Thursday, January 28, 2021

My January Guest Writer - Sukhdave Singh

The Burden of Privilege on the Malaysian Economy

Published on January 27, 2021

Sukudhew (Sukhdave) Singh

Former Deputy Governor, Central Bank of Malaysia | Former Independent Director, Khazanah Nasional Berhad 

There are three systems of privileges that are operating in Malaysia: race, religion and titles. All of them are intended to confer privileges to certain groups and come with exclusive economic benefits for those who are favored by these systems.

There is no problem with earned or deserved privilege because such privilege is based on a significant contribution to society and the economy. Such privilege is justifiable given the contribution to the greater good. Also, extreme inequality never benefits a society and cannot be justified. Therefore, extending certain privileges that would enable the economically disadvantaged groups in a society to progress and make a better living are also justifiable. What is not justifiable is when the system of privileges is abused, as is clearly the case in Malaysia, and unearned and undeserved privileges are bestowed. There are social and economic costs to any privilege system and the abuse of these systems only increases those costs.

The Privileges of Race and Religion

Let me deal with race and religion first, which by design, have fractured Malaysian society and created a system of privileges that is hard to justify. Let me illustrate with a couple of examples:

When a Malay tycoon can buy a string of houses in Malaysia at discounted prices while middle income non-Malays have to pay full prices to buy their family homes (effectively subsidizing the tycoon), such discriminatory and unwarranted privilege is justified by a system of privileges related to race.

When a Muslim man can walk into a supermarket and demand that it removes the section containing the “non-halal” products consumed by non-Muslims, there is a religious privilege system that is empowering such inconsiderate and uncouth behavior and its associated belief that the customs and practices of one part of society supersede those of the others.

Race and religion have been used to enshrine a privilege system that has created different classes of citizens in the country. Political shenanigans like the large-scale giving of blue ICs to foreigners in Sabah have elevated those foreigners, because of their religion, to enjoy privileges that are denied to other long-standing citizens of the country. When race and religion are the determinants of privilege, merit has a much smaller role in society and in the allocation of economic opportunities.

As it is, the privileges of race and religion have elevated mediocre minds to where they can tell the rest of society what it can and cannot do. The privileges of race and religion have lifted unqualified and incompetent individuals into positions of leadership. The privileges of race and religion have provided opportunities for individuals to enrich themselves through dishonest means, to betray public trust, to loot public funds – all with impunity. The privileges of race and religion have legitimized rent-seeking as an economic activity. The privileges of race and religion have allowed exclusive access to economic resources through institutionalized discrimination. It is primarily to safeguard these privileges that Malaysia has been unwilling to sign up to some very basic international conventions on human rights, including the International Conven­tion on Elimination of All Forms of Racial Discrimination (ICERD), International Convention on Civil and Political Rights (ICCPR), and Inter­national Convention on Eco­nomic, Social and Cultural Rights (ICESCR).

The New Economic Policy was misguided. Instead of focusing on economic need, it decided to focus on race. Had it focused on economic need, it would have achieved superior outcomes in reducing all forms of economic inequality, it would have led to far less distortionary policies, and it would not have entailed the massive waste of taxpayers’ funds. Most important of all, it would have cemented a Malaysian identity where all citizens in need are treated equally. By making the NEP race-based, it has allowed unscrupulous individuals to hijack the benefits to enrich themselves while enacting self-preserving policies that are definitely not in the interest of the Malaysian economy, and may not even be in the interest of those that the NEP was supposed to help.

I am very pessimistic that the Malaysian economy will ever be unshackled from the fetters of the NEP. It has proved to be too profitable for those who have hijacked its benefits and a large deluded sector of our society continues to be fed the narrative of “us against them,” that has been the foundation of such policies. This means that the economic distortions created by these policies will continue to undermine the Malaysian economy at a time when the global competitiveness of the Malaysian economy is being challenged as it never has been before. It is a burden of privilege that the Malaysian economy can ill-afford.

The privileges of Titles

I have nothing against titles and I do believe that a well-managed system of awards can help better society and the economy by recognizing and highlighting individuals with outstanding character that have done great service to the society and country. It provides a beacon for the rest of society by highlighting the behaviors and values we want to encourage. Regrettably, this is not the case with Malaysia’s system of titles. There are certainly deserving individuals who have served the country and continue to do so even today and I personally know a few of them. However, they are just a few drops in a bucket full of title holders for whom no one can tell why they carry the titles they do.

It is the consequences of profligate and undeserved privileges of titles that worry me, certainly due to the effect on the economy, but also in terms of the type of society we have become. Let me mention a few personal experiences:

I recall when I was a deputy governor at the Central Bank, people who did not know me will often call me “Datuk”, implying a safe assumption that anyone in my position must have that title. When I went to meetings in Putrajaya, some staff there will invariably refer to me as “Datuk.” At first, I tried to correct them but after a while I gave up and so I was often a “Datuk” without the title ever having been conferred upon me.

On other occasions, someone will call me “Datuk”, and when I told them that I was not, the consistent response was to try to console me with words like: “Don’t worry. Your time will come. I am sure that your contributions to the nation will be recognized.” They seemed to be embarrassed for me. Nobody ever asked me if I wanted a title in the first place. It was just assumed that I did, and the fact that I did not have one, was a matter of embarrassment.

I also recall experiences at dinners and functions where someone will introduce themselves in this way: “Good evening, I am X,” and then leaning closer as if sharing a secret, “That is, Datuk/Dato/etc. X.” I presume that these individuals were trying to impress me with their modesty by not announcing their titles out loud, but yet not too modestly in still wanting me to know that they had a title.

So, in Malaysia, the definition of success is the type and number of titles attached to your name rather than the real effort you have put into achieving professional and economic success. Even an unsuccessful business person with a title can be seen as successful. Successful businessmen/women and professionals are unsatisfied unless that success is complemented with a title. The likes of Elon Musk and Steve Jobs will be nothing in Malaysia unless they have a "Tan Sri" attached to their name. It has perpetuated and exacerbated the high level of hypocrisy that we see in our society. For example, individuals who have no problem accepting a title, or have put great effort and expense into obtaining one, then make a great public show of not using that title in a false display of modesty. Individuals who claim to be religious and to be “man of god” show no hesitation in embellishing their names with “earthly” titles. It has led to sycophantic behavior among the population with frequent chanting of “Datuk, Dato Seri, Tan Sri, etc.” at any function or event. More insidiously, it has created a culture of subservience and unquestioning obedience to people with titles, even when witnessing their misdeeds and criminal acts.

From a broader societal and economic perspective, it is worth asking if these titles incentivize individuals to great achievements and whether they are a recognition of such achievements. My sense is that they are neither. Let me illustrate with a few examples.

Why should civil servants with guaranteed incomes and lifetime employment, and guaranteed pensions upon retirement, need to be rewarded with titles? What outstanding service beyond the call of duty is being recognized? Why are politicians showered with titles when they are clearly failing in their responsibilities to the rakyat that elected them? Why should businessmen who have done nothing but enrich themselves be given titles? What societal achievement of theirs is being recognized? Why do academics have titles? Have they published academic work that has brought global renown? Have they produced outstanding students that are the pride of the nation? What is exactly the merit that is being recognized? Does anyone know? So, when there are so many individuals walking around with titles and no one can say why they got them, how can such a system be the basis of recognizing and inspiring great achievement?

No one can deny the proliferation of titles in our country, and if they were indeed all based on merit, we are truly blessed to have so many meritorious people among us. We should be one of the top performing economies in the world and our society should be the envy of the world. But we are not the top performing economy and our society is not the envy of the world.

What the proliferation of titles has done is to create a caste-like system of social and economic hierarchy. If you do not believe that, just attend any official function and listen to the speaker rattle of a long hierarchy of titles of attendees, and only at the bottom of the ladder will come “tuan-tuan dan puan-puan” or “ladies and gentlemen.” It is a system that has a clearly defined hierarchy and differentiation based on your title and where you got it from. You may joke about the large number of people in Malaysia with titles, but jokes aside, what it also means is that we have a large vested interest group with a strong interest in defending and perpetuating the system. As with any caste system, the underlying rational is always economic. It is not the only reason (ego and status are also part of it), but it is the key reason. People primarily want titles because of the economic benefits that are presumed to flow from them. This has had the sad outcome of making us a superficial society. Instead of seeking fame through real accomplishments, many are fixated with getting a title, and hoping to achieve fame and fortune through that.

It is a common perception in Malaysia that there are two sets of rules in the country: there is a harsher set that applies to ordinary citizens and a more lenient set that applies to people with titles. If this was not apparent before, numerous incidents during the current pandemic should have made this fact very clear. Titles have also created a sense of entitlement and over-inflated egos. The social media is rife with examples of people with titles behaving in an uncouth and brutish manner in their dealings with ordinary people. It is the same sense of entitlement that makes some think that they can take what is not rightfully theirs. Reflect on the major corporate, political and financial scandals in our country. More likely than not, a person with a title, or often a group of people with titles, were at the heart of these scandals and breaches of public trust. Is it any wonder then that even with so many people with titles among us we are still climbing the rankings of global corruption charts?

The caste-system of titles has, in my view, worked against creating a dynamic competitive economy and has added to the inequality of economic benefits and opportunities that exist in our society.

The Burden of Privilege on the Economy is Heavy

It is unsustainable when a large class of people demand privileged access to the resources of an economy. The largest burden always falls on those who are excluded from these privileges. Great societies have fallen into decay when the excesses of the privileged class behaving in an opportunistic manner created an unbearable burden on the economy and intolerable misery on ordinary citizens. Only last week I was reading about the decline of some Mayan cities. In these civilizations, the size of the ruling class and elites swelled in size with each generation to the extent that the elite become increasingly parasitic as they hogged an ever-increasing share of resources. While the kings and nobles were busy enriching themselves, competing with each other, the peasants and lower classes had to work harder and harder to provide for the ever-increasing demands of the elite while they themselves suffered from hunger and deprivation. The consequent depopulation of the cities was further motivated by the environmental degradation (deforestation, erosion and soil exhaustion) that resulted from the increasing demands of the privileged class.

To Malaysians, this story should have some ring of familiarity. Today, we are similarly seeing our large class of “nobles” fighting among themselves for a share of the slower-growing wealth of the country. The ordinary citizens are bystanders watching this spectacle even as their lives become harder. Talk about GDP growth is meaningless if the fruits of that growth are captured by the privileged class while the rest of the population see their standards of living stagnate, experiencing very little of the benefits of that growth. Like the Mayans, we are also seeing environmental degradation all around us to feed the rapacious appetite of our “nobles.” We are seeing an ongoing “depopulation” in the form of a brain drain of those unwilling to waste their talents in a system where the odds are stacked against them and when there are better opportunities outside the country. We cheer when Malaysians who have made other countries their homes are recognized for their achievements, but feel no shame and do not weep for similar talent at home that is being wasted away because our privilege systems deny them opportunities. Over the long term, a sustained “depopulation” by talent fleeing the country will have only one outcome – the rise of mediocrity leading to a mediocre society and mediocre economic outcomes.

Unearned privilege based on race, religion and titles has transformed our society in a negative manner. It has corroded our value systems (with widening divergence between what we profess and what we practice). It has legitimized rent-seeking. It has given the loudest voice to mediocrity. It has calcified economic inequality. It has weakened us economically; indeed, it has exacted a heavy toll on the Malaysian economy. This is nowhere more evident than when those in power start comparing Malaysia not to countries that are better than us but to those that are worse than us. We are no longer providing a vision of progress but rather trying to explain away our under-achievement. It is an open admission that the Malaysian economy has a problem and that it is not advancing competitively.

The question now is whether Malaysia can overcome its addiction to privilege and reset the economy on the right path? I doubt it, but I would be happy to be proven wrong.