Wednesday, February 22, 2012

Malaysia and its Proton - a success?

If you have a largely captive market, generous and vociferous government support, and handicapped competition, you are expected to perform, at least relatively, well. It is like having to run a race, where you are given a generous head start, and where competitors have to have their legs bound together.

Well, one is likely to win such a race and trounce the competition, right?

However, what defies common sense is that this is mostly untrue when it comes to Proton, the Malaysian national carmaker launched by Dr. Mahathir Mohammed to much fanfare in 1983. To provide a sense of perspective, one could look at how far Hyundai-Kia and the Korean auto industry have come, having started off on an equal footing in young, developing nations.

What, then, is the problem with Proton? How can one not succeed, with a captive market and strict protectionist policies against foreign interlopers? It almost takes effort to do so.

Perhaps the easiest and most expedient answer we can turn to is complacency, and this certainly helps account for some of the failings at Proton. Generally, one understands that some element of competition is beneficial for the growth and development of a company. Companies – and people – do not evolve and grow in a sheltered, sterile environment that does not reward creativity, risk-taking and innovation, but political connections and manipulations – the know-who economy instead of the know-how economy. This results not in the survival of the fittest company, but the most connected, which is detrimental to the health of the market and the national economy – and not least the ordinary Malaysian consumer.

A healthy dose of competition does make one stronger, and make for more efficient markets, which will benefit more people, more. But is that not the aim of any well-meaning government attempts to set up government-linked companies (GLCs) in the first place? To benefit the people of the country? Then why the exorbitant tariffs, channelled to a select few businessmen in the form of “approved permits” to own a foreign vehicle, so that ordinary citizens end up paying top-price for poorly produced cars, and indirectly subsidising an uncompetitive company? Who benefits from it?

Perhaps here we can also see how Proton has become too much of a political entity, than an economic one. When politics, not economics, have to influence the running of a company, you’ll most likely end up with a mess, and an entrenched political elite benefitting from it. Proton’s continued evasion of ASEAN free trade agreements with official government support, though inevitably still losing market share to its gradual implementation, and her failure to find a foreign technology partner points rather incriminatingly to this.

The end result it that Proton has become uncompetitive domestically, and internationally. As Malaysians see it, the ‘jaguh kampung’ (village champion) has now become so bloated and uncompetitive after years of generous support from the government, that it can no longer even compete in its own heavily-tilted domestic market. It cannot even win the race, 20 years on, when the other competitors are running with their legs bound.

The truly sad thing is to realise that the Proton story in large mirrors the Malaysia story – resource-rich, full of potential and promise, but somehow managing to squander such advantageous head starts away – while tiny, resource-less Singapore down south has already surpassed Malaysia in GDP.

To be fair – and quite optimistic - this ponderous, lumbering village champion can yet still recover, and be more streamlined, more lean and mean. It will be painful (but isn’t anything ever worth achieving always so), there will be reluctance and resistance, especially from those who benefit from such a system, but there is a possibility.

The solution is a simple one - there just has to be the political will, by the government of the day, to wipe out entrenched interests and political patronage and cronyism in all its forms, and nurture free and fair competition and healthy markets. The rise of a viable two party political system in Malaysia is a promising start, adding much needed checks-and-balances against abuses of political power, and yes, only through injecting a healthy dose of competition.

Indeed, in modern international trade and relations, nothing is ever a fait accompli. Even Burma is seeing reforms now, and already reaping some of its fruits. The lesson here cannot be more clear – or harrowing, for Malaysia. Once one of Asia’s most promising countries, it has taken only a few years of mismanagement and iron-fisted rule for Burma to plumb the full depths of the abyss of international isolation and condemnation.

The village champion will have to compete on an equal footing against other challengers from the same village, and then, once he has proven his mettle, against those from other villages and other seas. Complacency, closed-door policies and patronage will ultimately only harm a country, while benefitting its ruling politicians. This is where we can see if a government works in the broad interests of its citizens, or its pampered political elite, allowed to grow bloated feeding parasitically on the sweat and blood of its fellow, less-privileged citizens.

In a pro-market, pro-competition environment, Proton, like Malaysia, will have no choice but to streamline, consolidate, reform, and compete. Uncompetitive suppliers and contractors will have to be shed, no matter their political affiliations. Quotas and preferential treatments will have to be implemented correctly and not abused, and then gradually phased out.

Malaysia, like Proton also needs a new equation – she can no longer compete on cost. There has to be more value-add, a shift towards more knowledge and skills-intensive sectors (again, areas greatly stimulated by fair competition and meritocratic practises) - both Proton and Malaysia cannot afford to live in denial, to be the proverbial frog under a coconut shell, the Malaysian spin on the well-known frog in the well, who thought his well a mighty ocean.

For the world has changed. And in a globalised world, Malaysia needs to move fast. She has already fallen far behind Singapore. Vietnam and Indonesia are poised to take over as the new Asian economic tigers while Malaysia basks like the veritable fat cat purring contentedly over its supposed successes. Even Burma has started on the long but sure road to reform.

We should conclude with the very apt statement the World Bank made in a recent report: The world will not wait for Malaysia.

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