Now let’s have a discussion — Tengku Razaleigh Hamzah

Now let’s have a discussion — Tengku Razaleigh Hamzah

July 31, 2010

JULY 31 — Thank you for inviting me to speak with you. I am truly honoured. I have played some small role in the life of this nation, but having been on the wrong side of one or two political fights with the powers that be, I am not as close to the young people of this country as I would hope to be. History, and the 8 o’clock news, are written by the victors. In recent years the government’s monopoly of the media has been destroyed by the technology revolution.

You could say I was also a member of the UKEC. Well I was, except that belonged to the predecessor of the UKEC by more than fifty years, The Malayan Students Union of the UK and Eire. I led this organisation in 1958/59. I was then a student of Queen’s University at Belfast, in a rather cooler climate than Kota Bharu’s.

Your invitation to participate in the MSLS was prefaced by an essay which calls for an intellectually informed activism. I congratulate you on this. The Youth of today, you note, “will chart the future of Malaysia.” You say you “no longer want to be ignored and leave the future of our Malaysia at the hands of the current generation.” You “want to grab the bull by the horns... and have a say in where we go as a society and as a nation.”I feel the same, actually. A lot of Malaysians feel the same. They are tired of being ignored and talked down to by swaggering mediocrities.

You are right. The present generation in power has let Malaysia down.

But also you cite two things as testimony of the importance of youth and of student activism to this country, the election results of 2008 and “the Prime Minister’s acknowledgement of the role of youth in the development of the country.”

So perhaps you are a little way yet from thinking for yourselves. The first step in “grabbing the bull by the horns” is not to required the endorsement of the Prime Minister, or any Minister, for your activism.

Politicians are not your parents. They are your servants. You don’t need a government slogan coined by a foreign PR agency to wrap your project in. You just go ahead and do it.

When I was a student our newly formed country was already a leader in the postcolonial world. We were sought out as a leader in the Afro-Asian Conference which inaugurated the Non-Aligned Movement and the G-77. The Afro-Asian movement was led by such luminaries as Zhou En-lai, Nehru, Kwame Nkrumah, Soekarno. Malaysians were seen as moderate leaders capable of mediating between these more radical leaders and the West. We were known for our moderation, good sense and reliability.

We were a leader in the Islamic world as ourselves and as we were, without our leaders having to put up false displays of piety. His memory has been scrubbed out quite systematically from our national consciousness, so you might not know this or much else about him, but it was Tengku Abdul Rahman established our leadership in the Islamic world by coming up with the idea of the OIC and making it happen.

Under his leadership Malaysia led the way in taking up the anti-apartheid cause in the Commonwealth and in the United Nations, resulting in South Africa’s expulsion from these bodies.

Here was a man at ease with himself, made it a policy goal that Malaysia be “a happy country”. He loved sport and encouraged sporting achievement among Malaysians. He was owner of many a fine race horse.

He called a press conference and had a beer with his stewards when his horse won at the Melbourne Cup. He had nothing to hide because his great integrity in service was clear to all. Now we have religious and moral hypocrites who cheat, lie and steal in office but never have a drink, who propagate an ideologically shackled education system for all Malaysians while they send their own kids to elite academies in the West.

Speaking of football. You’re too young to have experienced the Merdeka Cup, which Tunku started. We had a respectable side in the sixties and seventies. Teams from across Asia would come to play in Kuala Lumpur. Teams such as South Korea and Japan, whom we defeated routinely. We were one of the better sides in Asia. We won the Bronze medal at the Asian games in 1974 and qualified for the Moscow Olympics in 1980. Today our FIFA ranking is 157 out of 203 countries. That puts us in the lowest quartile, below Maldives (149), the smallest country in Asia, with just 400,000 people living about 1.5 metres above sea level who have to worry that their country may soon be swallowed up by climate change. Here in ASEAN we are behind Indonesia, Thailand, Singapore, whom we used to dominate, and our one spot above basketball-playing Philippines.

The captain of our illustrious 1970’s side was Soh Chin Aun. Arumugam, Isa Bakar, Santokh Singh, James Wong and Mokhtar Dahari were heroes whose names rolled off the tongues of our schoolchildren as they copied them on the school field. It wasn’t about being the best in the world, but about being passionate and united and devoted to the game.

It was the same in Badminton, except at one time we were the best in the world. I remember Wong Peng Soon, the first Asian to win the All-England Championship, and then just dominated it throughout the 1950. Back home every kid who played badminton in every little kampong wanted to call himself Wong Peng Soon. There was no tinge of anybody identifying themselves exclusively as Chinese, Malays, Indian. Peng Soon was a Malaysian hero. Just like each of our football heroes. Now we do not have an iota of that feeling. Where has it all gone?

I don’t think it’s mere nostalgia that that makes us think there was a time when the sun shone more brightly upon Malaysia. I bring up sport because it has been a mirror of our more general performance as nation. When we were at ease with who we were and didn’t need slogans to do our best together, we did well. When race and money entered our game, we declined. The same applies to our political and economic life

Soon after independence we were already a highly successful developing country. We had begun the infrastructure building and diversification of our economy that would be the foundation for further growth. We carried out an import-substitution programme that stimulated local productive capacity. From there we started an infrastructure buildup which enabled a diversification of the economy leading to rapid industrialisation. We carried out effective programmes to raise rural income and help with landless with programmes such as FELDA. Our achievements in achieving growth with equity were recognised around the world. We were ahead of Our peer group in economic development were South Korea, Hong Kong, Singapore and Taiwan, and we led the pack. I remember we used to send technical consultants to advise the South Koreans.

By the lates nineties, however, we had fallen far behind this group and were competing with Thailand and Indonesia. Today, according to the latest World Investment Report, FDI into Malaysia is at about a twenty year low. We are entering the peer group of Cambodia, Myanmar and the Philippines as an investment destination. Thailand, despite a month long siege of the capital, attracted more FDI than we did last year. Indonesia and Vietnam far outperform us, not as a statistical blip but consistently. Soon we shall have difficulty keeping up with The Philippines. This, I believe, is called relegation. If we take into account FDI outflow, the picture is even more interesting. Last year we received US$1.38 billion (RM4.40 billion) in investments but US$ 8.04 billion flowed out. We are the only country in Southeast Asia which has suffered nett FDI outflow. I am not against outward investment. It can be a good thing for the country. But an imbalance on this scale indicates capital flight, not mere investment overseas.

Without a doubt, Malaysia is slipping. Billions have been looted from this country, and billions more are being siphoned out as our entire political structure crumbles. Yet we are gathered here in comfort, in a country that still seems to ‘work.’ Most of the time. This is due less to good management than to the extraordinary wealth of this country. You were born into a country of immense resources both natural and cultural and social. We have been wearing down this advantage with mismanagement and corruption. With lies, tall tales and theft. We have a political class unwilling or unable to address the central issue of the day because they have grown fat and comfortable with a system built on lies and theft. It is easy to fall into the lull caused by the combination of whatever wealth has not been plundered and removed and political class that lives in a bubble of sycophancy.

I urge you not to fall into that complacency. It is time to wake up. That waking up can begin here, right here, at this conference. Not tomorrow or the day after but today. So let me, as I have the honour of opening this conference, suggest the following:

• Overcome the urge to have our hopes for the future endorsed by the Prime Minister. He will have retired, and I’ll be long gone when your future arrives. The shape of your future is being determined now.

• Resist the temptation to say “in line with” when we do something. Your projects, believe it or not, don’t have to be in line with any government campaign for them to be meaningful. You don’t need to polish anyone’s apple. Just get on with what you plan to do.

• Do not put a lid on certain issues as “sensitive” because someone said they are. Or it is against the Social Contract. Or it is “politicisation”. You don’t need to have your conversation delimited by the hyper-sensitive among us. Sensitivity is often a club people use to hit each other with. Reasoned discussion of contentious issues builds understanding and trust. Test this idea.

• It’s not “uber-liberal” to ask for an end to having politics, economic policy, education policy and everything and the kitchen sink determined by race. It’s called growing up. Go look up “liberal” in a dictionary.

• Please resist the temptation to say Salam 1 malaysia, or Salam Vision 2020 or Salam Malaysia Boleh, or anything like that. Not even when you are reading the news. It’s embarrassing. I think it’s OK to say plain old salam the way the Holy Prophet did, wishing peace unto all humanity. You say you want to “promote intellectual discourse.” I take that to mean you want to have reasonable, thought-through and critical discussions, and slogans are the enemy of thought. Banish them.

• Don’t let the politicians you have invited here talk down to you.

• Don’t let them tell you how bright and “exuberant” you are, that you are the future of the nation, etc. If you close your eyes and flow with their flattery you have safely joined the caravan, a caravan taking the nation down a sink hole. If they tell you the future is in your hands kindly request that they hand that future over first. Ask them how come the youngest member of our cabinet is 45 and is full of discredited hacks? Our Merdeka cabinet had an average age below thirty. You’re not the first generation to be bright. Mine wasn’t too stupid. But you could be the first generation of students and young graduates in fifty years to push this nation through a major transformation. And it is a transformation we need desperately.

• You will be told that much is expected of you, much has been given to you, and so forth. This is all true. Actually much has also been stolen from you. Over the last twenty five years, much of the immense wealth generated by our productive people and our vast resources has been looted. This was supposed to have been your patrimony. The uncomplicated sense of belonging fully, wholeheartedly, unreservedly, to this country, in all it diversity, that has been taken from you. 

Our sense of ourselves as Malaysians, a free and united people, has been replaced by a tale of racial strife and resentment that continues to haunt us. The thing is, this tale is false.

The most precious thing you have been deprived of has been your history. Someone of my generation finds it hard to describe what must seem like a completely different country to you now. Malaysia was not born in strife but in unity. Our independence was achieved through a demonstration of unity by the people in supporting a multiracial government led by Tengku Abdul Rahman. That show of unity, demonstrated first through the municipal elections of 1952 and then through the Alliance’s landslide victory in the elections of 1955, showed that the people of Malaya were united in wanting their freedom.

We surprised the British, who thought we could not do this.

Today we are no longer as united as we were then. We are also less free. I don’t think this is a coincidence. It takes free people to have the psychological strength to overcome the confines of a racialised worldview. It takes free people to overcome those politicians bent on hanging on to power gained by racialising every feature of our life including our football teams.

Hence while you are at this conference, let me argue, that as an absolute minimum, we should call for the repeal of unjust and much abused Acts which are reversals of freedoms that we won at Merdeka.

I ask you in joining me in calling for the repeal of the ISA and the OSA. These draconian laws have been used, more often than not, as political tools rather than instruments of national security. They create a climate of fear. These days there is a trend among right wing nationalist groups to identify the ISA with the defence of Malay rights. This is a self-inflicted insult on Malay rights. As if our Constitutional protections needed draconian laws to enforce them. I wish they were as zealous in defending our right not to be robbed by a corrupt ruling elite. We don’t seem to be applying the law of the land there, let alone the ISA.

I ask you to join me in calling for the repeal of the Printing and Publications Act, and above all, the Universities and Colleges Act. I don’t see how you can pursue your student activism with such freedom and support in the UK and Eire while forgetting that your brethren at home are deprived of their basic rights of association and expression by the UCA. The UCA has done immense harm in dumbing down our universities.

We must have freedom as guaranteed under our Constitution. Freedom to assemble, associate, speak, write, move. This is basic. Even on matters of race and even on religious matters we should be able to speak freely, and we shall educate each other.

It is time to realise the dream of Dato’ Onn and the spirit of the Alliance, of Tunku Abdul Rahman. That dream was one of unity and a single Malaysian people. They went as far as they could with it in their time. Instead of taking on the torch we have reversed course. The next step for us as a country is to move beyond the infancy of race-based parties to a non-racial party system. Our race-based party system is the key political reason why we are a sick country, declining before our own eyes, with money fleeing and people telling their children not to come home after their studies.

So let us try to take 1 Malaysia seriously. Millions have been spent putting up billboards and adding the term to every conceivable thing. We even have cuti-cuti 1 Malaysia. Can’t take a normal holiday anymore.

This is all fine. Now let us see if it means anything. Let us see the Government of the day lead by example. 1 Malaysia is empty because it is propagated by a Government that promotes the racially-based party system that is the chief cause of our inability to grow up in our race relations. Our inability to grow up in our race relations is the chief reason why investors, and we ourselves, no longer have confidence in our economy. The reasons why we are behind Maldives in football, and behind the Philippines in FDI, are linked.

So let us take 1 Malaysia seriously, and convert Barisan Nasional into a party open to all citizens. Let it be a multiracial party open to direct membership. PR will be forced to do the same or be left behind the times. Then we shall have the vehicles for a two party, non-race-based system.

If Umno, MIC or MCA are afraid of losing supporters, let them get their members to join this new multiracial party. PR should do the same. Nobody need feel left out. Umno members can join en masse. The Hainanese Kopitiam Association can join whichever party they want, or both parties en masse if they like. We can maintain our cherished civil associations, however we choose to associate. But we drop all communalism when we compete for the ballot. When our candidates stand for Elections, let them ever after stand only as Malaysians, better or worse.

Now let’s have a discussion.

* Tengku Razaleigh Hamzah’s speech at the UKEC’s Fourth Malaysian Students Leadership Seminar in Kuala Lumpur on July 31, 2010.

We should all come clean

Tengku Razaleigh’s official weblog @razaleigh.com

Yesterday I gave an interview to Sarah Stewart, the Bureau Chief of AFP in Malaysia. Among the questions she asked me was the unavoidable question about the international scandal linking Dato’ Seri Najib Razak with the murder of Altantuya Sharibuu and with the purchase of the Scorpene submarines.

I told Sarah that in my long experience as a politician the only way to clear one’s name when a scandal has broken out around oneself is to meet it head on in the court of law. The BMF scandal of the 1980’s also had its share of lurid detail. There too a large sum of money and a murder was involved. An unseen hand had woven the threads of the story around me to destroy me politically. But when international newspapers alleged that I was involved in any wrongdoing, I took action against each and every one of them in their home jurisdictions.

I sued The Telegraph and The Sunday Times of the UK, and The South China Morning Post of Hong Kong. I won all three cases, the newspapers published unreserved apologies and printed retractions covering half a broadsheet page each, and I came away with a tidy sum of money for my trouble.

It is safe to say that in the international media, the incoming Umno President and the presumptive Prime Minister is being evaluated through the Altantuya scandal. The UK’s Sunday Times, the International Herald Tribune, the French daily, Libération, The Australian Financial Review, the Far Eastern Economic Review and the New York Times have all published stories raising questions about the link between the murdered young woman, Dato’ Seri Najib, and the gigantic commission paid out by the French company Armaris to a Malaysian company for the purchase of submarines. This is now an international story.

And this story will not go away. With its dramatic details and the alleged involvement of elite Malaysian government operatives, it captures the journalistic imagination. But the story is now connected with an ongoing investigation into the dealings of a major French company. The story is also going to stick around because it is a handy looking-glass into Malaysia’s “increasingly dysfunctional political system.” It implicates our entire system of government, our judiciary, and our press, and it casts a shadow on our ability as a nation to face and tell the truth. Against this backdrop promises of reform ring hollow. The storyline of the New York Times article, for example, is that scandal-clouded succession reveals a once confident young country shaken to its foundations by institutional rot. I cannot say this is inaccurate.

The scandal is bringing shame to the nation and damaging our international credibility. For the honour of the nation, for the honour of the office of prime minister, for the honour of the sovereign institutions expected to endorse, confirm and lend authority to him should he become prime minister according to Umno’s plans, Dato’ Seri Najib Tun Razak should finally face these suspicions and implied charges, submit himself to legal scrutiny, and come clean on them.

Swearing on the Al-Quran is not the way out. Scoundrels have been known to do that. The truth, established through the rigorous and public scrutiny of the law, is the only remedy if an untrue story has gained currency not just internationally but at home among a large section of the people.

Najib should voluntarily offer to testify at the trial of the two officers charged with killing Altantuya Sharibuu. He could also write to these newspapers and if necessary he should take legal action against them to clear his name and that of our country.

How a new government is formed

by Tengku Razaleigh Hamzah
@razaleigh.com

In a recent interview I was quoted as saying that the Yang di-Pertuan Agong could appoint someone other than the man nominated by the party. The fact that this was reported as “news” shows how far we as a country have drifted from the principles set out in our Constitution.

Let us understand very clearly the transitional situation we are in.

1. The incumbent Prime Minister is about to resign as he has solemnly promised to by the end of this month.

2. On the appointed day (which like so many things in this administration remains a mystery) the Prime Minister will tender his resignation and that of his cabinet to the Yang di-Pertuan Agong. With this the government of the day comes to an end.

3. The Yang di-Pertuan Agong will appoint the next Prime Minister at his sole discretion from among the members of the elected lower house of Parliament, the Dewan Rakyat. His Majesty’s choice is guided by his own judgment of who among the members “commands the confidence” of a majority the members of parliament.

4. The new Prime Minister will name his cabinet and form the next government.

5. The Agong’s choice may at any time be tested by a vote of confidence in the Dewan Rakyat. If the Prime Minister is rejected by the Dewan, the King will have to re-appoint another person.

As there has been much confusion on this point let me restate it:

The Yang Dipertuan Agong has sole and absolute discretion in how he forms his judgment as to who in the Dewan Rakyat commands the confidence of the majority. The choice is his alone.

The choice is absolute but not arbitrary, since it is guided by the Constitution. The right is the Agong’s alone, but it can any time afterwards be tested by the Dewan Rakyat.

This system is democratic in that it provides for the Dewan Rakyat and the Ruler to check and balance each other’s powers in an orderly manner. The participants in this process are the Ruler and the individual members of parliament. Within the Dewan Rakyat, each member is accountable to his constituents as an individual. Political parties do not enter this description. The Agong’s concern is solely for the rakyat. In his formal capacity, His Majesty sees each member of the House only as representing his subjects in a particular constituency. This is why MP’s are referred to only by the constituencies they represent. Their party affiliation is no consideration at all.

Let me draw on some implications of this understanding of how our governments are formed.

1. Whatever undertakings the present prime minister has made with his deputy or with his party about his successor are external to the constitutional process. To think otherwise is to imagine that the prime ministership is a private property to be passed on from one potentate to another at whim. The behaviour of some leaders might have conveyed this unfortunate impression, and caused the public to find the party arrogant and out of touch.

2. The fact that the President of UMNO has also been appointed as Prime Minister is only a convention, as Tun Dr Mahathir, Tan Sri Muhyiddin Yassin and Datuk Seri Nazri Aziz have asserted recently. This convention was based on the assumption of Umno’s absolute dominance of Parliament. That condition no longer holds.

3. Statements in the media that it is the right of Umno and BN to dictate to the Yang Dipertuan Agong who should be Prime Minister deny the constitutional right of the Yang Dipertuan Agong, and deprive him of perhaps the most important of his few discretionary powers. Such statements turn the Agong’s role into a rubber stamp for the decisions of a political party. I am waiting for Umno to strongly denounce such statements, especially as we have recently rediscovered our concern for the rights of the Rulers.

Over the last quarter century, the rulers, like the legislature, the judiciary, the police, the universities and all our major public institutions, have had their powers systematically curtailed and their immunities removed to make way for unruly executive power. In the process, fundamental principles such as the separation of powers have been ignored. Umno itself has not been spared this process as it has become more autocratic and top-down to the dismay of millions of ordinary members.

Over time the rakyat have been so conditioned to the abuse of executive power that many have forgotten that the government is more than the prime minister and his cabinet. Many have forgotten how a properly functioning government works and what the rule of law looks like. Perhaps this is why it is news to some that the Yang di-Pertuan Agong has an independent role to play, just as the judiciary and the legislature do.

Malaysia has fallen into a spiral of institutional and economic decline. If we are to save this country from long term and increasingly tragic decline, the next government appointed by the Yang di-pertuan Agong must not only be fully committed to restoring the Legislature, the Judiciary and the Rulers to their proper dignity and independence, it must be seen by the Malaysian public to be capable of doing so.

think

by Tengku Razaleigh Hamzah @http://razaleigh.com/
January 25, 2009 at 6:06 am

I have long said that UMNO and the BN must change fundamentally or become irrelevant. That change cannot wait, as one General Election and two bye-elections have shown us. The proposals I made last year to democratize and clean up the party were opposed by its leadership. I called for the Party to hold an EGM to reflect together upon the meaning of its losses at the Election and I proposed that we remove quotas for nomination, and scrap the delegate system in favour of direct election to key positions. I said that the party needs to be democratised, after which key party positions should be separated from government office.

Yesterday, we heard from the Prime Minister, all the way from Dubai, about when he thinks the process of change will begin:

“Umno would institute changes and a renewal to strengthen the party after its new leadership takes over following the party elections in March….we will go ahead with the elections and let the new leadership institute the necessary changes”

We are told that all that has been done so far to effect change is to “compile all the proposals on renewal measures from an Umno retreat and several discussion sessions," that is to say, not much. It’s nice to compile ideas, but change requires hard decisions and leadership.

So the entire hope of change in Umno is now laid at the feet of the leadership that the party elections will yield at the end of March.

They shall carry all hope of Umno’s renewal.

* * *

But what if the leadership is the problem?

Suppose the party elections that are supposed to elect the saviours of the party is part of the problem– a process that our members no longer even pretend to believe is open, fair or clean?

***

Think about what the voters rejected at Kuala Terengganu.

It wasn’t the candidate. This wasn’t a referendum on the Prime Minister or his Deputy. This wasn’t about individuals at all.

It was Umno they rejected, with its methods, its assumptions and habits and ingrained ways, and the entire leadership that brought Umno to this state.

Now think who these voters are.

The Malay voters who swung to the Opposition, the Chinese and Indian voters who waved PAS flags, the young who now reflexively reject Umno and BN, and whose swelling numbers will decide the election in 2013.

And think forward and ask if it is possible to imagine that the March elections will give us the leadership we need for these extraordinary times.

If we care about this country we should be asking fundamental questions. ---Tengku Razaleigh Hamzah

Four months later…

by Tengku Razaleigh Hamzah @http://razaleigh.com/
January 23, 2009 at 4:50 pm

“We are in the midst of a once-in-a-century credit tsunami” ---Alan Greenspan, October 23, 2008

After the Great Depression, economists thought they had banished economic crashes to the history books. We were said to be in a new economic era in which carefully calibrated management of interest rates and money supply by Central Banks would keep the system humming without major disruption. Today’s crisis, sparked by a reckless greed which implicates the entire US financial establishment, has rubbished that view. The policy thinking of John Maynard Keynes, who puzzled over the causes of the Great Depression and described the remedy that Franklin Delano Roosevelt applied, has been dusted off and brought back to life. Suddenly everybody is a Keynesian again.

Keynes diagnosed recessions as a failure of aggregate demand. Today’s recession is caused by a loss of confidence triggered by credit failure. A mass of worthless American mortgages, packaged and resold all over the world, wiped out trillions of dollars in the value of savings and investments and sparked a global collapse of credit, the oxygen of business. Consumers cut back on spending and businesses cut down on production and investment, reducing demand for materials and labour and leading to even lower confidence. If this self-reinforcing process is not arrested, the system goes into a tailspin.

The government is the only economic agent with the scale and freedom of action to turn things around. It does this either by increasing its own expenditure or lowering taxes, or some combination of both. Each of these measures stimulates demand. By increasing its own expenditure, the government creates demand directly. By reducing taxes, it leaves more money in the pockets of citizens so that they demand more goods and services. The latter can fail if citizens are so uncertain that instead of spending that extra money they save it away. Either way, such fiscal measures are temporary, targetted remedies aimed at reversing a destructive cycle of lowered demand, or at least to cushion its shock to the most vulnerable members of society. It is remedial, like reviving a patient, putting out a fire, or preventing a landslide.

Like all remedies, successful fiscal policy must have the right ingredients in the right dose applied at the right time.

Let me stress this again.

a) It must consist of the right spending. The right type of spending will aim for a combination of short term relief and stimulus, and long term improvement in the productive capacity of the economy via infrastructure investment, economic restructuring and institutional reform. Both the size of the expected multiplier and how quickly it can take effect in the economy need to be taken into account in selecting any particular project.

b) The stimulus must be large enough.

c) And it must be applied on time. Delay allows time for the down cycle to turn, enlarge its effects and cause long term damage. Stimulus measures can take months to take effect. Some of the right decisions have to have been made yesterday.

I am not sure that the two stimulus measures that the government has announced in the last four months fulfill any of the above criteria.

Valuecap

In October the government made EPF put RM5 Billion into Valuecap Sdn Bhd, a company formed in 2002 to buy stocks on the basis of loans, for Valuecap to buy “undervalued stocks.” But just what is an “undervalued” stock? Undervalued by whom? Given that the entire market is perpetually on the lookout for “undervalued stocks” to make a buck off, I’m not sure if this was a helpful instruction. It asks for Valuecap to be smarter than the market. And it’s not as if EPF itself didn’t have perfectly capable fund managers investing in the stock market. So we entrusted RM5 Bil from the retirement savings fund of our workers to a company with a proven track record of being unable to locate that value, a company that prior to this already owed creditors RM5.1Bil that it is unable to pay.

Valuecap’s merits aside, it was not clear how propping up the stock market was supposed to stimulate aggregate demand. But it was clear that RM5Bil, representing 1% of the capitalization of the KLCI, or the value of 3 days’ trading, was barely enough to cause a blip in the KLCI, after which it continued to decline along with other global markets.

If picking ‘undervalued stock’ is a hopeless vague instruction, the real criteria Valuecap uses for picking companies need to be scrutinised. The Valuecap deal was so opaque, so economically senseless, that EPF contributors and the investing public may be forgiven for wondering if the real intention was to cash out favoured parties, leaving the government and EPF contributors holding the bill.

One international fund manager described it as “daylight robbery” of the very people we were supposed to be helping through the recession.

This kind of perception of the Malaysian government’s capacity for governance and policymaking does little to improve confidence in the Malaysian economy. Right now we are in particular need of that confidence.

The 7 Billion stimulus package

It’s hard to comment on the RM7Billion stimulus package the government announced on November 4 because none of its details have been filled in, none of its projects has gotten off the ground, and none of its effects noticed yet. It appears to be a hodgepodge of projects driven by special interest with no economic plan behind it.

The most memorable element in it for me was the provision for RM200 million of this fiscal stimulus to go towards “re-engineering” all Malaysia’s toddlers into “holistic human capital” whatever that is, in nurseries run by an organization led by the wife of the Deputy Prime Minister. Permata curriculum will now be the national early-childhood curriculum and Permata’s teachers will be absorbed into the Ministry of Education’s payroll.

In this grave crisis, it is interesting to see the government support a private effort to the extent of absorbing it into the government and giving it RM200 million to spend. How will that money be spent? Has the Ministry of Finance taken over policymaking on early childhood education? What does this say about governance and transparency?

How this constitutes an economic stimulus in the sense I described above is a question I almost forgot to ask.

In a press statement in October last year, I underlined the urgent need for action. I said we must be vigilant, coordinated and bold in our response to the crisis. The government ignored that view. To date we have seen only denial, indirection and inaction. What measures have been announced have yet to be implemented.

What’s even more worrying is the thought these failures may arise from a failure of capacity, not of knowledge. Our current leadership, and the way it is organized and supported, may lack the very capacity to deal with major crises.

That may explain why it continues to deny we are in a serious crisis, both economic and political. ---Tengku Razaleigh Hamzah

RESTORING CONFIDENCE

ASLI Strategic Outlook Forum
January 15, 2009

YBM Tengku Razaleigh Hamzah

A problem of confidence

The present financial crisis started in a speculative housing bubble in the US, inflated on greed and irrational confidence. Shady practices went mainstream under the wing of weak financial governance. When the bubble burst, gold-plated names on Wall Street were implicated. A massive loss of confidence in the financial sector has crippled credit flow worldwide. Consumption has contracted as households put off expenditure out of uncertainty. Investment has retreated. There has been a massive loss of confidence.

2. Expectations are a central factor in macroeconomic booms and busts. If a sharp loss of confidence is an endogenous part of the problem, a restoration of confidence must be the beginning of the solution. However, if we have learned anything at all from the crisis, this cannot be hollow confidence, but confidence based on a clear appreciation of our prospects. The lesson of the global economy is that false confidence based on irrational hope leads to collapse, disillusionment and pessimism.

3. We need a sound appreciation of our reality before we can dream of changing it. We need to face harsh truths before we can believe in ourselves and inspire others to believe in us. In coming to that sound appreciation here in Malaysia we have run out of time for politically manipulated messaging and sugar coated evasions.

4. Let us just begin by acknowledging that we will not be spared the effects of the global economic crisis.

5. Our leaders only undermine the government’s credibility when they paint an alternative reality for us. I understand we don’t want to frighten markets and voters unnecessarily, but we do not live in an information bubble. Only the most resolutely ignorant can now pretend that all shall be fine while the rest of the world deals with what Jeffrey Sachs has called “a world economy teetering on the brink of unprecedented catastrophe.” Leaders who deny the seriousness of the crisis only raise the suspicion that they have no ideas for coping with it. They undermine the government’s credibility when that very credibility, that confidence, is a key issue.

6. We are a trading and exporting nation. While we were relatively shielded from the first wave of financial failures there is no escape from the sharp demand slump in the global economy. The Government and Bank Negara maintain that our growth rate this year will be 3.5%. I fear it could be well under that. The latest numbers show a plunge in industrial activity, with manufacturing output in November, down 9.4 percent from a year ago. December may well be worse. Exports are down. There has been a dramatic swing in the balance of payments to a RM31 billion deficit in the third quarter, from a surplus of RM26 billion in the second. Anyone looking at the size of the downturn and at its swiftness can only wonder if we will be sailing through. This crisis really “went global” only in the final quarter of last year, but within that single quarter manufacturing both here and in Singapore contracted by more than 10 percent on the previous year. Policymakers in Singapore appear far more alarmed than our own. After having declared a recession, they found that the effects of the crisis were far worse than they thought. We are just at the beginning, and the bottom is not yet in sight.

7. Three and a half percent growth, even if we achieve it, will not create enough jobs to employ the large number who enter the workforce each year from our young population. Given our demographic profile and the fact that we are an oil exporter, our baseline do-nothing growth figure is not 0% but closer to 4%.

8. We do have a problem. Now we need to acknowledge that we are not in good shape to deal with it. After early decades of rapid progress, it looks like that economic growth has flattened, our public delivery system calcified and our economic leadership run out of ideas.

The financial crisis in the context of our developmental path

9. Malaysia is squeezed between being the low cost manufacturer we once excelled as, and the knowledge-intensive economy we are failing to become. Our years of sustained high growth ended in 1997 with the Asian Economic Crisis. With the subsequent rise of China and India as low cost producers with giant domestic markets, the manufacturing sector which propelled that growth is being hollowed out.

10. We are in the infamous “middle Income trap”. No longer cheap enough to compete with low cost producers and not advanced enough to compete with more innovative ones, we find ourselves squeezed in between with no economic story. Successful economies, like successful companies, need a compelling story, and we don’t have one. With falling communications and transport costs, the skilled engineers, managers and designers of the rich countries are pairing themselves to the cheaper labour of poor countries to extract productivity and cost benefits. The global integration of labour markets favours both rich and poor countries and stagnates the wages of those in the middle that are neither smarter nor cheaper. That means us. Our working people have suffered stagnant wages and a rising cost of living.

11. According to the World Bank, Malaysia’s share of GDP contributed by services was 46.2% in 1987. How much did you think it was twenty years later in 2007? 46.4%.

How much do you think the real wages of our workers grew between 1994 and 2007? By 2.6% in the domestic sector and by 2.8% in the export sector.

Unskilled migrant workers, documented and undocumented, make up 30-40% of our workforce. Meanwhile, alone in East Asia, the number of expatriate professionals here has decreased. Alone in East Asia, private sector wage increases follow government sector increases, not the other way around.

Did we have to learn about this from the World Bank? What has the EPU been doing? Has the cabinet pondered these numbers? Have we had a national discussion about what this?

12. The only long term path to prosperity is increased income through increased productivity. Sustained productivity growth is the engine of China’s unbroken run of high growth. Our failure to increase productivity and working incomes has been masked by an influx of cheap labour. That cheap labour has become another crutch for us.

13. Low growth

a) The other thing masking our underperformance over the last decade is the fact that in this time the world economy has experienced its biggest expansion in recorded history. We have averaged 4 to 5 percent growth throughout a historic boom over which world economic growth has averaged 4.5 percent. Meanwhile the two most populous nations in the world have been growing at or near double digit rates, multiplying per capita incomes and lifting hundreds of millions out of poverty in the greatest expansion of human welfare in history. That boom is over and we have missed it.

b) By analogy, when we view the report cards of our own children, we set our expectations against what they have been given and what they were capable of in the past. Turning to our own country, so richly endowed with natural and cultural resources, a stable society and good institutions, we see a failing report card. Instead of educating our young to be competitive we have turned out large numbers without the skills and attitudes suited for basic work, let alone for the global economy that is not out there somewhere but on our own shores.

Each decade we have discovered new ‘peer-countries’ against whom we might look decent because we have fallen out of the league of the last set of peers. We fail to notice we have been relegated. Remember that in the 60’s we were classified with Taiwan and Korea, in the eighties with Singapore and Hong Kong. Now we are less “relevant” than Vietnam as an investment destination. I remember receiving delegations from Taiwan and Hong Kong who came to learn from us.

14. Inequality
We cannot comfort ourselves that we have sacrificed growth for social equity. Despite the strong redistributive measures the government has pursued for decades, our Gini coefficient, the standard measure of inequality, has been ballooning. In this region only Papua New Guinea is more unequal. We have the most unequal income distribution in Southeast Asia. If there is supposed to be a trade-off between growth and equity, we have not made it. We are failing on both growth and equity.

15. What does it take to make the leap from middle to high income? The countries that have done it recently, Korea, Taiwan, Hong Kong and Singapore, have one feature in common: they were able to learn from previous crises. Without a buffer of natural resources, each of these economies was more exposed than we were. In relative terms, because they are even more trade oriented than we are, each may be harder hit by this downturn than we are. But we miss the picture if we stand by and comfort ourselves that we are ‘shielded’ because our capital markets have been less open. Our very problem may be that we have been shielding ourselves from learning, which requires systematic change in behaviour or knowledge informed by experience.

16. The criterion of success for making the developmental leap, the key differentiator between the leaders and the also-rans, is not immunity from economic crises (after all, if you have a Stone Age economy, you are completely immune) but the organizational capability of governments to learn and re-organize around new national economic strategies through these crises. Each major crisis is either an important opportunity to transform the economy or a major setback to our ambitions. The question is whether our policymaking and policy implementing apparatus is set up, motivated and led to learn from this crisis. It is a question of the capability of government and governance.

17. We must also retrain and re-skill those who lose their jobs because of this crisis. This cannot be done in the present ad hoc manner. It must be a coordinated program, with courses matched and tracked to learners according to a National Skills Plan which in turns supports a vision for the Economy. Those lost jobs, especially in the manufacturing sector, will not be coming back. We better have a plan and a vision.

18. What are the consequences of sailing into an economic storm in our present condition, after a decade of lacklustre performance and with no plan, no vision for sustained high growth? We can look at two scenarios: breakdown or relegation.

a) Breakdown
As a developmental state, the legitimacy of our government is based on its guarantee of social peace and economic development.

As Professor Clive Kessler has observed: “Social peace in Malaysia depends upon the continuation, and the continuing expectation, of economic growth and prosperity; while economic growth and prosperity depend upon the continuation and assurance of social peace.” This reciprocal relationship between peace and growth makes us prone to a vicious feedback cycle: if either engine were to fail, the other would fail with it, and take us down a spiral of failure with a painful end. Our margin for error is slimmer than we think. Our socio-political setup implies that we don’t have a smooth glide down to complete irrelevance. Like a bicycle or an airplane we need to be running at a certain speed to avoid falling off.

b) Relegation
On a second scenario we might just coast through the downturn. However we will emerge with an economy that has failed to gear up to the demands of the global economy, fallen yet further behind along our developmental path and locked ourselves tighter into a long term pattern of low growth. Sooner or later will come that painful reckoning described in the first scenario.

19. We should view the crisis in the context of our history as a young nation. The last time the world faced a contraction of this size Malaysia did not yet exist. The crisis is has broken out at a critical point in the development paths of our economy and our political system. Put these three factors together, and we have a perfect storm: an unprecedented need for leadership at just the moment when our system for selecting and legitimizing political leadership appears to be broken.

Where next

20. My reading of where we stand may seem harsh, but perhaps the world is harsher. I don’t wish to offend, but I believe we need to grasp the peril of our situation clearly before we know what to do next.

21. In the medium term we need to make a developmental leap. But a leap is not a straight-line projection of the present. It is not about doing more of what we have done. We are not going to get there putting up more highways, declaring more Growth Corridors or planting more oil palm. The way up is a complex achievement that in turn depends on transformative improvements in governance and a successful reform of our political system.

22. The world recession is a critical opportunity for us to re-gear and re-tool the Malaysian economy because it is a challenge to take bold, imaginative measures. It lights the fire under our feet to make transformative improvements in governance and politics. It also demands that the government spend boldly on the right things, in the right way, to stimulate demand.

23. Two criteria for ‘the right things” would be those public investments with the widest multiplier effects, over the short and the longer term. Over the short term, there are often tradeoffs between impact on demand and on improved economic capacity. Over the long term, the two are the same. The “long term multiplier” is nothing less than the improved capacity of the entire system.

24. So we must think carefully about what we spend the “fiscal stimulus” on. There is no such thing as a free lunch. We will be going into deficit to finance this stimulus, so it can’t be about just spreading money around. So far there has been no impact from the stimulus package announced in November, nor was it clear what the economic thinking was behind that measure.

25. We don’t need another stimulus “package” of spending here and there. What we need, and what the crisis gives us a chance to implement, is a set of bold projects with an economic story behind them to help Malaysia make the developmental leap we have been missing. We have a once in a lifetime economic challenge. We must meet this challenge with a historic sense of purpose. That means, not with a “stimulus” consisting of ad hoc pork barrel expenditures but a set of public investment projects guided by a vision, designed around a strategy and governed with bullet-proof integrity.

26. Let me suggest two programmes and an enabling set of reforms.

Oil and Gas Centre

27. Oil and Gas has served us well, but we have still not tapped our strategic strength in this sector despite our unmatched natural and strategic advantages:

a) Malaysia is the leading Oil and Gas producer in the region. Our proven reserves have been augmented by major discoveries in recent years.

b) More than half the world’s annual merchant fleet tonnage passes through the Straits of Malacca, with most of it continuing into the South China Sea. Oil flows through the Straits of Malacca are three times greater than that through the Suez Canal and fifteen times greater than flow through the Panama Canal. We live alongside the most important oil shipping route in the world. Our fifteenth century ancestors may have done more to tap that advantage than we.

c) We have in Petronas one of the leading oil companies in the world.

d) We have strong trade links to Middle Eastern oil producers.

28. We could do much better. Consider that despite having no oil resources, Singapore is among the top three global players in trading, refining and manufacture of oil and gas equipment.

29. Three years ago, while Malaysia still held the OIC chairmanship, I proposed a National Strategic Plan with the vision of developing Malaysia into Asia’s Oil and Gas centre, with leading capabilities in refining, shipping, distribution, storage and downstream production.

30. We should develop offshore storage facilities for other producer nations with high country risk. Oil and gas exploration, extraction and production are increasingly technology driven, high value operations in themselves as oil becomes scarcer. There will be large payoffs for having our own R&D capability in exploration, extraction and production. We should specialize in energy technology, including alternative energy sources for a carbon-constrained future.

31. We should form partnerships along the value chain. These could include a network of agreements with Gulf producers and with major consumers to improve oil security. We could form G-to-G partnerships in ASEAN, provide tax incentives and craft innovative Production Sharing Contracts,

32. Here’s the exciting thing. For all these ventures to work we need greatly improved capabilities to finance and trade oil and gas. Given our very special geographic and strategic advantages, we should build the first spot and futures Exchange for Oil and Gas in an OIC nation.

33. Whatever the government chooses to do, it should understand that for us to get on a higher growth plane we must specialize, and we must have a government capable of providing the direction, drive and executive capability to foster that specialization. Globalisation requires a relentless focus on competitive advantage. We need our own story.

Housing

34. Let’s start a program to bring home ownership to the whole country. The construction sector creates multiplier effects in more than a hundred other industries. It provides work in everything from insurance to advertising to materials supply. Of all the national projects we could undertake, few could have such a large social as well as an economic multiplier effect.

35. Housing builds powerful social capital and gives substance to citizenship. A national housing project allows us to design entire communities and townships with their transportation, communications, educational and recreational infrastructure with a strong set of standards and social objectives. It lets us plan the housing stock to cater to the lifecycle of home ownership, with a good mix of options for different localities and life-cycle requirements. It is a way to grow racial harmony, build integrated schools, and help the poor without creating a crutch.

36. Let’s commit ourselves to having each and every Malaysian family own their own home. This vision is a radical challenge to the nation to do better. It will require extraordinary improvements in our ability to design, construct and finance housing projects. It will require the setting up of a statutory board to oversee housing development, administration and management. As land governed by the State powers, the States will have to implement these projects. This will require, and hopefully force, improved coordination between the Federal and State governments, especially now that we might no longer expect that the same party is in power in both places.

37. Financing for this investment could come from modifications to EPF, with matched contributions from the government towards the value of the property. Because it comes out of savings, this spending would be non-inflationary. I can think of few better ways to get the economy humming again, give our citizens a focal point of hope and pride, and weave a safety net that also encourages savings and enterprise.

Public sector reform

38. We cannot wait till the crisis blows over to tackle the public delivery system head on. This is because we will need an upgraded public service just to implement such large public programs successfully.

39. The need for improved governance is greater, not less, in challenging economic times. When Franklin Delano Roosevelt implemented the New Deal to push America out of the Great Depression, many feared that this would present a huge opportunity for graft. Confounding these expectations, the New Deal programmes were implemented with unprecedented transparency. FDR did this by building oversight into the implementation of his rescue program.

40. Similarly, the two programmes I have suggested would come to nought if they were derailed by the corrupt practices that have become the norm in this country. Instead of rescuing our economy they would become millstones around our neck. As part of the project management of these programmes we should set up powerful, independent divisions devoted to investigating complaints of fraud.

41. Today the role of the public sector is a lot more complex than anyone could have imagined even a decade ago. A “public delivery system” that was designed for the challenges of the 1950’s cannot possibly cope with the complex demands of the globalised 21st. The current crisis propagated worldwide in internet time as regulators scrambled to catch up. Government now needs to be smarter, tougher and more responsive than before to engage on equal footing with business. We need leadership to change the operating model of the civil service from last century’s centralized planning approach, driven by budgetary plans, to a model of government as facilitator, aggregator and convener of business. Government that targets economic outcomes rather than accounting quotas.

42. We need to demand as much talent and organizational ability in our public service as the private sector does of its own people. Today the quality government is a core component of national competitiveness. However there is nothing strange about the expectation that the civil service should be a high performing organization led by an intellectual elite. It is how the Malayan Civil Service used to operate. Many of us remember it.

CONCLUSION

43. What I have outlined this afternoon are just my suggestions. I am sure there are many other ideas in this distinguished company.

44. Let me end where I began, with the question of confidence.

45. We need to restore confidence in our basic institutions, our leadership, the integrity of the Federation, the rule of law and our national Constitution. This is of a piece with the vital economic confidence needed to unleash credit, investment and consumption, and get everyone working. We need to restore confidence in Malaysia.

46. Real confidence is hope based on an apprehension of the truth. It is social capital and trust in society and its future. It is inspired by leaders willing to take us through an unflinching evaluation of where we are today to a vision of what we are capable of tomorrow. It means owning our own story and banking on it.

47. The country can no longer afford a political class out of touch with reality that trades on yesterday’s political insecurities and a government that has forgotten its purpose. We need a renewal of leadership as a first step to restoring true confidence.

48. The economic statistics are mere indicators of the activities and expectations of the unique national community we are trying to build, so that building an economy and building a nation, providing good governance and being truthful, are not things that can be achieved apart from one another. To reignite our confidence would be to revitalise the project of building Malaysia.