it is clearly not the supreme power/ideology in Malaysia. The supreme power/ideology is the primacy of Malays/Muslims as defined by UMNO. Hence the Prime Minister may have de jure power to reform, but he does not have de facto power. This power resides among the Malays and non-Malays who support Malay/Muslim supremacy and the current institutional set-up.

Until and unless this supreme ideology of Malay/Muslim supremacy is removed, Malaysian politicians will be constrained in making the necessary institutional reforms to move Malaysia towards long term sustainable growth.







Asia Sentinel.com
Written by Greg Lopez, a PhD candidate at the Crawford School of Economics and Government, Australian National University.