Malaysia in the Era of Globalization #91
M. BAKRI MUSA
Chapter11: Embracing Free Enterprise
Malaysian Capitalism
In the decade following independence, the Tunku’s administration adopted a laissez-faire attitude towards the economy. He was committed to free enterprise and capitalism, but he wrongly read the Malaysian economy and marketplace. They were neither open nor free. Powerful forces effectively controlled the economy and marketplace.
The first were the large and entrenched foreign-owned corporations (usually British) that essentially corralled the major sectors (the “commanding heights”), from plantations and mining to manufacturing and banking. Through their sheer size and well-established network, these companies ensured that their dominance was never threatened. They neither welcomed nor tolerated new entrants and competitors. The second group was made up of ethnic Chinese and Indian “mom and pop” retailers and sundry merchants. Their enterprises were small family affairs. They too protected their economic turf ferociously. They effectively controlled their domain through their clan organizations, often using extralegal means to enforce their code. The “triad” organizations of secret societies are manifestations of this phenomenon.
Between the ethnic retailers and the major colonial corporations, the economy of Malaysia was essentially “locked up.” They imposed stiff and insurmountable barriers to new entrants. In short, despite the government’s commitment to a free market, the economy was far from being free. The game was rigged. Had there been enterprising and competent Malays, they would have been effectively shut out. Even a super entrepreneur like Ted Turner or someone with a Harvard MBA would have a tough time cracking in an honest way such a closed and rigged system.
Much had been written in the past on the supposed lack of business acumen of Malays. The residuum of that thinking still exists today. Had a careful analysis been done, the fault would lay more with the prevailing economic system. It had all the trappings of a free market but the reality was far different. As a result the system actually perpetrated and aggravated existing inequalities while protecting the prevailing monopolies and monopsonies. Apart from the ensuing inter racial hostilities, such inequities also retarded economic growth.
This was not unique to Malaysia. Forty years later the Harvard economist Robert Barro empirically showed that such high levels of inequality, especially in a poor country, reduce economic growth. Perversely, in rich countries like America, such inequities encourage growth. In the 1960s Malaysia was a poor country. Tunku’s misguided strategy and his denial of the aggravating inequities culminated in the country’s worse race riots of 1969. Tunku’s knowledge of free enterprise was gleaned only from the lecture halls and libraries of Cambridge; he had no real life experience of the free market. His entire career before entering politics was in the civil service.
Fortunately for Malaysia, Tun Razak, Tunku’s successor, intuitively knew what Barro and other economists would later discover. He ignored the conventional wisdom and intervened in the economy aggressively through his New Economic Policy. This massive social engineering initiative upended the entire economic and business scene in Malaysia, effectively leveling the economic playing field. His interventionist policies resulted in Malaysia becoming more of a true free market. Tun Razak’s interventions succeeded because he did not take the economy away from free enterprise system and free market rather he pushed it towards those goals. As a consequent, the nation is far better of today than it was a generation ago.
Thus many of the criticisms leveled at the free enterprise system are in reality criticisms of highly controlled economy that are masquerading or having the veneer of a free market.
There are of course valid criticisms and imperfections of the free market. By appealing to the lowest common denominator (that is, the most profitable), capitalism threatens traditional values and indirectly also our freedom. American mass media, being commercial enterprises, depend on advertising for their revenue; the higher the ratings, the bigger the revenue. Thus programs that offend one’s sensibilities continue to be aired because they garner high ratings. This coarsening of mass culture through the media may encourage some to argue for government intervention. However I prefer a market solution first, as illustrated by the following example.
A few years ago one of the popular comedy shows wanted to break new grounds. The producers wanted to “out” the hostess’s homosexuality by showing her kissing her lesbian lover. An outraged public led by some church leaders initiated a mass boycott of not only the station but also the show’s sponsors. It was very effective; the series was terminated and the star dumped.
