Malaysia returning to failed model that Dr M tried to correct, claims economist

(Malay Mail Online) – The Malaysian government is now returning to the failed economic model of state-led growth that former prime minister Tun Dr Mahathir Mohamad had tried to correct through privatisation, economist Prof Datuk Dr Woo Wing Thye has said.

Woo also predicted that the government’s buying out of successful private companies would only result in these firms becoming unsuccessful state firms in the future.

“Why do you think Dr Mahathir undertook privatisation… where he tried to make all these Malay millionaires?

“Because all these trust funds and state companies were failing, they were losing money instead of making money for the government, the government was subsidising them, that’s why he privatised them,” the professor of economics at University of California, Davis told Malay Mail Online after a public lecture here yesterday.

“We are going back to something that failed,” he said.

Woo said the government’s takeover of successful companies will crowd out the private sector and prevent Malaysia from having strong economic growth.

“There’s no country that has achieved world-class status on the basis of state-owned companies.

“State-owned companies become instruments of political patronage, they are not to develop the country,” the president of the Jeffrey Cheah Institute on Southeast Asia said.

In his lecture earlier, he cited the real estate sector as an example, where government investment fund Permodalan Nasional Berhad (PNB) took over developer SP Setia.

PNB had in the past bought over Island & Peninsular Bhd and other developers, while state investment arm Khazanah Nasional had through UEM Land Holdings Bhd had bought over developer Sunrise Bhd.

Woo said the government has sought to turn private firms into state-owned firms as it is pressed for revenue, citing the Goods and Services Tax as another example of Putrajaya’s attempt to boost its finances.

“The government is really short of money because the price of oil has gone down. So since we cannot get money from oil, we take over some successful private company and that becomes a substitute for tax,” he said.

But Woo said the government will get more from the private companies in the long run in the form of taxes if the latter is left free to run their own businesses.

“It’s more effective to let the successful companies make even more money and you get the tax revenue from them, instead of taking their profits 100 per cent, just tax their profits like the way you always have,” he said.

Earlier in his lecture, Woo also claimed that Dr Mahathir’s privatisation efforts had failed to lift Malaysia’s living standards substantially.

“Up to here was when Dr Mahathir reversed state enterprise-led industrialisation and entered the phase of private monopolies and Bumiputera millionaires. That gave us a kick but the kick did not last very long.

“We were 30 per cent in 1994 and we are 30 per cent today. What is so magical about 30 per cent? That’s where Latin America has been for the last 50 years,” he said, referring to a graph comparing Malaysia’s GDP per capita growth against the US income level over the 1962-2006 period.

Compared to countries such as Taiwan and Korea, Malaysia’s progress is slower and prone to periods of stagnation, Woo said, attributing this to Malaysia’s failure to switch to knowledge-led growth.

Woo was delivering a public lecture titled “Changing the course of the Malaysian economy and the ringgit” as part of the  “Malaysiaku: Rice Festival”.