Najib’s “liberalisation” could open Pandora’s Box

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Pardon me for raining on Najib’s sweeping economic “liberalisation” parade.

For one thing, I don’t think the government fully understands the ramifications of its gung-ho approach to liberalisation in the services sector, especially the financial services sub-sector. Still beholden to the FDI-driven model of economic growth, the government is obviously hoping that its “liberalisation” will result in hordes of foreign investors stampeding into the local market. Sure, more big investors might come in – but at what price to the local economy and small-timers?

The Chinese Malaysian business sector might welcome the removal of bumi quotas. Fed up with paying high prices for “protected items” such as locally made cars, many ordinary Malaysians too might actually welcome “liberalisation” – and I can understand where they are coming from.

But have we considered all the implications?  The Bar Council is already worried about the move to allow foreign legal services firms to enter Malaysia to advise on Islamic finance. This is just the beginning.

What happens when the big boys – the MNCs, with their huge resources – muscle into the local services sector? They will be prepared to make a few years of losses to kill off local competition in all sorts of areas – ranging from financial and banking services, tour agencies, and even the management of homes for senior citizens – which we haven’t even thought of.

Okay, they will create some jobs, but what about accessibility in critical areas such as health care and education. Will they cater only for the rich? What will happen to local businesses in the long-run as the MNCs flex their muscles and exert their power?

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But the area which we should be most concerned about is financial services liberalisation. First, there has been a disconnect between this sector and the real economy, fuelled by the drive to seek ever-higher returns for surplus capital when the real economy itself has been stagnating due to overproduction (at a time when those who need such goods can’t afford them because of low wages). This has led to periodic bubbles in the services sector – booms and bust due to speculation. Some of the financial giants that could seize the opportunity to expand into Malaysia or acquire stakes in local banks and insurance companies could be the very ones that have received public bailout money in their home countries.

It was precisely financial deregulation and liberalisation in the developed economies that got the world into this mess in the first place.

At a time when many countries are now questioning this financial deregulation and liberalisation model and trying to make their domestic economies more resilient and independent, here we are opening the floodgates to something we don’t fully understand. This is precisely the route that MNCs want developing countries to take: they want to prise open developing countries’ markets through the WTO, Gats and now FTAs such as the EU-Asean FTA.

The Najib administration should not hand over our local market to these MNCs on a silver platter without realising the long-term implications for local businesses and the domestic economy.

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miwaki

Anil,do not have to worry about Malaysian business people,they are rich already and even tough they have to close shop as a result of competition from foreign MNCs,they can still retire with load of money in their pockets.We have to be concerned about the people of Malaysia who are wage-earners.I do not mind if all malaysian business men got kick out of business so long as the people of Malaysia are able to get a good job and earn good salary. Lets foreign MNCs show us Malaysians how a business should be run and how workers should carry themselves.It will… Read more »

oneworldmaybenot

YOu cannot say liberalisation caused the financial crisis….in the US its ANARCHY ie absence of any regulation that caused the fiasco. Liberalisation does not mean anarchy, free for all. M’sia is a small country & free trade is very important to us becos local consumption cannot bring the growth we would enjoy. M’sia is still a very protected controlled economy. Ever wondered why oil & commodity prices come down our toilet paper price still goes up? ANy of you fresh grads or new workers out there find it very hard to buy a house? it gets harder for the next… Read more »

Taikohtai

I have to agree with Anil’s concerns. The reason is that BN’s reforms are insincere and BN is merely trying to please vested parties in the hope of getting back votes. Malaysia suffers from severe systemic problems that are no easy fix. Fix corruption, skewed judiciary, PDRM m…, money politics, etc first. These are the main reasons why Malaysia cannot improve except for the UMNOputras and cronies. If the foundations for a strong economy are not fixed, whatever being proposed and implemented will only succeed in patches at best. Lets not be too naive and be hookwinked by BN who… Read more »

sabahan

Deng Xiao Ping once said :
“It does not matter whether the cat is black or white; as long as it catches the mouse, it is a good cat.”

It does not matter whether the Bumi, non-Bumi or foreign company; as long as it provides services that are value for money, it is a good company.

2nd class

This is an utterly bulls*** article. First you want the gov not to practice protectionism against the non Bumi but when the gov decide to liberalalise, you want the gov to practice protectionalism against the foreigner.

Juan Taman

Liberalisation does not necessarily mean deregulation. Quota only impede competition which is bad for consumers. In any sector, regulation to ensure fair competition and good governance is good for the consumers and the economy of the country. A strong consumer organisation in the country will help to check its abuse and educate its citizens. We have quota and in the car industry,Consumers have to pay a high price for locally manufactured car compared with import.How long can we sustain this? The recent financial meltdown in the West is due to the lack of enforcement of good governance and accountability of… Read more »

lokenpal

I think Anil is spot on warn us of the Pandora’s Box. The financial sector had lost much of it creditability, albeit Madoff and sub-prime loan scandals. Obama is coming up with smarter regulations and until this framework is articulated, Malaysia should hold back on MNC.

(see Jon Stewart & Cramer ‘interview’http://www.youtube.com/watch?v=Vi6bxKAAHzQ).

The PM should work on 3 things.

EDUCATION
EDUCATION
EDUCATION

KJ

Suresh writes: “I think it’s unfair to equate the current crises with liberalization of markets. I would say that the distinction here is that regulation failures, not liberalisation, caused the market crash of 2008”. To which the only response can be: Suresh, where have you been hiding? This is one thing on which there is now a virtual consensus. Why do you think everyone is talking about the need for a new regulatory framework? And, yes, “liberalisation” does generally mean “de-regulation”. So, yes, there was regulation failure — due to liberalisation, which allowed what Warren Buffett has called financial WMD’s… Read more »

kittykat46

The current financial crisis was partly brought about by the deregulation and even, in some cases, abandonment of operational controls and rules. Nothing to do with ownership and equity rules.

Our services sector badly needs increased competition to become more competitive. Many service companies in that protected services sector of the economy have become complacent, over-priced , even arrogant.

Having said that, for all the hoopla surrounding Najib’s announcement, there’s really very little substance in it.

Sleep well, the barbarians aren’t about to storm through the gates.
Only a very tiny side-door has been partially opened.

gon

I too tend not to support Anil’s contention here. Between the racial protectionist policies and liberalisation, give me the latter any time. Secondly, I don’t think the government is that dumb. They have seen how Singapore tackled the issues raised by Anil. Anil seems to be uncharacteristically or unreasonably alarmist. Besides it seems too soon to pre-judge Najib’s government when the details are not even know yet. Last but not least, since Anil can question Najib’s credentials, perhaps I too can question Anil’s? What is your education and experience background, Mr Netto? All said and done, my first reaction to… Read more »

caravanserai

Is our foundation strong? In our economies we must have strong pillars Else we will be cornered and surrendered our economic rights Opening up liberalization is an economic gamble The Bee Anne government hasn’t thought it through The NEP is used to spoon feed one race Now Bee Anne wants to push them out to compete A domestic trained animal can’t survive in the wild When there is no exposure to handle the competition The survival of the fittest will fail………. The SME companies employed the most people These companies supplied the activities of economic growth Some are family owned;… Read more »

anna brella

The best things in Life are free it is said. That is why so many people all through human history have been willing to lay down their lives for the cause of winning and protecting Freedom and the fundamental Good that lies within it. Freedom is however, always responsible, that is why it is a Good. Freedom that is a unrestricted free-for-all is an irresponsible Bad which will ultimately and inevitably lead to anarchic destruction. Everything in Life thrives and grows exponentially when there is free access to responsible freedom open to it. The economics of business too thrives in… Read more »

Scorpion

Liberalisation is good when it moves service providers to compete each other and produce excellent service.

It is time that the people get value for money. Since independence the service sector has under-performed. Take for example the TmNet internet service…always disrupted. They never learn to improve because they are protected! The list of public grouses about the service sector is too long.

Suresh Gnasegarah

In this one instance Anil, I disagree with you. The Bar Council needs to wake up and offer me competitive services. With anticompetitive regulations to protect poor performing lawyers such as the “No-Discount-Rule”, I personally believe that we must allow the markets to determine what is best for them. Do I really care if a European lawyer can offer me better services than a Malaysian lawyer at a more competitive price? Of course! I want more bang for my buck. But more interestingly, opening up the financial markets will potentially allow Malaysians to enjoy greater choices, bring down inflated prices… Read more »

nkkhoo

Anil, you got two choices, open the market to let foreign big fishes come in or continue to let local big fishes to monopolize service sectors. I don’care the service provider is local or foreign as long as they give me value for money services. – Have you tried Melaka River Cruise? The service quality is poor besides overcharging tourists illegally. The Star had published my complaint against the cruise operator last week. – Have you received affidavit written by any local law firm? The affidavit is no more than a love novel. Our local companies especially bumi companies are… Read more »

nkkhoo

Bangsa Cina, don’t call yourself Chinese because no one know (who you are on) the internet.

You are … absurd like some religious racists. Some people do not eat pork, so they are demanding others to mimic them by banning pork selling in the “open” market.

domido

I read with such sinister of Anil’s views of the liberalization announcement.And i personally think looes74’s statement “..Thaman,Singapore of Finance…” don’t have answers to the economic problem now. Firstly, i can’t understand why such brilliant Anil cant see beyond the announcement wt long-term perpective…I think your article are too short sighted that you have lost it. Secondly, when you argue abt allowing foreign legal firms to open up office to advice on Islamic Finance, maybe you have forgotten (or you dont want to recall), that Malaysia is positioning to be an Islamic Financial Hub (and is being acknowledge my Middle… Read more »

looes74

Anil, I look hard on the issues commented by you on the liberation of the economy by Najib. Everybody knows its a knee jerk reaction. Very high expectation, lots of activities but no significant achievements. Frankly, I don’t blame Najib for such decision. Anyway, he’s not well trained in stimulating Economy. Not even Mahathir as he has turned Malaysia into a Mickey Mouse economy. However, there is no easy solution. You see something got to lose. In the plight of globalisation, there is no such thing as secured employments or secured businesses. Seriously, I too don’t have answers. Not even… Read more »

eagle

Can you imagine within two weeks in power and out of the blue he came out with such decision. I don’t believe, the night before he made the statement that he had a dream – wonder wonder what a fantastic PM the nation has!!! Better for him to watch “Alice met Humpty Dumpty” and he will not regret later.

bangsa Cina Malaysia

close down all karaoke and places selling beer and liquor immediately. top chinese executives from all companies (especially in KL) under the pretext of entertaining customer after work are wasting their time and increasing the companys expenses. on top of this nonsense hanky panky are aplenty. the govt should ban all this nonsense immediately and urged all executives and above to go back to their respective families after work. i am chinese and i support PAS 100% on banning of alcohol. alcohol is nothing but trouble. i am very sure all the chinese housewives and whatever will support 100% PAS… Read more »

Netizen

Anil, You have made a point that most people are not seeing. I saw some of the conditions for liberalization in more detail from other blog posts and finance papers. They are nothing for most of the Malaysian population to get excited about. For example, only 4 & 5 star hotels are exempted from Bumi quotas. With conditions like these, I can imagine that the average Malaysian entrepreneur is just out of luck. There will be no break for him from the stifling quota system. The breaks only go to the big boys, but not your average Malaysian businessman. And… Read more »