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Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : VANCOUVER, CANADA
Tarikh/Date : 23/11/97
Tajuk/Title : THE APEC-CEO SUMMIT
Government and Business:
Working Together For Economic Development
1. I am delighted to be asked by the organisers to
speak on a subject which I had long advocated and which
has come to be a part of the Malaysian development
strategy and process i.e. that of `Government and
Business: Working Together for Economic Development'.
2. You may remember that when Japan was rapidly
emerging as an economic power fairly soon after its
defeat in World War II, it was accused of
institutionalising collaboration between business and
Government. Japan Incorporated was roundly condemned
because the mores of the time advocated a confrontative
relation between Government and business. It was wrong
for Government to help business for reasons which I have
never quite understood.
3. Anyway in the early 80s Malaysia decided to adopt
Japan's approach. In fact while Japan never liked being
labelled Japan Incorporated, Malaysia deliberately
adopted the term `Malaysia Incorporated' to describe a
mutually supportive relation between the public and
private sectors. The Government actually preached
collaboration between Government and business in order
to develop the country. We have never been ashamed of
it because we believe that such a collaboration would
speed up the process of developing the country. Indeed
we regard it as a duty for the Government to help the
private sector, whether local or foreign, to succeed
because they augment the revenues of the Government,
create jobs for a lot of people, and support the other
businesses and economic development as a whole.
4. Apart from these, the businesses help directly and
indirectly to create the infrastructure which could be
used by the people. We in the Government are very frank
when explaining our business-friendly policy. We told
everyone that the Government have a share in everyone's
business for a part of their profit belongs to the
Government. For the Government it was good business --
we contribute no capital but we get a share of the
profit. If there is a loss it is not borne by the
Government, except of course we do not get any profit.
5. I can say without fear of contradiction that this
Government/business collaboration has paid off
handsomely. Malaysia's rapid growth averaging about
seven percent per year since the adoption of Malaysia
Incorporated owes much to this policy. The objective of
creating jobs for our people for example, has been so
well achieved that today Malaysia is short of workers
and has to depend on foreign labour. For a developing
country this is quite unusual.
6. Although the civil servants at first balked at
working for the success of the private sector, they now
accept it as their contribution towards enhancing their
own income. We pointed out to them that their pay
actually comes from revenue collected from the
businesses. The more the businesses succeed, the more
profit they make, the more revenue will be collected by
the Government. Such is the growth of the Malaysian
Government revenue that we are actually able to pay
bonuses to all Government employees.
7. We describe this Government/private sector
collaboration as a smart partnership, something which
Malaysia has been advocating lately. The partnership is
smart because both sides gain. As I have pointed
out, while Government help for the private sector
increases the capacity of businesses to be successful
and profitable, the Government gains from being able to
collect more revenue. But of course Government is not
interested only in getting more revenue. Government is
concerned with the development of the country and the
welfare of the people. Can Government collaboration
with the private sector help in this area?
8. Obviously increase in revenue would help the
Government to put in place the necessary public
utilities and social programmes. But the Government can
also entrust the private sector with the provision of
much of the needs of the public in terms of
infrastructure and other services which in the past were
regarded as the responsibility of Government.
9. Not so long ago when private enterprise was
regarded as exploitative, good Governments choose to
nationalise business enterprises in order to ensure that
the return from such business should accrue fully to the
Government. Instead of collecting a percentage of the
profits by way of taxes, the Government it was believed
would get all the profits. The profits could then be
used to provide for all the needs of the people. Instead
of rich capitalist appropriating for himself a
disproportionate amount of the profit, now all will have
an equal share of the profit through the Government
redistributing wealth from the so-called means of
production through subsidies for everyone, fairly if not
equally.
10. But as we all know things did not work out that way
at all. As everyone gets all that he needs and has
little spending money, the products found no market and
profits could not be made. In turn the Government was
not able to get the funds to subsidise the people for
all their needs.
11. Today we have decided to reverse the process. In
place of Nationalisation, we now have Privatisation. The
private sector is now being entrusted with not only the
enterprises but even with work `normally' done by
Government. Thus the mail and even the collection of
taxes are now privatised.
12. To do this there must be a high degree of
collaboration between the private sector and the
Government. There must be trust, for how else can the
private sector take over the collection of a whole
variety of revenue and taxes if there is no trust and
close working together between the Government and the
privatised utilities concerned.
13. Privatisation has worked and worked well. Because
of privatisation the provision of necessary utilities
and infrastructure such as roads, power, water supply,
ports and airports need no longer be dependent on the
revenue collected by the Government and the loans it can
raise. The private sector has a way to making these
infrastructures viable through charges for their usage.
They are able to raise the necessary financing for much
of their public works projects. And so development is
speeded up greatly. Certainly in Malaysia privatisation
has enabled needed infrastructure to be made available
earlier and often cheaper.
14. The Government has to play its part however.
Bureaucratic delays have to be minimised. In certain
cases subsidies may have to be given. This may seem to
be a reversion to the old practice of state subsidies.
But the Government cannot abdicate its responsibility
completely.
15. When the main North-South Expressway was privatised
in Malaysia the Government transferred a large segment
of completed roads to the private company without
charge. In addition the Government provided soft loans.
16. It may look as if the Government is helping the
company. In a way it does of course. But far more
important is the need to keep toll rates low so that the
privatisation does not become a burden to the road
users. If the company were to pay the full market price
for the roads already built and then complete the rest
of the highway, it would have to charge very high toll
rates in order to recover cost and make a reasonable
profit. There would be a public outcry. Worst still
the usage may be reduced and the company would sustain a
loss.
17. But by helping to lower the cost, the Government is
able to reduce the burden borne by the users and
maximise the use of the roads. The subsidy is not for
the company as much as it is for the travelling public.
After all the Government still collects a variety of
taxes on road users. It is only fair that the road
users be spared the full cost of using the new
expressways.
18. This is a good example of how the Government
collaborates with the private sector in order to enhance
growth and development and the provision of necessary
infrastructure earlier and adequately. It is the duty
of Government to help make private sector projects
viable without of course sacrificing public interest.
In the case of the highway there is no way the
Government can build and operate it profitably. It was
not earning much from the part that it had built. It
had no funds to complete the rest quickly. By making
the project viable its completion was not only made
possible but it was speeded up as well. Once in place
the highway helped to increase the value of the adjacent
land, stimulated their development, encouraged road
travel, improved transportation, put more vehicles on
the road (which of course earn the Government more
revenue), created jobs and generally enriched a whole
lot of people. The spin-off from such an
infrastructural facility as an express highway is
obviously much more than the support in kind that a
Government can give to the private company constructing
and operating it.
19. Clearly privatisation provides an excellent avenue
for Government to work with the private sector. It
involves not just making bureaucratic procedures less
obstructive but the support should be very positive.
Government actually can help to reduce the cost of a
project for the private sector in order to make it
viable as well as and acceptable to the public in
general. The help in many instances would cost the
Government nothing for the Government is transfering to
the private sector assets which have not been yielding
any tangible returns to the Government in the past. To
keep these assets would actually cost the Government a
goodly sum from maintenance and operation. Transferred
to the private company it helps to reduce cost while
helping it to earn a fair return from its investments to
upgrade, augment and complete the whole facility. And
when the company's operation yields a return the
Government would gain through taxes.
20. If on the other hand the company had to build the
rest of the highway and could only collect toll on this
portion, the project would not give a return
commensurate with the capital outlay. Thus through the
Government and the Private Sector working together
something that was not possible or not viable can be
made into a thriving enterprise in which everyone gains,
the company, the Government and the public.
21. Privatisation of course involves resorting to
market forces in order to develop a country's economy.
It is now acknowledged that bureaucrats are not as
efficient as the private sector people in making things
work. Bureaucrats tend to be bureaucratic i.e. they tend
to be concerned with procedures and rules rather than
achieving results in the shortest possible time and at
the lowest cost. They cannot be blamed for this because
they have no vested interest in the results. Whether
they achieve or not, whether they are slow or quick,
they will be rewarded at the same rate. The
Government's revenue comes from collecting taxes and if
there is not enough to pay the bureaucrats then all that
needs to be done is to increase the taxes. In fact if
less work is done the burden for the bureaucrats is
less. It is the exceptional bureaucrat who aspires to
efficiency and would like to leave his personal mark on
the performance of the Government.
22. The private sector on the other hand is bottom-line
oriented. The faster the results are achieved, the
lower the cost; the better the quality, the more black
is the bottom-line. And that bottom-lime is closely
related to better compensation by way of higher pay or
promotions for all the staff.
23. One can therefore expect the private sector people
to do a better job than the bureaucrats. But it would
be wrong to leave everything to the private sector. It
would be wrong for a Government to abdicate and leave
everything to the private sector. This is because left
to itself the private sector will not give sufficient
consideration to the needs of the public. They tend to
focus only on their profits, to cut cost and maximise
returns.
24. Government must therefore continue to play a role
in guiding the private sector whether it be in
privatised projects or not. For utilities and
infrastructure this role of the Government is crucial.
It ensures that the interest of the public and the
nation as a whole is not neglected.
25. After socialism and nationalism has fallen into
disrepute the pendulum has been swinging further and
further in the direction of privatisation and market
forces. The pendulum is in danger of swinging too far
and make market forces such an article of faith that
anything done in its name cannot be questioned. We see
this in the rigidity of mind when defending currency
trading for example or when anyone criticizes excessives
stock-market speculations. The proponents of market
forces seem to believe that there are elements in these
forces which will so balance them that they will on
their correct anything that may yield unwelcome results.
26. But actually market forces are as prone to abuses
as are command economies. It must be remembered that
self-interest is what moves market forces -- and self-
interest is not far divorced
from greed. Unchecked greed can overcome good sense in
the market. When greed takes over the effect on others
will get scant notice.
27. The financial turmoil in East Asia (including of
course South East Asia) is a case in point. These
countries had worked very hard in order to build their
economies and give their people a decent life. From
defeated and colonised people, they had pulled
themselves up by their bootstraps in order to achieve a
good degree of development. They had been largely
successful in overcoming poverty in their midst. There
was hope that within two or three decades they would be
able to become developed countries.
28. But in July this year they watched helplessly as
their currencies get devalued. Two decades of growth
was wiped out in two weeks. Per capita incomes and
Gross Domestic Products went down by more than 30
percent. For four of these countries the loss in
purchasing power totals almost 300 billion dollars.
29. In addition, an attack on the stock markets of
these countries wiped out hundreds of billions of
dollars in capital. Industries have been forced to
close down. Unemployment has gone up. Infrastructure
projects including the supply of water and electricity
have been halted. Retail business and all kinds of
businesses have slowed down. In other words as a result
of currency devaluation and assaults on the stock
markets vibrant economies have been reduced to begging
for aid from the IMF.
30. No one in his right mind can say that the present
situation is better than when the economies of these
nations were booming. True there were abuses. There
was corruption. There were quite a lot of scams. There
was still poverty. But the sufferings now are far
greater than before.
31. What was the cause of this sudden recession? Some
say that these countries have weak fundamentals. And
these weak fundamentals cause the currencies to devalue
and the stock market to shrink.
32. But could all these happen on their own? The truth
is that some market players decided to pull out
ostensibly to prevent themselves from losing their money
when the economy collapsed.
33. Were they indeed holding huge amounts of the
currencies of the countries concerned when they dumped
them in order not to be caught by the devaluation? The
evidence seems to show that they had not invested in
these currencies at all. They had merely borrowed these
currencies in order to sell them and thus devalue them.
34. It is the same with the shares. They merely
borrowed the shares in order to do short-selling.
35. They were therefore not at risk at all. They
merely started the process of devaluation and then they
kept on borrowing, selling and buying in order to
deliver. No real money or shares were really involved.
36. How can they do this and destroy the economies of
so many countries and the livelihood of so many millions
of people? The answer is the free market. The free
market allows them to do this. It is too bad that
countries and people have to suffer and pay a heavy
price. But that is the way a free market works. Market
forces cannot be interfered with. It is sacrosanct.
37. It is unfortunate that we seem to have jumped from
the frying pan into the fire. We had socialist and
communist states and their central planning, also
sacrosanct, which for 70 years condemned millions to
misery. In this case there was too much Government. No
one may try to change anything because the ideology of
the supremacy of the state was a religion and did not
tolerate heretics who criticised.
38. In the end after much misery and the loss of
millions of lives, it was realised that the belief was
wrong, that the ideology and the system was faulty and
was not able to deliver the promised heaven on earth.
But the price paid was very heavy.
39. Now we have the ideology of the market, the
infallibility of free enterprises. Governments may not
interfere with market forces. The market will make its
own corrections. All you have to do is get your
fundamentals right and things will right themselves.
40. The proponents of market forces say it will take
time. A lot of people will suffer. Countries will lose
their independence. The strong will overcome the weak.
They, the strong, will then consolidate and give better
service. The people must surely want better service and
better goods from those most capable of delivering these
than to have their independence and the shoddy good and
services their own people and government provided.
41. That is the argument. Independence is not
important. Surrender your independence to those who
know best and you will prosper.
42. This is the creed of the market. They, self-
appointed though they are, know best what is good for
you. Governments are old-fashioned and irrelevant.
43. Thus the swing from the Government knows all and
should decide everything for you to the market can do no
wrong, is sacrosanct, is your benefactor, saviour, and
ticket to prosperity is now as extreme as was the
Communism and Socialism of yesteryear.
44. The fact is that neither the Government nor the
market can work well on their own and independent of
each other. Power corrupts. As much as Government can
become corrupt when invested with absolute power,
markets also can become corrupt when equally absolutely
powerful. We are seeing the effect of that absolute
power today, the impoverishment and misery of millions
of people and their eventual slavery.
45. The choice for the world is not absolute power for
the Government or for the market. The choice is
cooperation and collaboration between the government
elected and responsible to the electorate and the market
with its stress on efficiency, competition and the
bottom line. Only when the Government and business work
together can there be maximum economic development for
all to enjoy.
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