Sunday 04 Jun 2023
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This article first appeared in Forum, The Edge Malaysia Weekly on November 23, 2020 - November 29, 2020

I thought I would get a bit risqué and talk about “Making a better Malaysia”, a passion that I hope you would all share with me.

For the benefit of those who don’t know much about me, let me first summarise my career: I joined CIMB in 1989, straight after earning my bachelor’s and master’s degrees in the UK. I was CIMB Group CEO from 1999 to 2014, during which CIMB grew exponentially from a small local merchant bank to an Asean universal bank. Then, I was CIMB chairman from 2014 to 2018.

During those years, I also served as an EPF Investment panel member for 12 years and on the Khazanah board for four years, and spent nine months as a Chevening Fellow at the Oxford Centre for Islamic Studies. Since 2018, I have been chairman and founder of Ikhlas Capital, an Asean private equity firm. In 2019, I was also a Visiting Fellow at the Blavatnik School of Government, Oxford University, where I focused on Nationhood Recalibration, looking at preconditions for systemic reforms in Indonesia post-Asian financial crisis (AFC), Malaysia post-May 13 and the like. Based on all of that, one could say that I had a good front row seat to the Malaysian economy for over 30 years.

Whenever I am asked about the Malaysian economy, I often quip that Malaysia doesn’t have an economy, it only has a political economy. As an undergraduate, I studied economics and politics, the joint degree, but I never anticipated the extent to which the two would be so intertwined in Malaysia. We have extensive elements of a command economy and yet our posture is one of a capitalist free market one. It is often dangerous to pretend to be what you are not.

The government has a huge presence in the Malaysian economy. From the legacy of licences and quotas that date back to the British, to state development agencies and the affirmative action rules of the 1970s, to government-linked companies (GLCs) that constitute about 40% of the total market capitalisation of Bursa Malaysia and government investment funds that dominate our capital markets, and to the rampant practice of money politics which often influences decisions on government regulations, policies, procurement and GLC action.

It does take both frontline experience and then some distance from it, to fully appreciate how distortive and damaging much of this has been. While I was in the thick of it, during my CIMB career, I think I had a pretty decent moral compass, but I was a very willing actor in the system. If something didn’t seem morally right, I would sometimes speak up. But more often, I would prefer to say it was none of my business.

Most of us in the system were like that, and when I did speak out and campaign against the shenanigans at 1MDB and FELDA, the pressure to silence was intense. That is a story in itself, which I won’t get into here, but suffice to say that the excessive centralisation of power in the office of the Prime Minister compounds the systemic dysfunction because of the lack of accountability and checks and balances on the part of the ultimate decision-maker.

Some symptoms of the dysfunction that I can share from my own experience:

a.      1MDB was the most extreme manifestation of it. A sovereign wealth fund with the explicit backing of the government was used to raise billions of dollars for both development projects and political funding. And along the way, there were massive leakages of funds for nefarious purposes.

b.      The first modern financial scandal though was the BMF affair in the early 1980s when a Bank Bumiputra subsidiary lent billions of ringgit to a Hong Kong property developer without proper collateral or approvals. And again with substantial sums diverted; many believe to political activities in Malaysia.

c.      There were many smaller deals that would have added up to huge amounts. In the early 1990s, I was a junior CIMB officer in charge of IPOs for listing companies on the stock exchange. Almost every case involved preferential allocation of shares to bumiputera in the name of the New Economic Policy (NEP). Yet, there were never clear nor consistent processes of selecting who would get the shares (which were lucrative as IPO pricing back then was controlled by the government and set low to ensure buyers made good money). Invariably, it was those with political links that had best access to share allocations. So, rather than redistributing wealth to the bumiputera needy or value creators, a lot  of money went into the highly distortive caul dron of politics.

d.      In the mid-1980s, a peculiar model of developing bumiputera billionaires emerged in the name of the NEP where the government would support politician-hand-picked individuals to become businessmen. The government support included directed lending by under-regulated banks. This model grew exponentially when massive amounts of foreign capital came into our stock market in the early 1990s, and crashed spectacularly in the Asian Financial Crisis (AFC). With hindsight, why did we think politicians could hand-pick good businessmen? Why did we think beneficiaries of easy contacts and access to capital could build solid businesses? Many of these companies drowned in their mountains of debt and were nationalised to become today’s GLCs. The extent of government dominance in the economy didn’t change after the AFC. The corporate nexus between government and major businesses remained, the difference being that politician-hand-picked individuals were replaced by professional managers. But the professionals also ultimately reported to the same political masters.

I am not criticising the system that was put in place following the May 13, 1969, breakdown in civil order. I think there was a need for those major systemic changes — greater government involvement in the economy, affirmative action for the bumiputera, amendments to sedition laws, the Rukun Negara and the formation of a grand coalition of parties (Barisan Nasional) to govern the country. They enabled peace, stability and an impressive record of sustained economic growth, with greater equity and dramatically less poverty.

The authors of the new system, however, acknowledged that they were innovating out of desperation and that the system needed to be reviewed from time to time. In the case of the NEP, there was even a specific timeline of 20 years to eradicate poverty and redress the intercommunal economic balance seen as preconditions for the emergence of a Malaysian nation.

It has now been 50 years and the 1970-designed system remains substantially in place, entrenched by vested interest and the ease with which race and religion can be mobilised in its defence, and plagued with norms that are either compromising or outright corrupt.

Tun Abdul Razak and Tun Dr Ismail, the main authors of the recalibrated system, recognised the amplified risk of corruption but they placed trust in individuals driven by the nationhood mission and didn’t do enough to build safeguards. It was actually apparent quite early on that corruption was seeping in, but it got worse in the 1980s as competition for political positions and spoils within Umno and BN increasingly took precedence over nation-building.

The system is no longer fit for purpose and Malaysia is in dire need of another system reset. I will leave it to historians to argue about when and why the system fell into decline. But since the AFC of the late 1990s, we have been under-firing economically, growing apart as communities, losing our best talents and falling behind newly emerging countries like Indonesia and Vietnam for FDI. The 4th Industrial Revolution will only compound underperformance of economies that are not leveraging their best talents, struggle to attract quality investments and defer to vested interest and incumbents — where innovation and entrepreneurship are stifled.

When Pakatan Harapan (PH) came to power in 2018, many — including myself — were hopeful that they would follow through with their reform agenda as articulated in their election manifesto. But they did very little of it, unable even to implement UEC recognition or sign the International Convention on the Elimination of Racial Discrimination, both relatively benign reform initiatives they promised. And while the end of BN’s dominance was rightly celebrated as a triumph for democracy, there was no guarantee that a more stable democracy would emerge. The political scientists among you may even point out that academic literature on plural societies would predict quite the reverse. Indeed, the collapse of the PH government after 22 months and the fragility of Perikatan Nasional (PN), its replacement, are not encouraging early signs.

For me, the PH experience reaffirmed that our system is like a badly written play. You can change the cast and have the world’s best actors but the play will still be bad. The system sets incentives for politicians and political parties to behave in a certain way and sadly, our system encourages them to be too divisive, too vulnerable to monetary incentives and too deferential to power.

Another way of saying the same thing is: Our system has evolved to become one run by a three-headed monster — identity politics, money politics and power concentration. I don’t have the time to discuss how this came to be, it is more important to use the minutes left to talk about how we could fix it.

During my visiting fellowship at Oxford and now in partnership with some academics and civil society, I am pursuing the idea that we need a system reset. We have embarked on a six-month study to gather the views of Malaysians across the various spectrums of society, and are also soliciting ideas from the wider public at One basic question is whether we should advocate the setting-up of another National Consultative Council, which was the deliberative platform used back in 1970 where a fairly representative group of 67 people — communal leaders, politicians and people from the civil service, trade unions, media, religious groups, business, professions and small minorities — debated and endorsed systemic reforms.

I don’t think we should just copy what worked then, but we can learn from that experience. We can also learn from the recent trend of deliberative platforms across Western democracies such as the national assembly in Ireland, which successfully dealt with the hugely controversial issue of abortion. Deliberative platforms can complement representative democracy. In fact, it can be a purer form of democracy compared to one where voters delegate their voice on all issues to one person until the next election. And then there is a question of whether there can be a better Malaysia at all? Whether these frustrations and failures that I mentioned are just part and parcel of democracy and growing pains of a new nation, it is therefore important that we conceptualise key reforms and whether in sum, they would make for a better Malaysia.

I believe the case is compelling even if we just imagine (1) new institutional rearrangements to have an effective referee to political competition; (2) clear separation of business, government and politics; and (3) electoral reforms. And I am sure many would agree that if our best minds and leaders deliberate our intercommunal social contract, education system and affirmative action in safe spaces instead of the toxic theatre that is party politics, they would arrive at some new formulas and trade-offs that are more suited for today’s Malaysia and Malaysians.

In short, at the risk of pre-empting the conclusion of our study, I for one am convinced that there can be a better Malaysia. I hope I have outlined enough of my thoughts on “Making of a better Malaysia” to stimulate a conversation. The stakes are huge, the stakes are especially huge for your generation.

On behalf of mine, I would apologise that we have allowed this nation that we all love to be in the state that it is today. For what it is worth though, I am actually quite optimistic because I sense that more and more people want systemic reforms, not least due to the widespread despondency with today’s politics. In the end, politicians will respond to the people so long as the people are heard.

Datuk Seri Nazir Razak is a former CIMB chairman. The article was his speech presented at the Chevening Alumni leadership talk on Nov 16.

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