NEP’s Failure to Nurture Malay Entrepreneurs

by Bakri Musa
Chapter 11 : Embracing Free Enterprise
Encouraging Entrepreneurialism

As a long distance observer, let me suggest some reasons for NEP’s failure in this endeavor.

They all boil down to that basic defect of too much central planning and too rigid top-down command. Instead of trying to create an environment where budding Bumiputra entrepreneurs could thrive, the government went much further to actually select which individual Bumiputras would thrive and succeed.

These central planners presume to know the traits of a successful would-be businessman. That these planners—politicians and bureaucrats—have no experience in starting or running a business is conveniently ignored. Such hubris!

No surprise then that the pseudo entrepreneurs that the system produced were more adept in cashing in their close association with the politically powerful rather than being true creators and builders of wealth. They in turn perpetuated that same system in choosing their own set of suppliers, subcontractors, and vendors. Thus was born a class of Bumiputra entrepreneurs and businessmen more skillful at commercializing their political ties rather than being true wealth creators; a class of rent seekers and economic parasites rather than of genuine entrepreneurs.

These individuals with their new wealth and political clout began flexing their power. They easily convinced the government that juicy public contracts and privatization projects be reserved for them in the belief that their enterprises would quickly reach a sufficient size and strength that they could then take on the world. They wanted to create their own kampong version of the Japanese keiretsu and Korean chaebol. These big Bumiputra companies would then act as a locomotive to carry the rest forward. That at least was the theory.

The reality, as with all centrally hatched plans, was far different. The relationship these new companies had with their suppliers and vendors down the feeding chain was more predatory than supportive. These companies acted less like locomotives and more like the head of a serpent devouring every competitor, Bumiputra and non-Bumiputra alike. They effectively snuffed out other new entrants.

One example would suffice to illustrate the massive clout of these new Bumiputra pseudo entrepreneurs and their destructive predatory behaviors. In Kuala Lumpur of the 1970s, the government issued a number of bas mini (mini bus) permits to provide transportation services to the many small suburbs sprouting around the capital city. These new settlements were too small to merit regular bus services. Thus the bas mini was an ideal compromise between cheap public buses and the more expensive taxis.

That brilliant strategy resulted in many mini bus owner-operators. The program succeeded in creating a class of true small-time entrepreneurs not only in the form of owner operators but also in the supporting services, including repair shops and coach builders. The public too benefited from the frequent and convenient bus service. It became a point where these mini buses became ubiquitous in the capital city, and plans were afoot to introduce them at other major urban centers. They also have a cute acronym, BMW – Bas Mini Wilayah (Federal Mini Bus). It would certainly impress your co-workers when you assert that you come to work in a BMW!

It did not take long for the powerful government-sponsored pseudo entrepreneurs to muscle in. They convinced the government to cancel those permits and to give the franchise to their major bus companies instead. Overnight these owner-operators saw their investments became worthless. The government decided, persuaded undoubtedly by the politically connected entrepreneurs, that the big bus companies could provide a better service than the mini bus operators. Of course the government never bothered to ask the consumers.

A better strategy would have been to let them battle it out in the marketplace. Whoever provides the better service would win. This hubris of top government officials presuming to be able to pick winners in the private sector is major factor in the economic crisis of 1997. Sadly, the government has yet to learn its lesson. It continues with the same pattern. Only this time some other new favored players are replacing the Tajuddin Ramlis and Halim Saads of yore. Contracts and projects are still being awarded sans competitive bidding. A decade hence the story would be the same, only the characters and ventures would change.

I suggest that if the Malaysian government were to invest in future business tycoons it would be more fruitful to seek these individuals at our Sunday and night markets rather than nurturing those armchair “entrepreneurs” in their business suits who frequent UMNO’s divisional meetings and general assemblies. In 1976 I read a book written by a Canadian economist who was in Malaysia documenting the economics of these small-time hawkers. I would have expected that pioneering research to spawn other studies, but I have not come across many.

Let us take the simple enterprise of selling fried bananas. This simple business has all the ingredients of a major corporation. There are all the details of cash flow, marketing, sales, expenses, and inventories. These hawkers could all be taught the basic concepts of a business enterprise by using his roadside stall as a ready and concrete example. Thus someone could organize them into a purchasing group so they could buy their supplies (flour, cooking oil, gas and other perishables) in bulk to effect substantial savings. And lowered costs would contribute directly to the bottom line. This is true with multinational corporations as well as roadside hawkers.

Then someone could teach these hawkers to expand their “menu.” They could for instance, expand into providing cold drinks or tea. That would directly add to the revenue. Or to use the sophisticated business term, diversifying their product line. Additionally they could plant their own bananas instead of buying them. To put it in business terminology, bringing their suppliers in house; or vertical integration. That would definitely reduce their costs and boost profits.

The improvement or learning process does not stop there. The more enterprising hawkers might consider offering a gourmet menu by using the sweet tasty variety of bananas like pisang raja (royal banana), charging extra of course for the premium product. Or they might cater to health-conscious customers by using low-salt, low-calorie, and low cholesterol ingredients. They might even go further upscale and make not the routine fried bananas but instead baked them in molasses, and then serve them in nice plates just like they do in fancy American restaurants. Call the new product banana flambé! They can even add rum to the concoction for their non-Muslim customers. Or serve them as ala mode combination with ice cream. All these product enhancements would serve to increase the value and hence the price that could charge. There is literally no limit to the potential with even the lowly fried banana business.

To those who dismiss such possibilities, think what they have done with the simple cup of coffee. It spawned the Starbucks chain, where the humble 50-cent cup of coffee now goes for a couple of dollars! There might just be a enterprising hawker out there who, with the proper encouragement, support, and skills, could spawn a banana ala mode chain of convenient snack foods.

What could be done for the lowly fried banana sellers could be also be done to other low level entrepreneurs like the small time service providers: barbers, cosmeticians, tailors, mechanics, plumbers, and the like. I would provide them with low-cost loans to start and or expand their businesses. With the tailor, for example, I would fund him to further his skills so that he could update his fashion designs. Similarly with barbers and hairdressers, so they can charge more for doing more creative and personalized hairstyling and cutting, instead of the usual tempurong (straight cut) style for every one.

Next: Starting Small

  1. #1 by Jeffrey on Tuesday, 3 January 2012 - 1:16 am

    “Central planning” and “top-down command” were what Japan’s Ministry of International Trade and Industry or MITI and South Korea’s Economic Planning Board or EPB engaged in to work the Asian Miracle by combining government planning and intervention with and in support of markets. They picked winners from steel and electronics enterprises to spearhead industrialization. They also picked people they knew and trusted – what we would call cronies- to helm these enterprises. Mahathir’s Look East adopted MITI and EPU and also hand-picked “winners” but with different results: why?

  2. #2 by Jeffrey on Tuesday, 3 January 2012 - 1:41 am

    When Korean leader Park Chung Hee gave his support to his crony Pak Tae Choon (a young colonel who supported his coup) to head Pohang Iron and Steel company to launch Korea’s steel industry and Chung Ju Yung (an entrepreneur) to do construction and automobiles, these “winners” were chosen in part for their capabilities, industrious and of merits : both were from poor back ground rising up through hard work (Tae Choon graduated from Waseda Uni and dedicated to excellence), and Chung small time entrepreneur became builder of Hyundai! They did not consider work a labor a curse, work a misfortune. In Japan’s case Akio Morita’s case, he was imbued with a sense to rebuild Japan via making Sony better than the electronics from America that defeated Japan. These captains of industries chosen believed in hard work & excellence in an cultural environment that honours Meritocracy and market orientate policies, albeit with judicious govt’s intervention.

  3. #3 by Jeffrey on Tuesday, 3 January 2012 - 1:56 am

    Many (not all) of our captain of industries picked were on the other hand products of NEP: they were not chosen because of merits, entrepreneurial aspirations and back skills ground. They were parachuted to helm state supported enterprises from employees position not only because they were of the ‘right’ race to qualify for NEP patronage but also because of their perceived personal and political loyalty to the political bosses, could do their bidding, hold shares and sign guarantees as proxies etc, make financial contributions to political campaigns elections etc…..At the end of the day discipline, excellence, pride of work, competitive ethos are all not there, so what may be expected to take its place? Personal aggrandizement, quick self enrichment and corruption set in. When one looks East none of those in the East that has succeeded ever has a policy like the NEP that so saps and undermines discipline, excellence, pride of work, competitive ethos attributable to the success of the Asian Dragons of Japan Korea Taiwan & Singapore. Then again at least the first 3 are comparatively homogeneous society with the last by majority comprised of people whom the WrathofGrapes, would point out, use chop sticks.

  4. #4 by Jeffrey on Tuesday, 3 January 2012 - 2:08 am

    At the end of the day, nothing substitutes hard work, discipline, a dedication to excellence work ethics and a work ethos for economic survival and prosperity. One just can’t go far being a freeloader thinking the rest of the world will work for you or give you a free lunch. These do not apply for only newer countries: look at the older ones in trouble and debts in Europe eg Italy, Portugal Spain. They were once colonial masters, brought back the wealth from colonies they exploited to build their wealth and cities and relatively opulent lifestyle. They were in power in earlier centuries because then they had enterprise, risk taking & excellence whether in developing weaponry, exploring oceans and perfecting their craftsmanship. Today they are “soft” working to get a salary in order to enjoy life in the long siesta hours in between work.

  5. #5 by Jeffrey on Tuesday, 3 January 2012 - 2:18 am

    Civilisations therefore rise and decline due, in a large part, to the changes of values they hold, esp if they get, “soft”, lazy, put pleasure ahead of hard work with the mantra, get a life, its transient and can’t take either one’s work or money to the grave and if possible don’t work or if one must work, work smart not hard to get maximum money to enjoy maximum life! This is the philosophy which if collectively embraced will assure the society’s decline in prosperity, power and influence in today’s increasingly competitive and challenging times. Our problem is that we decline even before we have an earlier chance to rise and blame it for making us soft like the older countries.

  6. #6 by Loh on Tuesday, 3 January 2012 - 5:50 am

    NEP objective of breaking the association of race with economic activity could not be achieved in the civil services sector because the government utilizes NEP to discriminate against non-Malays resulting in the association of Malays to civil services more entrenched than that it ever was in the history of the nation. Extension of NEP does not help in this regard.

    NEP through its perverted implementation had long achieved its objective of Malays’ participation in commerce and industries measured by 30% equity ownership by Malays had proper accounting been undertaken based on the inclusion of all relevant statistics, such as the net worth of FELDA scheme and activities of its subsidiaries and associated companies.

    UMNO has the liberty to implement NEP as it pleases. UMNO has no excuse but to accept incompetency if NEP objectives had not been achieved within the stipulated time and yet NEP has gone on for twice its period. Yet UMNO gleefully claims that it fails to achieve the stated objective for getting the excuse to do more of the same. Perhaps to ameliorate the sheepish feeling of pretended failure, UMNO encouraged its members to claim entitlement derivable from their position as bukan-pendatang. Bugis does not originate from Malaya. Razak was certainly a pendatang.
    To claim that NEP has not succeeded in whatever field is an attempt to move the NEP target. It is a proof of the entitlement mentality working towards Ketuanan Melayu.

  7. #7 by dagen on Tuesday, 3 January 2012 - 1:37 pm

    Oh boy, dont we know this already? NEP has failed. It failed more than 15-20yrs ago and since then it has been carried on by umno as a failed undertaking. Its only notable utility is to serve umno as a mighty useful tool (1) to fool those uneducated or poorly informed malay folks; and (2) to enrich the super greedy umnoputras.

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