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Category: Dr. Teck Yong Eng

Part One: Anti-corruption: you can’t make an omelette without breaking eggs

Written by Dr Teck-Yong Eng

July 31, 2008

It will be a major victory to the nation and to democracy if corruption in Malaysia is transformed from a norm to an exception in our government and society. It’s a big “if??? because gradual and incremental efforts against corruption had never worked from historical accounts. Corrupt forces are self-perpetuating with an increasing degree of difficulty to dislodge as the norm in behaviour and expectation of corrupt practices in a society. As noted previously, anti-corruption campaigns in an institutionally corrupt country would only take root through a massive coordinated effort akin to a civil war and total transformation of the current administration.

What we need is a strong leader and someone who can start afresh and dare to challenge the system. Would this happen in the current administration and do you expect our PM to make radical changes and start attacking the root of corrupt practices? Are you convinced of plans to reform the ACA (see previous article)? Do you think the ACA is independent from the government? Do you consider a recent spate of arrests of ‘big fish’ when the scale of corruption is negligible compared to those involving senior ministers, sons, in-laws, wives and relatives?

Unfortunately, my answer to the above is a resounding “No???. Sadly, unless there are major forces from the people and the opposition, our country will remain corrupt for a foreseeable future. The ruling party also had the opportunity to tackle corruption from within the system and create a new transparent government after its colossal loss in the 12th General Elections. Despite this, no one in the party dares to stand up and heed the voice of the people that enough is enough and corruption is unsustainable in every sense. In the absence of a true leader, with now entrenched party traditions, power and hierarchy, and money politics, no one in the ruling party has the courage or competence to do what is best for Malaysia.

But as the day goes by the probability of internal forces to topple corrupt institutions through total transformation is getting slimmer. The government is gaining momentum in appeasing internal conflicts and strengthening its political allies as the dust or aftermath of the historic election defeat settles. The opposition in its first year and probationary term of major control over five states is too preoccupied with convincing party crossover or gullible to playing personal politics with the ruling party. The main task on hand is to demonstrate to the people how clean governance would work and achieve better economic results.

By focusing on governance and tangible outputs, the opposition party would lead by example and put pressure on the ruling party. This may even convince the majority to cross over to the opposition. However, it must be pointed out that the 12th General Elections is history and the mandate has been passed that the ruling party has the right to form government and the opposition must be more focused on its manifestos and implement policies that are responsive to people’s needs. Bearing in mind that the root cause of vote rigging in the election can be linked to corruption, the opposition must put an anti-graft agenda as top priority.

Are we stuck permanently to norms of an institutionally corrupt government? Most ordinary people would respond by saying what could we do? What’s the point of being ethical? We have to live and play the game or we can’t change how things work in this country. Some would even happily boast about getting away with civil offences by bribing government officials. This is the mindset of an institutionally corrupt society and the system (government) has successfully conditioned people’s expectations. Is there any hope of change? Are we doomed to accept a bleak future playing by corrupt practices? Are the poor getting poorer (e.g., recent announcement of bread for the poor for a year)? Have the outcomes of successive New Economic Policy and Malaysian Economic Plan only benefited a minority of politically connected individuals? To avoid digressing, the short answer is “Yes??? (for further evidence please see one of my previous articles at: http://strategisingmalaysia.blogspot.com).

How could we watch in silence knowing such corrupt practices are prevalent? We can’t blame ourselves for accepting corruption as norms (at least not entirely). The government has the utmost responsibility in fostering the citizens’ expectations. We live in a country with partisan mainstream media and newspapers, controlled dissemination of information, repression under the draconian Internal Security Act, and the use of the Police and the armed forces to instil fear and threaten anyone who dares to speak against the government, a biased and tarnished judicial system, and racial tensions being fanned whenever there is a need to garner support.

If you still think the government should not shoulder the blame for corruption, you could be forgiven as government advisers are paid handsomely to engineer your expectations and mould your opinions. The timing of fuel price hikes could not be more telling of how public concerns and the feeling of change in political victory by the opposition shift to one main concern: survival. The continued price hikes particularly oil and basic commodities are caused by many decades of and ongoing corruption. For example, ill-designed government projects and unaccounted opportunity costs of non-competitive procurement are achieved at considerable expense to the domestic consumers. This led to the wasteful use of resources with either nothing in return or an inferior product. In turn, the people are forced to consume low-quality products and pay a higher price for them.

Would you care about politics and how corrupt our government is when it is hard to make a living and provide for family members? Apart from how the country’s oil revenues have been distributed (or squandered), the timing of the price increases is most peculiar or politically motivated as the opposition announced its plan to take over the government in the coming months. The move is likely to divert public attention and derail the opposition’s agenda when there is no urgent need to cut subsidies drastically especially in the current climate of world economic uncertainties.

It is also questionable whether a nation’s oil production (resources) is considered a subsidy for its people. I would not argue that there is a need for long-term planning and sustainable energy usage. But it’s highly questionable when there is no shortage of world oil supplies and oil prices had never been so buoyant that the government had to impose the highest price increase by any standard without proper planning for the benefit of the consumers, such as implementing energy awareness campaign/education, improving the standard of public transport, and any more socially caring measures.



 

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Category: Dr. Teck Yong Eng
 
While governments and policymakers throughout the world maintain cooperative and united spirit in their attempt to calm financial market routs and avert a global recession, I urge the same degree of attention and urgency to be held on fighting poverty. As the world economy enters a more turbulent period, more people would suffer from poverty as a result of rising prices of basic commodities to falling victims of job cuts and business losses.

In the first of my economic policy and poverty eradication assessment series, I will explain that the poverty problem is not as deceptively simple as defined by development economists and aid agencies (e.g., the World Bank, the United Nations), i.e., based on measurement of absolute poverty, a country’s per capita income, gross domestic product. I also think that Malaysians are increasingly exposed to declining standards of living and deprivation of basic public services. Some observable examples include deteriorating and inconsistent standards of education, healthcare services and public transportation services.
 
To put in context, the Malaysia New Economic Policy (NEP) was introduced after the May 13, 1969  riots to eradicate poverty and redistribute economic wealth to the poor, particularly targeted at rural Malays or Bumiputera. Subsequent Malaysia Economic Plans, the National Development Policy (1990-2000), complemented by the Vision 2020 agenda, have been based on similar principles to reduce poverty and inequality through economic restructuring and wealth redistribution.
 
In fulfilling the NEP pledges to reduce and eradicate poverty, the government appeared to achieve its targets, e.g., poverty fell to 15.1% households, below the 16.7% set in the NEP for 1990. The incidence of poverty among households was markedly reduced from 49.3% to 15% in 1970 Peninsular Malaysia; from 58.3% to 34.3% in 1976 Sabah; from 56.5% to 21% in 1976 Sarawak ; and to 17.1% for the whole country[1]. Subsequently in 1999, the poverty incidence for Malaysia was further reduced to 7.5%[2]. Malaysia also received a glowing report from the United Nations Development Programme (UNDP) that poverty in Malaysia fell from 7.5% to 5.1% in 2002.
 
With the NEP’s success and praises from international development agencies, the ruling government has been using the NEP as a means of winning political support from the Malays and/orother Bumiputera. Unfortunately, many had failed to question the benefits of the NEP to the poor whilst focusing on steering racial divides. This diverts attention from the core objectives of the NEP in terms of eliminating the identification of ethnicity with economic function and promoting racial harmony. Sadly, the government and the opposition are often engulfed in race-based politics instead of questioning the worsening distribution of wealth from the 1990[3] and the problem of rural as well as urban poverty.
 
After almost 50 years of numerous ethnic-based measures in favour of Bumiputera, the signs of failure are emerging fast with (1) Malays’ growing disaffection of the ruling party, Barisan Nasional; (2) criticisms from former ministers of how the concept of Malay Supremacy benefited a small number of Malays; and (3) controversies whether the NEP had achieved or yet to achieve its 30% Bumiputera corporate equity participation in the economy. Importantly, official economic figures on poverty reduction and measurement need to be interpreted with an understanding of how poverty had been defined and measured.
 
While many countries succeeded in reducing poverty, the UNDP reported a disturbing trend of income-share downturn[4]. Between the mid 1960s and mid 1990s, the poorest 20% of the world’s population experienced income-share downturn from 2.3% to 1.4%, while the richest 20% saw share increase from 70% to 85%. Coupled with high inflation, Malaysia is not immune to this trend and it is likely that the gap between the rich and the poor has been widening despite increase in per capita incomes.
 
There is non consensus or official academic research on the poverty line in Malaysia . For example, the recommended poverty line was RM500 per month and static measurement of poverty in rural areas failed to account for migration of population to cities. The measurement of absolute poverty and per capita income had not considered social and psychological issues. The predominant focus on the reduction of absolute poverty brings to the fore the central challenge for policymakers to reconcile growth and efficiency with poverty reduction. While it is politically justifiable for international development and aid agencies (e.g., the World Bank and the UNDP) to tackle inequality through an overarching objective of poverty reduction, policy decisions at the country-level need to measure growth and reduction of social equality as parallel objectives of poverty eradication.
 
The NEP and subsequent ethnic based economic policies fail to consider long-term wealth creation, and dynamics of multiracial and socio-economic contexts of the country, e.g., complementary strengths and economic contribution of other races or all Malaysians. An interventionist approach to redistributing wealth (e.g., government budgets and quotas for Bumiputera) only fulfils short term perception of the most equitable and efficient policies. Redistributive transfers are not sustainable as market forces would prevail and correct artificially adjusted general equilibrium. The government must act now for the national interest and economic well being of all Malaysian citizens, particularly the poor and disadvantaged.
 
Neither general metrics of poverty nor equity is adequate: both individually and jointly are liable to induce strategic errors[5]. Economic policy formulation must consider how to reduce poverty and build Malaysia ’s capacity for wealth creation; and what the alternative social and economic policies are that need to be jointly developed and considered. The focus on short run poverty reduction is misguided by redistribution and economic restructuring without considering competition and productive inputs in the economy and the interplay of global economic forces. There is also research evidence that while more equal societies grow faster, intervention through redistribution and equalizing changes can be detrimental to standards of living and national unity[6].
 
To illustrate, the 30% Bumiputera equity target is misplaced without really addressing the problem of social inequality and wealth generation for Malays or Bumiputera. This target does not consider the absolute number of Bumiputera particularly the poor who had benefited, which obscures potential share ownership by a few privileged individuals. With exclusive practices based on ethnicity, investors and stock markets would shun inefficient allocation of resources, and markets would adjust prices accordingly forcing downward pressure on stock prices. Further, wealth sustainability is questionable as a company’s share price and performance depends upon top management competence rather than selective or preferential allocation, e.g., closed tenders and quotas.
 
Similarly, the NEP quotas for scholarships and higher education admissions have long run negative effects on human capital development in the country. One argument is that extending financial capital to human capital may allow for the better use of the human potential of Bumiputera and address educational inequality of the poor. But education privileges through a quota or insular system defeat formative students’ development of enterprise and survival skills for success in the real world. Not to mention, the absence of competition and quality controls would only lead to inefficiency losses with an adverse equilibrium effect on human capital stocks.
 
In brief, redistributive policies such as the NEP should account for the returns function within an economy. By focusing on achieving quotas and emphasizing inequality through redistribution, non-Malays and other Malaysian citizens are restricted from productive participation in the economy which would benefit the nation on the whole. Redistribution also promotes private returns to education rather than social returns for human capital development. For example, the highly educated are globally mobile and likely to migrate with skill shortages and attractive opportunities in richer economies.
 
Importantly, redistributive mechanisms fail to capitalise on efficiency gains from non-Malays and potential cross-cultural diversity for innovation. There is systematic empirical evidence that under increasing social returns to education, redistributing education from the highly educated to the less educated, while enhancing equity, unambiguously reduces efficiency and therefore reinforces stagnation in developing a pool of skilled people [7].
 
There is also a common misconception that wealth generation and poverty eradication can be achieved through a major fiscal stimulus and development of mega projects. Of course, government can bring down absolute poverty (e.g., create jobs and increase national spending through debts) or possibly eliminate it by increasing current household consumption at the expense of future consumption (e.g., relaxing EPF contributions), redistribute both from the current and from the majority of the economy to those who are currently poor (e.g., increase borrowings and subsidies). Such redistributions and short-term payoffs in terms of poverty reduction may fail quite predictably – even affecting future economic growth and competitiveness. The government should be responsible that current excesses and expenditures would have to be borne by our children, grand children and future generations. Examples abound of such narrow economic focus and failure to balance economic policy in the short run with inequality and poverty, and long run effects on standards of living (e.g., North African nations, Venezuela ).
 
National economic policy, poverty eradication and prosperity through growth are inextricably linked to socio-cultural dynamics of a country and global market forces. The NEP with its emphasis on one segment of the population at the expense of future growth and opportunities for the overall population may be justifiable as a temporary measure. Sadly, after more than 50 years of independence and decades of discriminatory policies, the NEP had failed to distribute (create) wealth for the Malays and Bumiputera, and achieve national unity and cohesion between different races. Even amongst Malays, social disintegration is taking place and fundamentally, the redistributive mechanism is an inappropriate banner of poverty eradication for all Malaysians. For the benefit of Malaysia, the government and the opposition must engage in more intellectual debates and work together to demonstrate social and economic value to the people particularly how the current Malaysia Economic Plan and the Industrial Master Plan are aligned to support development strategies for not just the Bumiputera, but for all Malaysian citizens as well, especially for the disadvantaged and poor of our society.
____________________________________________________

Dr. Teck Yong Eng is Professor and Director of Centre for Research in Management at Bournemouth University . His writing covers economic development and strategy issues and has appeared in business management and strategy journals.

[1] Government of Malaysia , Sixth Malaysia Plan, p.11.

[2] Government of Malaysia , The Third Outline Perspective Plan, p. 50.

[3] Malaysia 1991. The second outline perspective Plan, 1991-2000. Kuala Lumpur : National Printing Department.

[4] United Nations Development Programme (1996) Economic growth and human development. Human development report. New York : Oxford University Press.

[5] Collier, P. & Dercon, S. (2006) The complementarities of poverty reduction, equity, and growth : a perspective on the World Development Report. Economic Development & Cultural Change, 223-236.

[6] For e.g. see: Pinckney, T.C. & Kimuyu, P.K. (1994) Land tenure reform in east Africa : good, bad or unimportant. Journal of African Business, 3(1), 1-28; Banerjee, A. & Duflo, E. (2003) Inequality and growth: what can the data say? Journal of Economic Growth, 8(3), 267-299.

[7] See e.g.: Belzil, C. & Hansen, J. (2002) Unobserved ability and the return to schooling. Econometrica, 70(5), 2075-2091. Soderbom et al. (2006) The dynamics of returns to education in Kenyan and Tanzanian manufacturing. Oxford Bulletin of Economics and Statistics, 68, June, 261-288.

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Category: Dr. Teck Yong Eng

Part Two: Anti-corruption: you can’t make an omelette without breaking eggs

By Dr Teck-Yong Eng

So, do you still think we should accept corrupt institutions and we can’t make a difference? If your answer is “yes???, think again. Consider the negative economic consequences and their impact on future generations. Collectively, the people represent the most powerful coordinated force in the fight against corruption. If history is any guide, it is the collective power of people who had fought corrupt institutions successfully, e.g., the French revolution and the English industrial revolution. In the context of newly industrialised countries, South Korea had ousted corrupt institutions via reform movements led by the people and civil societies while Singapore, Hong Kong and Australia share some similarities in terms of starting afresh with new administrations. Thus, the government’s attempt to learn from Hong Kong’s experience (re: ICAC) is quite irrelevant since the ACA is politically implicated (see previous article).

If we change our belief systems and expectations to a new paradigm that corruption should not be condoned, we will make a big stride towards reducing corruption. If we change our attitude of accepting favours and bribes in our daily interaction and business transaction, we will enhance the running of corrupted government offices. If we educate our children that bribery is dishonest, we will make a positive impact on their future.

If the government and the ACA are merely window dressing in anti-graft campaigns, the people must stand up together and form anti-graft societies to monitor public administration and services. To those who benefited from corrupt activities, it is important to realise that corrupt wealth is unsustainable, at least not within the system. At worse, corruption would also deteriorate our standards of living, including the provision of public education and health services.

Who else can the people turn to for a major coordinated force against corruption? What about our Rulers? Are they listening to the people and aware of current economic difficulties? Do they know the truth about the state of corruption in the country and our judicial system? As part of their responsibility, will they ever speak for the people and fight with the people against corrupted institutions? Or they are they merely interested in protecting their own welfare rather than national interests, such as restoring confidence in our judicial system, and questioning apparent abuse and misuse of public funds and resources? Does Malaysia need outside interference such as from the United States?

Isn’t it clear that the government is weak and lacking leadership and the opposition has so far failed to focus on governance (but mainly engulfed in personal issues)? Are politicians really serving the people and making Malaysia a better place to live? Current events and continuing corrupt administrations should motivate our Rulers to restore order and take this opportunity to highlight the economic plight of corruption.

Let’s not forget that citizens may show loyalty to their Rulers, but the strength of a monarchy system hinges on economic stability – which is largely influenced by clean, fair and transparent systems. I believe that we are close to the tipping point with food and basic commodity prices constantly rising, upward inflationary pressures, sluggish economy, poorly maintained public infrastructure and services (also due to corrupt practices), showing no sign of abatement. Again, if history is any judge, fallen monarchies were strongly linked to corrupted institutions. A recent case in point is Nepal, where corruption is institutionally ingrained and eventually led to the abolishment of the monarchy. Thus, our Rulers must act now through measurable and transparent anti-corruption initiatives, such as to ensure an independent judiciary, sanction anti-corruption civil society to monitor public services and set up an independent anti-corruption commission which is empowered to probe and question government administrations.

While the people and Rulers remain our biggest hope to defeat institutional corruption, the opposition must start doing their job and implement measurable anti-corruption policies in their governing states, and table new laws and bills in the parliament. The opposition and courts must introduce tougher laws and severe punishment for corruption as well as strengthen the incentive to inform on corrupt acts. At the same time, there must be preventive measures to foster people’s new expectations and mindset that corruption is not encouraged and not the norm. There should be substantial financial penalties for the consequences of corrupt behaviour including a financial penalty for delaying cases and losing critical documents in court cases.

The media and Internet news portals must be independent in reporting. They must raise the profile of high economic and social costs of corruption. News agencies, civil societies, the public and the opposition could work together to campaign for accurate, timely and unbiased reporting. Independent experts and not-for-profit organisations could publish transparency index of government offices and standards of administration. They could benchmark and compare similar public offices to comply with international transparency standards, such as the 1994 Agreement on Government Procurement under the World Trade Organisation.

The opposition must stay focused in achieving clean governance and in reducing corrupt practices in the administration. For example, government procurement activities are probably the most common source of corruption. Yet, there is little conviction and commitment in the implementation of open and fair competition for public tenders. Corruption in public sector procurement directly leads to a loss of investment, as money, which should have bought capital goods (e.g., hospital services), is siphoned off for other purposes. The opposition must lead by example and uphold ethical standards and civic moral values, such as implementing measurable anti-corruption strategies in its constituencies and raising the successful prosecution of corrupt practictioners.

As noted above, a massive coordinated force to reduce and change endemic corruption in governments and societies would not work without a multi-dimensional approach. Malaysians must change their attitude and our Rulers need to act for the national interest. The government would continue to be corrupt unless there is true leadership from the ruling party that would rise above personal politics and interest. Effective leadership in the government is the least painful way in eradicating institutional corruption. As things stand, it is difficult to see how corruption could become universalism (as exception rather the norms), as political structures and ethos have remained the same for decades. These structures are concerned with coordination and cooperation from various ministries and government departments. For example, a coordinated anti-graft force would be hampered without the cooperation from the Home Ministry and the Police. Examples from the past have shown that it is not insurmountable to get rid of an institutionally corrupt government – the onus is on all of us, to start doing your part in anti-corruption efforts.

Dr Teck Yong Eng is a senior lecturer at King's College, University of London., His work covers economic development and strategy issues and has appeared in business management and strategy journals. He will be writing a regular column specially for the Centre for Policy Initiatives.


EDITOR’S NOTE: Dr Eng has written three articles previously pertaining to the same subject of Corruption. They can be viewed at the section named Guest Columnists. – YL Chong


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