Social contract and the secret of Chinese 'success'

Prime Minister Najib Razak on Oct 21 at the Umno general assembly told his party delegates "... kewarganegaraan Malaysia pada dasarnya bukan lagi bersifat sama rata". This country does not have equal citizenship. 

Despite 1Malaysia (or Malaysian First), this is the core implication of Article 153, the 'special position' of the Malay. 

NEP is the realpolitik of a race-based system to distribute resources. There has been no negotiation on its implementation: Umno dictates, MCA complies although it gets around the discriminatory policy by 'settling' (read: 'gao dim' or greasing the palm). 

The so-called 'social contract' carries a rider; MCA navigates the lopsided terms and conditions using money as the medium. Well-connected wheelers and dealers have obtained a satisfactory outcome for themselves via the Ali Baba arrangement.

Hence the claim by Liew Kee Sin, a Tan Sri and a tycoon, that Chinese had thrived under NEP. But only for a small handful of Chinese. Liew, the SP Setia president-cum-CEO, raised hackles with his statement at the Chinese Economic Congress organized by MCA on Aug 14. His talk was titled 'Malay and Chinese collaboration to achieve NEM'. 

Incidentally, Najib delivered the keynote address at the event that included two Tan Sris and five Datuks among its speakers, and three Tan Sris and four Datuks as moderators and discussants.

Giving an example of how Chinese have fared well under NEP, Liew disclosed that SME owners can afford his company's expensive bungalows, exclaiming "One Chinaman want to build a bungalow of RM40 million!"

Zaid Ibrahim commenting on the sidelines was cheeky enough to spill the beans on the secret of Liew's success, i.e. stellar co-operation with the bumiputera shining stars.

Zaid informed us that the Chinese property magnate truly practises what he preaches, i.e. "We [Chinese] must also learn how to live with their [Malay] culture, their mindset." Racial muhibah was achieved long ago in high society.

Theory on the middle tier

The more Chinese are discriminated against in Malaysia, the better the community performs. This is a theory explored by two dons from Yale University and the University of British Columbia. The 30-page paper by Fang Han-ming and Peter Norman titled 'Government-mandated discriminatory policies: Theory and evidence' postulates that the NEP could actually have been the reason for, rather than an obstacle to, the Chinese's economic success. 

Their research was published in the International Economic Review, Vol.47, No.2, May 2006, and in also our CPI archives.

They wrote: "Some minorities, notably overseas Chinese in Southeast Asia and Jews in Europe, have performed economically better than the native majorities, despite being subject to government-mandated discriminatory policies."

Nonetheless, Fang and Norman placed a caveat: the extent of the discriminatory policies is crucial. The discriminatory exclusion can only be beneficial if the government-controlled sector is small enough. Aside from the public sector, the other parts of the economy that the government can legislate are in the industries where the authorities have direct ownership or control through professional licensing. 

Occurring some years after the publication of the above study, the Low Siew Moi (left) episode inserts a more timely perspective. Loh, a long-time civil servant, failed to be confirmed as PKNS general manager by Selangor Menteri Besar Khalid Ibrahim due to the glass ceiling occasioned by her ethnicity. That Ketuanan Melayu objected vehemently to her appointment was a clear display of the minorities' limited access to public sector jobs and positions. 

Although Malaysia is in a denial mode, foreigners like Fang and Norman nonetheless make the comparison with apartheid. 

They noted: "As far as we understand, the policies facing Blacks [in South Africa previously] were significantly broader measures than those implemented in Southeast Asia. Moreover, it is necessary that some sector where investments in skills are important is left open for the discriminated group. Again, this seems like a more plausible assumption when considering overseas Chinese."

Their theory posits that exclusion from opportunities provided by the state created better incentives for Chinese to make a costly investment in skills. These skills are assets invaluable and crucial for private sector jobs. 

On the flip side, giving a group (read: Malay) preferential access to high-paying public sector jobs may dampen the incentives for skill investment so crucial in the private sector.

Consequences of apartheid

Fang and Norman also tackled the vexing question of why the Malay majority would have implemented a policy that ultimately hurt itself. They believe the "natural answer is that the negative indirect effect of preferential policies in favour of the Malays was quite subtle and difficult to forecast; whereas the direct beneficial effects were obvious." 

The direct benefits are that the public sector offers secure employment and generous perks. Government administration jobs ranked among the top five of 100 occupation categories, only slightly lower than architects and engineers. [S. Anand, 'Inequality and Poverty in Malaysia: Measurement and Decomposition' [Oxford University Press,1983].

From the recent budget announced for next year, taxpayers can get a clear idea of the staggering percentage of our national expenditure that goes towards paying the civil service.

Despite the minorities hardly benefitting from state largesse, Najib in his Umno speech on Thursday again made them the bogeyman. He attributed success to "creativity, innovation and the willingness of the individual to work hard and take risks".

Having said that, he added, "For example, the non-bumiputeras, after 39 years of affirmative policies being implemented, are still the race who own the largest share of wealth".

The Chinese indeed possess an unerring ability to cope with the hostile NEP environment. Yet paradoxically, this coping mechanism is a poisoned chalice with the effect of 'damned if you do, damned if you don't'. The insecure, fearful Malay views the trait of competitiveness as being 'ultra kiasu', innovative as 'underhanded'; resilient as 'cold and heartless'.

Essentially what the two Yale and University of Chicago professors have said -- if I may rephrase the idea as social Darwinism -- is that the Chinese survive when they are the fittest. But here, the fitter the Chinese are, the more the Malays feel intimidated.

The Mahathir era was a juggling act and to his credit, the maverick managed to keep all the balls in the air. Tensions aside, the good ship Malaysia Inc. stayed afloat. The Chinese were able to 'cari makan' but soon after Mahathir relaxed his iron grip and the unwritten 'social contract' began unravelling, the vessel started sinking. 

A good illustration, even today, of the Mahathir-Machiavellian method is the planned development of Kampung Baru, a Malay reservation where the residents want to retain this prime real estate 100% in bumiputera hands. It was Mahathir who urged that Chinese investment be allowed for the reason of "we want to use the non-Malays as bait to lure more visitors".

Mahathir's callous remark is a backhanded compliment on Chinese capital and business acumen, but galling.

While the Fang and Norman theory may be applicable to its time (the 1980s), and to certain segments of Chinese, it doesn't cover all bases. The working class and wage-earners -- and their children -- have been shut out and victimised by NEP.

Another important factor to be borne in mind is the time frame of the Fang and Norman study. It was premised on population data up till 1988 where Chinese formed 32%. However, Chinese had since declined to 24% of the population in 2007, and further fast decreasing. It is expected that Chinese will only be around 18.6% in another 25 years or likely even lower. 

Readjusting the variables to the current Chinese population ratio (and the much, much smaller slice projected in future) will be adversely affect the Fang-Norman theoretical framework. Their theory is that the NEP discriminatory exclusion is an obstacle that can be surmounted if the government-controlled sector does not encroach too much into private enterprise. 

However, in the last decade we've seen how the government has grown very big and its finger in every pie. In short, the Fang-Norman model that Chinese are inveterate high performers who run harder and jump higher needs a revisit under prevailing circumstances.