Bumiputera Business Model: of the 20%, by the 20% for the 20%

I have written about this sometime ago. 3 days ago, this issue cropped up again. Lim Guan Eng asked parliament to explain what actually happened to the RM52 billion worth of equities out of the RM54 billion given out in line with NEP and other NEP clones. In an effort to increase Bumi equity in large businesses, by decree the government insists that a certain proportion of new issues be granted to bumiputeras.

During the term of the DEB and DEB successor plans- RM54 billion worth of equities were given out. One and a half year ago, the PM admitted that out of the RM54bn, only RM2bn was left. The RM52bn was sold off by their vendors to make windfall profits out of the difference between the acquired price and the IPO prices. It would be interesting to know the profile of the sellers.

Look at the 2012 household income survey. It’s a compilation of data supervised by EPU. Look at the share of income between the top 20%, middle 40% and the bottom feeders- the bottom 40%.

For as many years we care to look back, the income share of the 3 groups has consistently been like this: the top 20 gets 50% of the income, the middle 40% gets 36% and the bottom 40% gets 14% of the income. let me simplify this further:

In an economy of 10 people with an income of 100, the top 2 persons get RM50, the middle 4 people get RM36 and the bottom 4 people get RM14. Each of the top 2 gets RM25, the middle 4 people get RM9 each and the last 4 get RM3.50 each. That’s how it works.

Question: is RM3.50 a liveable income?

Why has it become this way?

Distribution of income depends on free market forces. If everything works perfectly, then the top 20 gets 20% of income, the middle 40 and the bottom 40 will get 40% each. But the market system isn’t perfect because the government policies make it so. How so? the top 20% will craft policies that ensure the bigger portion of the pie goes to them. In effect, the system works on the principle of policies of the 20%, by the 20% for the 20%.

How does the agenda translate into reality? Translated into policy it means, polices must be drawn up so that the rich is made richer so that they in turn can help out the bottom feeders. Students of economics know of the idea behind trickledown economics. Enrich the already rich, because once they are moved by enlightened interests, they will help out their less fortunate brethren.

We in Malaysia know of this principle by another name. It used to be called 1Malaysia. Now it’s called Endless Possibilities.

Posted by sakmongkol AK47