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Thursday, October 31, 2013

Malaysia’s bumiputera debate asks the wrong questions

http://i.imgur.com/27vG1rz.jpg 
Hwok-Aun Lee, East Asia Forum
Author: Hwok-Aun Lee, University of Malaya
Malaysian prime minister Najib Razak rolled out his Bumiputera Economic Empowerment Programme (BEEP) on 14 September 2013.
The agenda’s blatant political motives, ethnically exclusive giveaways and the absence of any acknowledgment of past shortcomings or lessons learned delighted his UMNO faithful and Malay nationalist audience.
He made it easy — perhaps too easy — to condemn the BEEP.
The most voluble criticism is that the policy does not benefit the vast majority of thebumiputera or the poor in general, and that the money should be allocated to broader social spending instead. This contention is understandable, but detracts attention from a more important question.
The time is ripe to ask whether Malaysia should in the first place promote bumiputeraindustry. In particular, should Malaysia endeavour to raise bumiputera participation in the ownership and management of dynamic enterprises, especially in industrial sectors, and should the country implement effective programs that directly try to achieve that national objective?
These questions are better tackled head-on because, for the most part, reactions to the BEEP have split into opposing flanks, neither of which offers constructive and feasible prospects for reform. There is the Perkasa–UMNO–Barisan Nasional stance of explicitly supporting the agenda and perpetuating corrupt policies. In contrast, there is a popular counterpoint of implicitly supporting bumiputera industrial development (opposition to the objective is very rare) but advocating needs-based, pro-poor policies as solutions. This argument is usually paired with the claim that race should not be a factor in qualifying for empowerment opportunities, especially government contracting and licensing.
Rhetoric and popular momentum behind needs-based policies and meritocracy are high, and much negative reaction to the BEEP springs from these principles. However, the discourse is disconnected and muddled.
This bumiputera agenda does follow a long line of failure, shortfalls and mishits. Nonetheless, these past experiences do not in any way make social spending a viable alternative for the purpose of bumiputera industrial development. Such needs-based policies are pursuing distinct objectives. They will help level the field in basic needs and attainments, but can scarcely be depended on to produce dynamic bumiputeraenterprises.
Practically, as well, programs and allocations cannot be lightly switched from one set of recipients to another. Many have focused on the approximately RM30 billion worth of spending that can be tallied from Najib’s BEEP launch speech, especially RM20 billion per year of Petronas contracts for upstream and downstream projects. This forthcoming largesse clearly placates Malay contractors who have complained of being neglected. However, it does not immediately follow that this comes at a cost to society at large.
The Malaysian government cannot carve up a Petronas contract to one firm and offer it instead to masses of people. Likewise, these funds are tied up in particular projects and cannot simply be appropriated for other purposes. Inflated prices and substandard quality do incur a social cost, but this raises questions about the amounts being spent and the selection process, not the entire procurement policy.
Again, the pertinent question is: should Malaysia intervene in bumiputera industrial development? It’s plainly untenable to answer ‘yes’ and then leave it to social spending to deliver the results. On the interrelated matter of meritocracy, undoubtedly there is a case to be made for abolishing racial representation in selection criteria for contracts and licences, and making the process transparent, stringent and competitive. Still, such policies have no direct role in facilitatingbumiputera participation in industry.
So, those opposing bumiputera industrial development policies must acknowledge the consequences: purposefully omitting bumiputera enterprise development as an objective and bumiputera representation as a target, and leaving these outcomes open-ended. Such a reform would hold out the possibility that bumiputeraparticipation might not increase or be sustained — and may well decline. The risk of the latter seems to have been ignored.
Interestingly, there is frequent talk of resetting politics and resetting policies, never of resetting expectations. Yet can Malaysia implement meaningful and difficult reforms, and continue to target ambitious growth and improvement? Odds are stacked against having it all. The current situation arguably calls for more restrained and effective bumiputera industrial development — and suitably modest expectations and targets. Select policies are needed to cultivate long-term bumiputera industrial development and avert major declines in participation in the short term.
Surely this is better than Malaysia’s recent experience, where the government announces ‘needs-based’ and ‘merit-based’ affirmative action; provokes the ire of Malay contractors and the Malay Chamber of Commerce (and their UMNO patrons), who claim to have been sidelined; then makes concessions and yields the opportunity. Political courage and cogent policies are needed to seize these opportunities and admit that there will be transition pains.
Of course, the prospects of real reform are slim. But the BEEP and reactions to it have not even engaged in policy discourse. Malaysia needs to return to the starting blocks and deliberate whether to have bumiputera industrial development policies at all. If the answer is ‘no’, the country must think of the possible consequences, especially the politically unpalatable ones. If the answer is ‘yes’, then Malaysia needs to think of effective measures, and leave aside social spending for other conversations.
Hwok-Aun Lee is Senior Lecturer in Development Studies at the University of Malaya.

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