The government has no business being in business

By MT Webmaster Last updated Dec 27, 2013

This is what happens when Pakatan Rakyat opposes everything that the government does just for the sake of opposing. We end up with no clear policy and we ding-dong from one extreme to another. When the government does this we scream. And when the government does the opposite we also scream. But while we scream we do not suggest a better option other than just say that the government is wrong.

THE CORRIDORS OF POWER

Raja Petra Kamarudin

Rafizi: Govt selling off national assets

The government has sold off and mortgaged RM5.6 billion worth of national assets to compensate for its leakages and wastages, says Rafizi Ramli

(FMT) – In a bid to cap the budget deficit, Najib Tun Razak’s administration has resorted to selling off and mortgaging national assets to gain RM5.6 billion in revenue, PKR’s Rafizi Ramli said today.

Citing a World Bank report titled Malaysia Economic Monitor: December 2013, Rafizi claimed that this “desperate move” was done to compensate for the government’s leakages and wastages the past year.

“I suspect that the sale of these assets has already happened because its purpose was to reach the target of a 4 percent deficit by 2014 – a target which the government has failed to achieve,” the Pandan MP told a press conference at the party headquarters here today.

“This means the country’s assets have been sold off and mortgaged so that the proceeds gained from it in 2013 can reduce the gap between the country’s revenue and expenditure.”

The report states: “Of the additional RM11.8 billion in revenues expected to be raised compared to budget estimates, RM7.4 billion originated from non-tax sources, including RM1.4 billion ofproceeds from asset sales and RM4.2 billion from the securitization of government mortgages.”

Rafizi said today countries usually resorted to such measures during times of war, and this reflected the Barisan Nasional government’s dire financial straits.

“In other countries, selling off national assets would make the headlines, it would throw the country in a panic. But here, we can just shrug it off.

“That’s why I, as a member of parliament, will call for an urgent parliament sitting to discuss Najib Tun Razak’s economic administration, including the rise in prices of goods and the government’s move to sell and mortgage national assets.”

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Back in the early 1980s — around the time that Tun Dr Mahathir Mohammad became Prime Minister and when Rafizi Ramli was not even in standard one primary school yet — we from the business community (in particular those from the Malay, Chinese and Indian Chambers of Commerce) were already debating the issue of whether the government has any business being in business.

All 13 states in Malaysia have what we call the State Economic Development Corporation or SEDC. And, through these various SEDC’s, the government gets involved in business. And most of us from the business community were not happy with that and we told the Prime Minister so with no holds barred.

This, of course, would be a debate between the capitalists and the socialists. The capitalists would rather that the businessmen do business whereas the socialists would rather that all businesses be nationalised. Hence socialists normally nationalise private businesses when they come to power while capitalists would privatise businesses instead. (The UK is one example).

Which is the better option of the two? I suppose this would depend on whether you are a capitalist or a socialist? Both have their ups and downs and none of the two options are perfect.

Anyway, being businessmen, we were of the opinion that the government has no business being in business and that business is best left to the businessmen to do.

Our argument was that none of the 13 SEDCs were making money and were, in fact, haemorrhaging big time. And if these SEDCs were set up to fulfil a social obligation, as what the defenders of state corporations argued, then they would not to be profit-motivated but would have to be more social-oriented — and that means lose money.

You cannot be social-oriented and profit-motivated both at the same time. Take Pernas Edar as one example. It was social-oriented. It was set up to assist petty traders and provision shops that were not able to obtain credit or financing. Hence Pernas Edar had to sell cheap and extend credit.

Eventually, Pernas Edar went bankrupt.

The only way the company could stay in business would be for the government to pump in huge sums of money to keep the company afloat. So, in the end, the taxpayers would be paying for all this. But is it fair for the taxpayers in, say, Kuala Lumpur, to pay the cost to assist petty traders and provision shops in, say, Ulu Terengganu or Ulu Kelantan?

Some of the investment units such as LTAT (the armed forces pension fund) actually made it a policy to invest not more than 20% or 30% in any company (I am not sure whether this is still the policy). And the company they invest in must have a long track record of making money and of paying good dividends.

The reason LTAT does not want to take up more than 20% or 30% of the company’s equity (such as 51% or 70%) is because they do not want to end up having to run the businesses, which may happen since you have a controlling interest.

LTAT realised that having government officers running a business is a recipe for disaster. Better allow the businessmen to run the business, as they know better how to do that, and you remain merely an investor and enjoy the dividends.

And this is what we felt and what Tun Dr Mahathir also agreed. The government has no business being in business. Let the businessmen run the business and the government can, if it wishes, invest in these businesses — not to run or control them but to just enjoy the profits and/or dividends.

However, note one thing, businessmen would never want their businesses to lose money. And the government, too, should want these businesses to make money since they depend on profits to be able to earn dividends.

And that would mean we cannot talk about a social responsibility or be social-oriented if we are profit-motivated. Doing business is about making money, short and simple. However, if the government wishes to fulfil a social responsibility and if the government wishes for the consumers (meaning the taxpayers cum voters) to enjoy, say, low prices for certain good and services, then the government will need to subsidise the differential.

Hence subsidies would need to be implemented to allow both the company to make money plus the consumer to enjoy low prices for goods and services.

It is not easy to marry capitalism and socialism. On the one hand you want to make money. On the other hand we want the rakyat to enjoy low prices. It has to be one or the other. And if we want both, then someone else (a third party) needs to pay for this. And this third party would, of course, be the government.

Dr Mahathir believed that government-owned companies are badly run and, as history has proven, do not have the ability to make money. And since these are government companies and they do not need to worry about paying back bank loans, servicing the interest, competition from better run and more competitive companies, obligation to shareholders, and whatnot, there is no pressure for these businesses to perform or to be profitable.

And worse of all, government-owned companies are run like a government department and not like a business. And we all know how government departments are run anywhere in the world.

So, do we privatise or do we nationalise? If we nationalise, then the taxpayers end up paying for the inefficiency of the government companies and businesses. If we privatise, then the consumers (also meaning the taxpayers) pay for the profits the companies make.

In short, either way the consumers or taxpayers will end up paying. We cannot run away from that. But at least under privatisation those who pay are those who use or utilise the goods and services while under nationalisation we all pay even if we do not use or utilise those goods and services.

One example we quoted was road tax. We pay road tax even if we do not drive the car but park it in our garage. Why not reduce or abolish road tax totally? Then we pay nothing. However, impose toll so that those who do drive will have to pay to drive on the roads while those do not drive do not pay anything.

But the cost to build roads, highways and whatnot costs too much. And the government is hopeless at managing businesses and is not profit-motivated. So we will end up paying even more because of this inefficiency. And since the government is paying, and it is paid from our tax, then even those who do not use the roads and highway end up paying.

Okay, so privatise the roads and highways. Let the businessmen carry the burden of trying to make money. And let those who utilise these roads and highways pay to use them while those who do not use them are spared the burden. I mean, why should the natives in Sabah or Sarawak pay for the highways in the Kelang Valley when they have never visited Selangor or Kuala Lumpur even once in their lives?

It was not easy arguing with the government to convince them to get out and let the businessmen run the businesses. We argued strongly that the government has no business being in business. Let businessmen do business. And if the government feels it has a social obligation to the rakyat then the government can control the prices of these goods and services and pay a subsidy so that the people can enjoy lower prices but not at a cost to the company’s profits.

The Malaysian psyche is that we would like to not have to pay tax and at the same time enjoy services free of charge. That is just not possible. Someone has to pay. The only thing is how we are going to pay and whether it is direct or indirect.

Rafizi Ramli’s grouse is that the government is selling off what he calls ‘national assets’. I do not know which national assets he is talking about, as he never mentioned them.

Privatisation has its good points and it has its bad as well. Nationalisation is also the same — there is both good and bad. Whatever it may be, though, we must be clear as to what our policy is. Are we a capitalist society or are we a socialist society? And do we want privatisation or nationalisation? Both are not perfect and both have their flaws. But to swing to and fro between opposing the privatising of businesses and then opposing the nationalising of businesses is very confusing.

When the government nationalises we scream. When the government privatises we also scream. So what do we want then? Is there a third option we have not heard of yet?

Even football clubs in the UK are privatised and because they are privatised they are more viable than, say, the Malaysian football clubs (which are government run).