Individuals Maketh the State

The continued insistence on a State-led development model runs contrary to claims that Malaysia is well on its way to becoming a developed country.

Competing economic theories argue either way of this divide. Some clearly believing that a degree of State intervention is necessary to correct significant market distortions whilst on the other end of the spectrum, there are those that firmly posit that the business of Government is not to be in business.

In Malaysia, it can be effectively argued that the bulk of the civil service that engage in economic activities, such as State-led investment funds and State Economic Development Corporations, should not be in business. This is for two key reasons: (a) the primary agents in charge are incapable of doing business from lack of qualifications and experience; and (b) the investments do not make economic sense.

Most of the activities indulged by these agencies generate abysmal single digit returns (if any) and represent an inefficient allocation of capital.

Government has no business being in business.

The crowding out of private sector capital (capital is transferred from the private sector to the public sector) is significant. Given no incentive to achieve meaningful profit levels and economic returns, capital is being squandered in a second best manner.

Worst of all, the crowding out effect is stifling a key element necessary for the creation of a resilient and vibrant economy namely entrepreneurship.

The backbone of a developed economy is the SME sector. The chaos that is the SME sector, growing and dying in a continuing act of creative destruction and renewal, acts as a vital component of efficient capital allocation. It is a critical element that ensures and sustains economic growth. It is also a great leveller of the class system.

The Malaysian Government needs to correct this imbalance between a love for giant, inefficient State-owned enterprises and a freeing up of precious financial capital for the use of the SME sector. Privatisation needs to be accelerated and taken to its logical end.

Funds raised can be utilised in a multitude of ways: paying a Merdeka dividend to all Malaysians, reinvesting into the civil sector (to reskill and retool our civil servants to become better public administrators like in bygone days), financing effective investment incentives for entrepreneurs in key areas of economic development and improving and upgrading as well as overhauling our entire education infrastructure.

Government has no business being in business.

The raison d'etre of a Government is to maximise the welfare of its constituents, to create the conditions necessary for its citizens to be able to lead their own lives and create their own wealth and to act as a safety net for those that fall by the wayside.

Plato's Republic was perhaps one of the first pieces of literature to posit the division of labour. It is precisely the case that the Administrative class was to be focused on administering and that the Philosopher Kings focused on governing so that the People could lead their lives in oblivious peace. Our Government needs to find clarity on exactly that - the Executive to focus on governing and the Civil Service to focus on administering.

Government has no business being in business. The people do.

Here endeth the rather convoluted lesson.

Filed under: Civil Service Reform, SME Development