The prospect of a new wave of privatisation in Malaysia was raised in the first Pakatan Harapan (PH) budget when Finance Minister Lim Guan Eng proclaimed: “The business of the government is not to be in business for an entrepreneurial economy to succeed, the private sector must lead.” This is music to the ears of those who support the private market.
The government’s focus is to reduce its role in the economy and dispose of assets in government-linked companies (GLCs) as a way of raising money to cut the national debt. The process has already started with the recent disposal of Khazanah Nasional assets in CIMB, and a much larger disposal of IHH Healthcare Bhd shares to a foreign buyer for more than RM8 billion.
For many people this raises the spectre of past privatisations which are often seen as being plagued by cronyism, expropriation of profits and a loss of social focus. But for others the prospect of keeping GLCs in their current form also raises the same concerns.
Terence Gomez and his team at Universiti Malaya identified 68,327 subsidiaries owned by the top-35 GLCs. The actual number of GLCs and subsidiaries at federal and state level is unknown but we do know one thing — these 68,000 subsidiaries represent 68,000 channels through which patronage, corruption and money laundering can flow.
If each of the 68,000 subsidiaries were given a RM1 million direct-contract government project, RM68 billion can be disbursed through these channels with few, if any, audit concerns. Similarly each of the 68,000 subsidiaries requires a board of directors and a senior management team, which creates multiple opportunities for patronage and the appointment of well-connected individuals.
By focusing on this wide and deep network of GLC involvement in the economy the channels for patronage and corruption can be dismantled by placing large numbers of GLC subsidiaries into the private sector through a process of “Responsible Privatisation.” This is a new approach to privatisation developed in a paper published by the Institute for Democracy and Economic Affairs (IDEAS) last week.
Responsible Privatisation is the transfer of ownership or management of public assets or services into the private sector in ways which (1) maximise economic, social and environmental value, (2) promote good governance, equity and efficiency and, (3) delivers the optimal policy mix of public and private provision within the economy.
When combined with clear regulatory oversight and credible, accountable and transparent institutional scrutiny through parliament, Responsible Privatisation provides a defence against cronyism by widening stakeholder involvement in the ownership and management of newly-privatised companies.
The over-arching principles of Responsible Privatisation focus on full-value creation — not just selling public assets to the highest bidder but ensuring social and environmental value are also maximised.
Wide stakeholder involvement is essential, for example, ensuring a real and meaningful increase in wider ownership within new business models such as social enterprises, mutual ownership schemes and employee buyouts. These have the potential to increase capital ownership and provide a defence against the assets being captured through shareholder concentration.
New business models such as social enterprises can also improve entrepreneurial development by transferring existing going-concerns into the hands of community-based entrepreneurs. This creates exciting routes to empower community groups, young business leaders, women and B40 business people to take up opportunities in newly-privatised small businesses.
In general terms Responsible Privatisation takes into account wider stakeholder concerns and provides incentive-aligned solutions to maximise the social, economic and environmental value for society as a whole.
This is radically different to conventional privatisation in which the primary aim is to maximise profits for the government. But is not inconsistent with the view expressed by the Nobel Prize winning champion of the private market Milton Friedman who argued in 1970 that private companies can have an eleemosynary or social purpose if this fits with the aims of their owners.
In the current debate on GLC reform there is often too much focus on the politics of ownership and the discussions are becoming rather stale. Whether one group of cronies or another group of cronies should run the GLCs is not the issue. Protagonists in this debate often forget that actually, the GLCs belong to the Rakyat, just as all other public assets do.
Responsible Privatisation as part of the reform of GLCs offers a new opportunity to create a vibrant, innovative and entrepreneurial commercial sector that can help Malaysia rise to the challenges of the next phase of economic development.
We must learn from the lessons of the past and see that Responsible Privatisation can form the basis of a new Malaysian model for economic development which cuts through the politics and transfers the rakyat’s assets back into the hands of the rakyat in ways that benefit the rakyat directly.
Geoffrey Williams is a professor at ELM Graduate School at HELP University.
First published in Malay Mail Online , 7th February 2019.