Tuesday, May 3, 2011

Cinatocrasy: The Battle of Affirmative Action against the Bamboo Network and Resource Mobility in a Globalised Economy

This post is dedicated to the late Bro Wah Al Subangi who was the first to comment in my Kasut Atas Kepala Post
"A Graph paints A Thousand Words......
This post also draws from the discussion between Bro hishamh, jitu, isa, maju and aku in the post....

Guess what folks....today monkey gonna paint again....

Actually this painting was done immediately after I wrote the Social Capital post in June 2010 but I decided not to make it public just yet.........need to find the right timing for the issue to be debated at the National Level..

That moment came when some "expert" from WorldBank came up with sweeping statement based on "Survey" of 200 Malaysians last week

NEP,brain drain holding back Malaysia,says World Bank
KUALA LUMPUR, April 28 — More than one million Malaysians live abroad, the World Bank said today, adding that policies favouring Malays are holding back the economy, causing a brain drain and limiting foreign investment.

In a Bloomberg news service report today, World Bank senior economist Philip Schellekens was also quoted as saying that foreign investment could be five times the current levels if the country had Singapore’s talent base.
“Migration is very much an ethnic phenomenon in Malaysia, mostly Chinese but also Indian,” Schellekens (picture) told Bloomberg in Kuala Lumpur on Tuesday ahead of the report’s release today.
Governance issues and lack of meritocracy are “fundamental constraints” to Malaysia’s expansion because “competition is what drives innovation,” he said.
Malaysia’s growth fell to an average 4.6 per cent a year in the past decade, from 7.2 per cent the previous period.
Singapore, which quit Malaysia in 1965, expanded 5.7 per cent in the past decade and has attracted more than half of its neighbour’s overseas citizens, according to the World Bank.
Malaysia has in recent years unveiled plans to improve skills and attract higher value-added industries.
The World Bank conducted an online survey in February of 200 Malaysians living abroad in conjunction with the Kennedy School of Government at Harvard University.
They cited better career prospects, social injustice and higher wages as their main reasons for leaving, the Washington-based lender said in the Bloomberg report.
Singapore has absorbed 57 per cent of Malaysia’s overseas citizens, with almost 90 per cent of those crossing the border ethnic Chinese, the World Bank said.
If Malaysia has the investment environment of Singapore and also had the innovation and skills environment of Singapore, then foreign direct investment inflows into Malaysia could be about five times larger,” Schellekens said in the Bloomberg report.
“They need to boost productivity and strengthen inclusiveness.”

Prime Minister Datuk Seri Najib Razak has pledged to roll back the country’s NEP-style policies but he also told the Umno assembly last year that the government’s social contract of providing benefits to Bumiputeras cannot be repealed.
According to the Bloomberg report, Najib has eased some rules to woo funds, including scrapping a requirement that foreign companies investing in Malaysia and locally listed businesses set aside 30 per cent of their Malaysian equity for indigenous investors. Last year, he unveiled an economic transformation programme under which the government identified US$444 billion (RM1.3 trillion) of projects from mass rail transit to nuclear power that it would promote in the current decade.
“If everything is implemented as they say, Malaysia is going to be a star economy,” Schellekens told Bloomberg. “The problem is implementation.” Source here 

For the Full WorldBank analysis go here

In real life monkey deals with WorldBank and the IMF regularly on behalf of a G20 Country.....I know how they operate....and in many face to face Senior Policy level meetings monkey have sent them back to the drawing board with their tail in between their legs.......

I shall begin today based on my own experiences being part of the Malaysia Diaspora....

Malaysia! You pay peanuts you get MONKEYS.....

To illustrate the magnitude of the issue refer below.......

Data sourced from here and here

Add the factor of Income Tax Differential between Malaysia and Singapore......lagi la barai.....

These are just some examples.....if you include the Industry (Finance) that I'm in......hancus..........

That part you don't even have to go to Singapore.....compare the Payscale of Local Vs Foreign Banks in Malaysia.......parah nak mampus

I don't think that I need to go into details with regard to the subject....everybody knows that Malaysians are severely under-paid

Now why the complaint when everybody in the World already accepts the Globalisation of Resources?

If you can make it in the Global arena....why not?

Now to the question of why Ethnic Chinese from Malaysia likes to go to Singapore as per WorldBank observation....

Overall, the Singapore Government’s immigration strategy rests on a policy combination that aims to balance the constraints between achieving the country’s longer-term goals of industrial-upgrading and technological change on the one hand, and, on the other, maintaining competitiveness in the shorter term (Manning and Bhatnagar 2006). This policy combination is closely integrated into national development strategy through an elaborate arrangement of migrant levies on lower-skilled workers, incentives for highly skilled professionals, and strict regulation of these policies through a quota system (Kaur 2007). At the same time the state has adopted a nation-building strategy based on multiracialism to safeguard the rights of racial, linguistic and religious minorities in Singapore (Chan 1991: 159).

As outlined in Singapore’s Manpower 21 Report (which saw the Ministry of Labour renamed the Ministry of Manpower), augmentation of the national labour force with foreign labour is a key element in the country’s economic plans and policies for the foreseeable future. The six core strategies listed include: Integrated Manpower Planning; Lifelong Learning for Lifelong Employability; Augmenting the Talent Pool; Transforming the Work Environment; Developing a Vibrant Manpower Industry; and Harnessing Collective Energies. Further, 

Singapore has always leveraged on foreign manpower at all levels to enhance our economic growth. The employment of foreign manpower is deliberate strategy to enable us to grow beyond what our indigenous resources can produce. As we transit to a knowledge economy, we need to ensure that our manpower augmentation policies remain relevant and effective. Go here "Migration Matters in the Asia-Pacific Region:Immigration Frameworks, Knowledge Workers and National Policies"
To understand further we must look at the Historical Perspective of Singapore Immigration policy

Singapore's immigration policy since independence has been described as one that tries to maximise the economic benefits of immigration while minimising its social and economic costs (Pang 1992). Besides the immigrants' potential contributions to the economy, an early thrust has also been to selectively open its doors to people from countries that bore cultural similarity to the local population. Hence, recruitment was initially permitted only from "traditional" sources, essentially Malaysia, but this has had to be widened as labour needs continued to expand. At present, the search for skilled workers and professionals has extended world-wide although the sources for recruitment of unskilled foreign workers remain confined largely to the Asian region.
Depending on their skills levels, the terms and conditions for foreigners to work or stay in Singapore differ substantially. Skilled workers, professionals and entrepreneurs are encouraged to take up permanent residence and citizenship may be granted after two to ten years of residence (Social Integration Management Service 1994). Unskilled foreign workers, on the other hand, are permitted to work only for limited time periods, after which they are expected to return home. Selective immigration of persons who can contribute economically is not a new or recent policy in Singapore. This policy was apparently adopted by the British administrators in charge of Singapore from as early as 1953 (Arumainathan 1973).
Source: Migration Issues in the Asia Pacific: ISSUES PAPER FROM SINGAPORE go here

Wah lau weh........

"Cultural Similarity" to Local Population.....

Cakap lu orang practise "Meritocracy".....

Anyway monkey actually thinks getting a job offer in Singapore is no different than moving from Kota Bharu to KL or Perlis to KL...

For Johor folks it's like travelling from Shah Alam to PutraJaya.....

Not only the proximity factor and the $$$$$$$$$$$$$$$$ factor....

There's also the Ahbeng Factor embedded....

We now enter the second part of our discussion today....

The part where we shall look at the Affirmative Action...in general there are 3 types in the overall Universe of Affirmative Action....

  1. Majority preferences in majority economies :A system where the dominant majority not only controls the economic and political system but has also instituted racial preferences for its own majority members. Eg: South Afrika Apartheid
  2. Minority preferences in majority economies: A system of affirmative action targeted to benefit minority groups in economies dominated by majority members Eg: US, India, current South Afrika
  3. Majority preferences in minority economies: A System of Affirmative Action to favour politically dominant (though economically weak) majority groups and to correct continuing group disparities and ethnic stratification Eg: Malaysia, Nigeria  Source : Beyond the Pale : Diaspora of Ethnic Economies

First thing we must ask what legal basis do the Affirmative Actions draw from...

Virtually all other Constitutions make provisions for equality before the law, and for non- discrimination. Most Constitutions provide for equality rights to be limited or derogated in specified circumstances or in general terms, if these are reckoned to be justiciable in a democratic society. Few Constitutions specifically contemplate that such limitation or derogations may provide for some form of Affirmative Action. Even more rare are the classes of rights for which such affirmative action may be taken.

The Constitution of Canada provides a specific recognition of the possibility of a “law, programme or activity that has as its object the amelioration of conditions of disadvantaged individuals or groups. Such law, programme or activity would inevitably be consistent with the Charter of Rights and Freedoms and not just necessarily contrary to it. The provisions of Section 15 of the Constitution do not however, impose any duty on the State to put in place any, programme or activity that has its object the amelioration of conditions of disadvantaged individuals or groups’. It simply prevents any such programme being unlawful thereby making provisions for Affirmative Action.

The Constitution of Malaysia makes provisions that require special treatment of the Malays especially in the areas of education in public institutions, employment in public service and licenses among others for economic activities. Article 153 aims to mainly benefit the indigenous inhabitants of Malaysia who constitute the majority of the population. There is an obligation on state to exercise the government functions generally to protect the interests of the Malays.

The Indian Constitution makes a number of provisions on the possibility of programmes aimed at benefiting those in certain castes, tribes and backward classes generally. These are coupled with a general non-justiciable duty on the State to take affirmative action, which may nonetheless, be potentially enforced by the courts. Article 14 on equality before the law and Article 15 on prohibition of discrimination on grounds of religion, race, caste, sex or place of birth prohibit discrimination by the State. Article 16 on equality of opportunity in matters of public employment provides for reservations of quotas, if the state is satisfied that there is inadequate representation for certain section of society. The provision is however, not mandatory or obligatory. As a directive principle of state policy Article 38 makes provisions on securing a social order for the provision of welfare of the people.

The South African Constitution makes an exception to the general equality provision as it relates to the victims of past discrimination in addition to obligations in the area of land, education, housing and health among others, which are not limited to past discrimination provisions. Article 9 on equality and non-discrimination makes it clear that positive measures may be taken to fulfill the general equality provisions especially as they relate to situations of past unfair discrimination. Article 25 on property imposes a duty on the state to take steps to foster equal access to land. Of greater implication is the duty of the state to take steps to realize the rights to housing and to health with no reference to past discrimination. Source the Keyna Constitution Review on Affirmative Action go here 
Now we need to ask why exactly did Malaysia need to implement the Affirmative Action policy...

To do that we must unravel the Bamboo Network and understand the policy options available to our policy makers in the 70's.....

Allow me to bring back the concepts from the Social Capital Post...remember the EHMG?

Chinese Merchants in South East Asia :
Chinese merchants in Southeast Asia, JT Land developed a theory of the ethnically homogeneous Chinese middleman group (EHMG) as a club-like arrangement in which Chinese traders within the group cooperated by providing themselves with club goods/local public goods such as contract enforcement, capital and information, in response to an environment lacking basic infrastructure such as legal infrastructure, banking and credit-rating institutions. By cooperating with each other, members of the EHMG were able to enforce contracts,mobilize information and capital, thereby reducing transactions costs, hence outcompeting other ethnic groups to appropriate the role of middleman-entrepreneur. Of the various club goods provided by members of the EHMG, the most important is contract enforcement. Landa developed a theory of the emergence of the EHMG as a club-like institutional arrangement for coping with the problem of contract uncertainty (Landa 1981, reprinted in Landa 1994, Chap. 5). Under conditions of contract uncertainty, Chinese merchants will not randomly enter into transactions with anonymous traders, but will have the incentive to preferentially choose traders whom they trust, hence particularizing exchange relations on the basis of kinship, locality and ethnic ties. This is because embedded in these particularistic exchange relations are shared social norms of behavior (Confucian ethics of reciprocity) which function to constrain traders from breach of contract; any trader who violates the ethics of the group will be punished, including being ostracized from the group. The effects of many individual trader’s discriminatory choice of trading partners is the emergence of an ethnically homogeneous middleman group (EHMG), a club-like arrangement alternative to contract law for economizing on contract enforcement costs in an environment characterized by contract uncertainty. The ethnic boundary of the Chinese middleman group represents the outer limits of a Chinese trader’s discriminatory choice of trading partners because of the Confucian code of ethics which prescribes rules of the game—mutual aid obligations/reciprocity—for members of the same ethnic/dialect group, while not extending mutual aid to outsiders. Constraints on behavior thus exist among members of the Chinese EHMG because of shared rules of the game; members of the Chinese middleman group thus form a moral community. Confucian code of ethics serves as an informal institution, an extralegal institutional arrangement for the enforcement of contracts. Go here
 This observation is not new.....back in 1955 Virginia Thomson and Richard Aldoff observed in their paper entitled "Minority Problems in South East Asia" Source here

Folks that was already observed in 1955.......

If you had bothered to read the paper on the Middleman Minority I've linked above...you would have read that in all the countries mentioned there is an element of Host Hostilities....

The difficulties of breaking entranced middleman minorities, the difficulties of controlling their growth and extension of their economic power, pushes host countries to ever more extreme reactions. One finds increasingly harsh measures, piled on one another, until, when all else fails, "final solution" are enacted
We reach a critical point in 1969.........instead of a "final solution" our policy makers came out with the NEP

Allow me to illustrate the policies and the Implementation issues

Our original Opportunity Curve in the Economy is positively skewed and the ethnic composition is depicted in the lower part of the curve, NEP aims to invert the slope of the curve to make those in a more disadvantaged position to have better access to opportunities in the Economy

The NEP actually had 2 major objectives:  "to  reduce  and  eventually eradicate  poverty,"  and  second,  to "accelerate  the  process  of restructuring Malaysian  society to correct economic imbalance,  so as to reduce  and eventually  eliminate the identification  of race with economic  function" : Source Gov of Malaysia Second Malaysia Plan

If the NEP had been completely successful the overall Opportunity Curve would Shift Upwards for the Whole Economy (this is what Economist call "Inclusive Growth") NEP Positive Impact Curve, in reality there are abuses which have been claimed by various reports but NONE ever provide any actual data on these abuses, in general the abuses actually happens at the Right End of the Curve itself whereby Policies such as AP's awards or Direct Negotiation are being executed 
Now lets look at why NEP failed in its second key objective to correct the ethnically imbalance economy; if we were to refer to Thomson and Aldoff observation in 1955, the business network of the Ethnic Chinese creates a choke on any probable policy action to dismantle their economic control over the economy. They not only mitigate the migration of smaller Non-Chinese firms up the value chain but they also make those in the Top End of the Curve uncompetitive by Selectively applying discriminative business conduct against Non Chinese competitors. The Politically connected also exert significant abuses across the curve but more so at the High Income Side for Large Scale Contracts 

On top of the existing issues that NEP and NDP faced, now that Liberal Ikut Cakap Con-Sultan sampai kena kencing hancing barai mamat from Pekan liberalised our Economy further, this will add new economic agents who will compete with the existing domestic economic agents.

To top it off, execution policies were not carefully considered, let me give you one example of the Listing Criteria in the Stock Exchange, by design policy makers did not want to create 2 class of securities that can affect the overall liquidity of the security (Refer to Bumi Housing Lots issue, if a Security can only be sold to another Bumi Investor, then technically 2 markets exist for these Bumi Vs Non Bumi Block and the Bumi Block would be worth less), so in came a group of AliBabas to become proxies for the Chinese in return for some measly Corporate Directorship titles and a few million in the Bank.

Allow me to divert to Indonesia for a wee while, folks may say "Look at Indonesia mana ada Affirmative Action macam ini RACIST Malaysian Government"
Source from Indonesia The Rise of Capital page 316 go here

Let us look at the magnitude of this issue, initially I roped in Brother Ding Dong to assist with the data for the whole of Malaysian Listed Company....gua tunggu dah 3 hari gua budget dia tak sempat kut....

So gua pun switch on my super fast fingers onto my super fast google to come up with a proxy of 100 Top Listed Company...the base data is derived from Measuring Performance of 100 largest Listed Companies in Malaysia refer here

What monkey did was to Google each and everyone of these company to know if the CEO or the Chairman of the BOD was a Bumi or Not...

Kacang goreng tapi manual nak mampus.....letih siut

Gua terkejut when I saw the magnitude of the issue.....

B-CEO Means Bumi CEO and B-Chairman is Bumi Chairman, correspondingly C = Chinese, I =Indian and F= Foreign, In the sample size there are 17 GLC's, monkey thinks companies with Non Bumi CEO and Bumi Chairman are typical Alibabas, from this chart you can see that the Bulk of the Revenue is coming from Companies with Bumi Ceo and Bumi Chairman by virtue of the GLC role in the economy

Now look at the amount of profit the Chinese CEO and Chinese Chairman Companies generate, surprised? Just look at the Magnitude....what do you think folks? Are the Chinese just simply better businessman?

By the way incase you are wondering this data is based on the year 2009 financial results.....

So what now....should I bother googling the balance of the company kecik2.......I better leave that to prospective PhD students with Interest in Socio Economics Development.....nanti lu orang takde modal pulak

Who knows maybe after you go down further into the data ....the Trend of Chinese CEO and Bumi Chairman partnership will emerge even stronger....and that partnership is not really profitable if we look at the largest 100 listed companies.....

Oh by the way to all those Kecoh nak mampus "Social Injustice" BN Government manyak jahat lo population why don't you just look at the names of the Listed Companies in Malaysia got so many Ahbeng names ma..so susah for you to get a job ka?

Aiyoo ini bursa Malaysia punye website pun down dari tadi apekelancau you are operating a critical market infrastructure la bingai

Anyway folks....this situation that we are facing is not just for Malaysia but it is a regional phenomena

An important question concerns the global competitiveness of ethnic Chinese business firms from Southeast Asia and the international transferability of their competitive advantage derived from their embeddedness in ‘home’ country institutions. This section proposes that the competitive advantage of Chinese business firms from Southeast Asia is embedded in their capabilities in network formation and exploitation. These capabilities, in turn, are both culturally and economically determined. Culturally, Chinese business traditionally relies on business networks to facilitate transactions and circumvent host country discrimination. Weidenbaum and Hughes (1996: 59) note that ‘as a group, the overseas Chinese family firms have become the pacing element in the economies of Southeast Asia, and they are likely to continue in that role. Western firms will be forced in the years ahead to learn far more about the culture underlying the conduct of the bamboo network enterprises that may eventually become their competitors or partners —or both’. This networking capability historically underscores the competitiveness of Chinese business firms vis-a`-vis western firms in China. As observed by Hamilton (1996a: 18), ‘[a]mong Chinese businesspeople, competition and guanxi organization go hand-in-hand, and I believe this is the reason that Westerners, with their corporate forms of organization that separate one firm from another, one entrepreneur from another, have historically been unable to compete head-to-head with the Chinese’
Source The Internationalization of Ethnic Chinese Business Firms from Southeast Asia:Strategies, Processes and Competitive Advantage go here

Aduh gua dah sampai sini lupe pulak ape Mat Saleh world bank tu cakap dalam paper dia....

Oh oh...!

the 5 Times more foreign direct investment IF Malaysia is more like Singapore.....

5 Times More....why not 100 times more dude?

To understand what this Mat Saleh is talking lets look at BRIC FDI first

In the chart above you can see that the FDI Trend reversed in 2009, a direct impact of the 2008 Credit Crisis.

Let us compare ourselves with the Regional Peers....

One thing that you must note is that Singapore is a Financial Center with a GDP in USD smaller than Malaysia refer below...

To be completely honest......he should first do a sensitivity analysis on Countries with Affirmative Action or Countries with Control Over Foreign Shareholding in Domestic Economy Vs the FDI Flows...

Take for instance China.....it has significant control over FDI Flows but bersepah2 flow coming in?

Why? For Chinese Investment Guidelines go here

Panjang cerita la beb kalu gua masuk topik ni pulak

Now back to this issue on Affirmative Action....

Complain semua orang boleh buat.......

Cuba try kasi satu solution....ada brani?

So today I will take up the challenge to provide a counter-view on the Oxymoron "Market Friendly Affirmative Action" contained in the Super Duper New Economic Model....

Apekelancau "Market Friendly".....affirmative action is Market Intervention la pakcik....mana ada friendly from efficient market concept......main selit aje Con-Sultan buzz word....

Hah nih ambik kau (These slides were originally constructed after the Social capital post in June 2010)
These are the fundamental constraint of the design
Everybody knows if we ask the Question what is a Bumi and A Malay as per our Constitution, but what is a BUMI Entity? Here I would propose a proper design of a Bumi Entity.. it should have 3 Major Attribute from Shareholding, Human Resource and The Cost Structure derived from Other Bumi Entities, on top of it these BUMI Entities MUST provide the necessary contribution to Zakat or CSR Activities towards BUMI Population. On the Shareholding perspective, provide reverse incentive i.e. if a Company meets the Bumi Shareholding Targets give it a tax incentive, instead of Bodoh Giler 30% Target pastu tak pernah Publish Data and Provide proper enforcement. This design should kill off all the AliBabas of the World as what we are building here is the BUMI Eco System, where BUMI will source from BUMIs...macam ONE BIG GIANT Multi Level Marketing la beb
I actually believe that we need to go one level lower for the Execution of the Affirmative Action, somehow Government macam kantoi aje, what if now the Function lies in Registered BUMI NGO's who can receive annual allocation from the Government, they become the "GateKeepers" and we can set up in each state, made up of BUMI's who are respected in the Society. BUMI entities can support them via the Financial Contribution component mentioned before, they can then conduct Training Programs, Bumi Trade Fairs and Facilitate Networking among Bumi Firms

This slide is self explanatory...sebenornya gua dah malas but let me thank Bro AreYouGonnaGoMyWay for the inputs on Malay Reserve Land Issue: I've incorporated our discussion in the design above

This is the toughest one, first and foremost I would like to thank bro Hishamh of Economics Malaysia for the suggestion on Price Transparency, this is a very important component to ensure "fair treatment" of Bumi by the Chinese who control the Distribution Channel in Malaysia. This should be one of the first task of the Competition Commission of Malaysia who is tasked to promote a competitive market environment and provide a level playing field for all players in the market, which in the process will squash anti-competitive practices such as cartels and collusions. At the same time we should also consider the Incubation of A Large Scale Bumi Trading and Logistic Firm to compete directly with the 'Middleman Minority" 

Ok folks gua dah mengantuk besok ada meeting pagi pulak tu.......

Do consider the framework that I've put forward...and let me know what you think of it...thank you all for reading.....

I will leave you with Adele's Hometown Glory...C U Soon KL Folks!

I've been walking in the same way as I did
Missing out the cracks in the pavement
And tutting my heel and strutting my feet
"Is there anything I can do for you dear? Is there anyone I can call?"
"No and thank you, please Madam. I ain't lost, just wandering"

Round my hometown
Memories are fresh
Round my hometown
Ooh the people I've met
Are the wonders of my world
Are the wonders of my world
Are the wonders of this world
Are the wonders of my world

I like it in the city when the air is so thick and opaque
I love to see everybody in short skirts, shorts and shades
I like it in the city when two worlds collide
You get the people and the government
Everybody taking different sides

Shows that we ain't gonna stand shit
Shows that we are united
Shows that we ain't gonna take it
Shows that we ain't gonna stand shit
Shows that we are united

Round my hometown
Memories are fresh
Round my hometown
Ooh the people I've met

Are the wonders of my world
Are the wonders of my world
Are the wonders of this world
Are the wonders of my world
Minds are like parachutes; they work best when open. -Lord Thomas Dewer