Embracing Free Enterprise

January 26, 2012

Embracing Free Enterprise

by Dr.M. Bakri Musa, Morgan-Hill, California

The remarkable thing about financing entrepreneurs and small businesses  is that individually and in the aggregate, they would cost very little. The default rate for loans to small business and individual entrepreneurs very low, as demonstrated by the experience of Grameen Bank in Bangladesh. But the most important benefit of such a scheme is that it would encourage trade among ordinary Malays and teach them the value of business and free enterprise. This would help eradicate the ingrained mindset of forever waiting for the government or someone else to provide them with a pay cheque.

Once we have succeeded in producing such low level entrepreneurs then we could move up the ladder, to professionals and sub-professionals like accountants, lawyers, and engineers. From there, the government could then target the bigger contractors and major players. And with involvement at each level, the government would have better experience in assessing the risks and viability of the various individuals and proposals.

The difference between my plan and the government’s present strategy is that I let the market decide who should get the benefit of government help, not some all-knowing civil servant back in Kuala Lumpur. Further my plan is considerably cheaper and impacts many more people, in contrast to the present where billions are being lavishly squandered on the few. Lastly my plan will produce real entrepreneurs, not the armchair types that the Malay community currently have in abundance.

The remarkable observation about many successful companies of today is that they all started small. HP and Apple Computer were both started by engineers tinkering in their garages. No Washington official earmarked them for success.

Grooming entrepreneurs from below would prove more enduring and successful, in contrast to the present strategy of starting at the top.

My point is, we do not know where the next spark will come from. What is important is that we must create the conditions whereby should that spark ignite, it would start a chain of reactions far and beyond. This notion that some high and mighty bureaucrat or esteemed leader sitting in his air-conditioned office in Kuala Lumpur could pick industry winners, is pure bunk. And their track record proves it. The sooner Malaysian leaders disabuse themselves of this delusion the better it would be the nation.

One of the lessons of history is that no society that values order above everything else will encourage creativity among its citizenry. Such societies will be orderly all right, but they will not be creative or blazing new trails. The reverse is equally true, that is, without some degree of order, creativity will disappear.

The Chinese of the 15th Century had all the necessary ingredients that could lead them and the world into greater heights and to launch their own Industrial Revolution. They already had blast furnaces and piston bellows for making steel, discovered and used gunpowder, compass, paper and printing. But a mighty emperor ruled them; his edict was law and it could not be challenged. In his wisdom he declared that those were useless inventions and ordered their activities stopped. Being an orderly society, the Chinese meekly complied. Four hundred years later the Europeans would reinvent what the Chinese were doing routinely centuries earlier.

Unlike the Chinese, these enterprising Europeans, unrestrained by a God-like emperor, were able to tinker with their inventions and collectively they ushered Europe into the Industrial Revolution.

Consider the polar opposite of China: Russia immediately preceding the Bolshevik Revolution. The chaos of a dying empire produced a slew of luminaries in both the arts and sciences. In the world of music and arts there were Stravinsky, Tchaikovsky, and Kasimir; in literature Tolstoy, Dostoevski, and Chekov; and science Mendeleyev (periodic table) and Pavlov (physiology). Living in the chaos of a dying empire and unable to revolt against the powerful Czar, they bravely challenged orthodoxies in their own fields.

Had there been order and the Czar maintained his tight grip, he could have easily squashed these super achievers with their brash new ideas and creations. Creativity thrives in chaos but without some semblance of order, those Russians could not translate their brilliant innovations into a successful economy.

“To advance and use knowledge,” writes Lester Thurow, “a society needs the right combination of chaos and order.” Too much order (China) and you have stagnation; too much chaos (Pre Bolshevik Russia) and you would not be able to capitalise on those inventions. A contemporary example would be Japan (too much order that it stifles creativity) that now remains stagnant after a brief period of advancement, and America that thrives as it has found the right combination of chaos (freedom) and order.

What is true of economic and scientific activities is also true for the arts and other creative endeavours. As noted by my favourite poet Chairil Anwar, “In Art, vitality is the chaotic state; beauty the cosmic final state.”

These same dynamics between order and chaos also operate on the level of the individual: the tension between tradition and rebellion. Einstein’s early life had all the characteristics of a drop out: he quit school, renounced his citizenship, lived at the margins of society, and indeed regarded himself as a gypsy. Those early chaotic days belied his later genius.

His General Theory of Relativity, a unitarian concept, ironically brings order to the apparent chaos that is the universe.

Chairil Anwar thrived in the chaotic days of pre-independent Indonesia. His most well known poem “Aku” (Me!) reeks with this fearless expression of rugged individualism and irrepressible yearning for freedom. To quote:

Aku ini binatang jalang (I am but a wild animal)

Dari kumpulannya terbuang (Cut from its kind)

Dan aku akan lebih tidak perduli (and I should care even less)

Aku mahu hidup seribu tahun lagi!( I want to live for a thousand years!)

If there is indeed a Malaysian Chairil Anwar out there today, he would more likely have been kicked out of school; or if he ended up at the local university, he would have been long ago been detained under the ISA. But had he been born in America today, he would have earned millions writing lyrics for some hip hop groups or be lauded as the nation’s poet laureate.

It is for this reason (too much order) that I worry about young Malays attending religious schools. The emphasis there is on blindly following what is already established, with no room for critical thinking and independent thought. Any streak of independence is quickly stamped out. I do not expect to find future agents for change in Malay society to emerge from the present religious institutions.

Malaysia, and the Malay community in particular, has its fair share of the talented and enterprising. In their preoccupation for order and emphasis on conformity, Malaysian leaders are inadvertently snuffing out the independent spirits of their citizens.

Progress depends on those daring to challenge the existing order and push the envelope beyond. Malaysian leaders must not only tolerate diversity and differences in opinions among the citizens but also more importantly, encourage and celebrate those differences. We must encourage divergent viewpoints, as we will never know which one will prove to be right. Sadly the leaders confuse unity with unanimity. Malay unity does not and should not mean Malay unanimity.

I look askance at the control freaks currently in charge in Malaysia. They have a penchant for controlling everything and everyone. They would prefer that their followers be like sheep, bleeping to their every command and following them blindly.

It is a tribute to the enduring qualities of ordinary Malaysians that they are resisting to the best of their ability to maintain their spirit of merdeka (independence). Some openly rebel and end up being punished; others pay mere lip service to obedience, yet others affect embarrassing obsequiousness to the powers that be.

Events are with the people, not the leaders. With globalization and the spread of capitalism, the pace of these changes will hasten. It is for these reasons that I urge Malaysia to embrace free enterprise enthusiastically. But as Margaret Thatcher wisely observed in her book, Statecraft, there is a difference between doing something for pragmatic reasons (because they work) and doing so out of conviction. Mrs.Thatcher was driven by convictions that enabled her to transform Britain into a modern industrial state.

Capitalism has proven itself to be the best system to bring the greatest prosperity to the largest number of people. It is also compatible and consistent with our Islamic traditions. Islam began around free markets, and it is time we return to our roots. And do so with great conviction and enthusiasm.

9 thoughts on “Embracing Free Enterprise

  1. I spend my early years giving out loans to small businesses which were guaranteed by a corporation whose shareholders were banks and insurance companies(?), this being an idea from our very own central bank and not an original idea either. It was borrowed from the Indian experience. I remember giving some RM 30k overdraft to one mamak from Kg. Chempedak, Kuala Lumpur. He has never seen so much money in his entire life. I suppose the shock of it did the rest. He went to Haadyai over several weekends and spent the money like a drunken sailor would. He was never seen again. Over here that would have cost me my job.

    In life there is no short cut to anything. In the ’70s the Malays were duped into thinking that they could do anything they want and business is one. Over the course of the next decade an entire class of Malays were declared bankcrupt as a result. A few of them that I know were my contemporaries at university. The truth is Malays lacked the temperament. Those who made money did so on the back of their political connections like Tajuddin Ramli. And one reason they managed to get to where they did was because they allowed themselves to be used as an ATM machine by these politicians.

  2. Yes,I was in Bank Negara (as Secretary of the Bank) when the idea of a Credit Guarantee Corporation was debated at our Weekly Senior Officers meeting chaired by (Tun) Ismail bin Mohamed Ali. The late Governor was concerned about lending against by the commercial banks.I can also confirm that it was a suggestion of my colleague and Manager of the Banking Department, the late Ismail bin Dato Abdullah, who had just returned from India from a study visit. Of course, now we have the SME Bank and the CGC. –Din Merican

  3. At the time, you haven’t made it to Assistant Deputy Governor yet Dato? There was a picture of me and Tun Ismail in Utusan Melayu in 1974. Just me and him enjoying a buffet together.

  4. Like African Americans the Malays excel in music and the music industry. However, the singers and musicians made all the money for the recording studios and crumbs for themselves. Their talent was tapped by non-Malay managers who had the business acumen to manage the business.

    Today they should open more dangdut joints, organize concerts and have Tok Cik and Pak Semper manage their business. What do you think?

    Tok Cik and Pak Semper will be doing the dangdut in stead of focusing on the business. After one month, their dangdut joint will go out of business. But they are good at whatever they are doing now. So, stick to knitting and focus on one’s core competence.–Din Merican

  5. In the early nineteen seventies Bank Bumiputra had a small loan scheme called the Rural Banking Scheme (RBS). The maximum amount of loan lent under the scheme was RM500-00. No security or guarantee was taken from the borrower . Yet at the Kota Bharu Branch where I was serving every single loan was repaid without resorting to demands or legal action. Instead of expanding it we terminated the scheme.

  6. Methinks Dr Bakri Musa is too uncritical of free market capitalism.

    You need both the market and the state for the economy to function
    well. Just think of examples like Singapore where the govt intervenes but also lets market forces work.

  7. Just think of examples like Singapore where the govt intervenes but also lets market forces work.
    Phua Kai Lit

    I believe that this works for Singapore because they are a very small physical entity. And mostly homogeneous (and of course very focused). It would never work for the usa (big and diverse), and obviously has not worked for Malaysia (relatively small, but diverse).

    The affirmative action policies of the usa towards the american indian population has similarities to the bumiputra policies in Malaysia, except in Malaysia it is affirmative action for a majority, not a minority as in the usa situation. In both cases though the result is mostly a spoiled demographic.

    In my opinion the Grameen micro-finance example is not really comparable to the CGC & SME. Grameen’s loan sizes averaged a few hundred dollars in value. So when CGC or SME gives out loans of RM35k, or hundreds of thousands, it is corrupting in almost every case.

    Micro-finance is tough, slogging work — loans to millions of individuals… CGC/SME is, as is all too typical in Malaysia, a shortcut in hopes that the idea will translate, without all the hard work.,

  8. Yup, micro-credits the way forward for the urban poor; semi-urban, rural self-sufficient petani and nelayan. It’s a pretty intense and involved drudgery that the UMNO elitists are most averse to. They prefer to give out cash on a vote-buying basis.

    So, since we have all these maligned criminal Ah Longs who are more than wiling to do the goon work, i would suggest that we licence them like money changers and insist on a low (compulsory say BLR+2%pm) interest rate on their loans to the poor. Once they reach a target of say 1000 lenders, they get a Proton free and up to a Daimler if more than a 100k. You see ‘tayang’, is crucial to these flurs. They can also hold lucky draws among themselves, to accompany FLOM on ‘buying’ missions. We may want to put them under the control of the IGP or if too busy, under his deputy.

    Seriously though, we need the workers cooperatives to strengthen and to kick out political appointees and interference. Any takers?

    Dr Bakri has written a very cogent piece, and as any erudite physician will tell you: “It’s always Bottom Up, not Top Down”, owing to the fact that most people are bottom feeders of swill and detritus, while the top predators behave like parasites who only think with their gonads.

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