Milton Friedman and the NEP

What has the great economist got to do with the NEP?

Nothing really but if Friedman had studied how we implemented the NEP he would probably be turning in his grave. But perhaps not as he be having a smug smile at how the Malaysian authorities have proved his theories correct.

Friedman’s basic philosophy was that government is bad and inefficient in most business ventures.

His documentary “Free to Choose” was an interesting film on how government involvement in business is wasteful and should be strictly avoided unless there were compelling reasons for government to be involved such as foreign affairs or defence matters.

So after more than 35 years of NEP policies we are still short of the 30% equity target that was set to be some defining yardstick. Now we have the great debate on whether the target has been achieved with conflicting reports from the EPU, ASLI and MU.

The debate is really irrelevant as the more pertinent question should be,
“Why has the 30% target not been achieved when the government has been in control all these years and why no corrective actions have been taken?”

Milton Friedman could provide the answer via the following example:

Suppose the government granted a favourite crony say a million shares in some IPO and that boosted the Bumi equity by 0.5% and within a month the shares rose by RM3 and that crony decided he wanted cash instead of paper he could sell the shares, make RM3 million and buy a BMW 5 Series to impress his next wife.

The government will then say they are just implementing the NEP policy and the Bumi will say he is just exercising his basic rights.

The end result is that someone gets a RM3 million windfall and the 30% equity target is back to square one. All this has been going on for many years and some people have become accustomed to such generous gifts and these can be in the form of thousands of APs that generate millions of ringgit but do nothing to raise the 30% stake.

It is time for the government to discard this NEP target that will never be realised as the leakage is simply too uncontrolled and those receiving the gifts are not really developing long term capabilities.

Our PM mentioned that no Malaysian will be left behind. What better way than to ensure that all our young citizens be provided with appropriate training and skills so that they can be employed in the many jobs that are available.

We have already wasted so much time and talents on a flawed NEP policy and leaders should be brave enough to change direction before our country ends up at the bottom of the waterfall amidst global competition.

Those who control the country are also in a quandary as it appears the policies have enabled them to remain in power and some believe that without the crony policies those in power will lose the next elections.

Already the signs are ominous and I can hear the roar of the falls.

photo: Niagara Falls, Canadian side