By Wan Saiful Wan Jan. First published in the ‘Thinking Liberally’ column of The Star on 12 May 2015.

Four years ago the Friedrich Naumann Foundation provided a grant that enabled me to attend a meeting called the International Conference on Competition in Berlin. The conference is held every two years by the “Bundeskartellamt”, Germany’s equivalent of our Malaysian Competition Commission.

I was lucky enough to be supported again by the FNF to attend the same meeting this year. This time it took place on 25 – 27 March, also in Berlin.

As a promoter of market economy, I am usually not very keen with attempts by the government to regulate the market. But Germany is slightly different because it practices a rather unique form of liberal economics called ordoliberalism.

This is a school of economic thought that traces its origin to the University of Freiburg in the 1930s. Hence it also known as the ‘Freiburg school’ of economics.

Ordoliberals still sit in the bigger liberal family. There are many shared features, particularly around rejection of government intervention in the economy,

But there are some features that makes ordoliberals distinct from other market liberals. One key element of ordoliberalism is their belief that there are instances where the government must regulate the market so that the real benefits of a competitive free market can be enjoyed by consumers.

In particular ordoliberals emphasise the importance of preventing cartels and monopolies. So even though they would protest if the government uses fiscal or monetary measures to shape the economy, they would also demand that government steps in to prevent the domination of one provider or one company in a sector.

This year’s International Conference on Competition had a session that I see as a rather ironic one. That was the session on “State owned enterprises: between state and economy”. Speakers were competition commissioners from India, Chile, France and Singapore.

I say that this was rather ironic because the very concept of a state-owned enterprise, or government-linked company (GLC), is one that is generally frowned upon by any economic liberal. The mere existence of GLCs opens the door widely for anti-competitive preferential treatments, abuses of power as well as leakages.

And having heard these commissioners speak, it became only more apparent to me that in the long run GLCs are almost never good news for any country wanting to foster good governance, be it in government or in the corporate world.

We don’t have to go very far to see why this is the case. Malaysia is an economy dominated by government-linked investment companies (GLICs) and GLCs. And there are many instances where their operations raise questions about good governance.

For example, look at Malaysia Airports Holding Berhad (MAHB). This is a GLC that manages the operations of most of the airports in Malaysia.

With MAHB being a GLC, the Transport Ministry’s Secretary General sits on its board. Surely it is obvious that the presence of a regulator in the board of an operator that it regulates is wrong by any governance standard. Would you agree if the referee of a football match is also the striker of one of the playing teams?

When there is a dispute between a private airline and MAHB, the normal recourse would be for the airline to appeal to the regulator. But if the regulating ministry is in cahoots with the airport operator MAHB, is it really possible for the complainant to get fair treatment?

And what happens if another airport operator wants to compete against MAHB to run or build a new airport? The Transport Ministry will have a big say in the development of any new airport. Can the ministry be trusted to regulate fairly when their Secretary General has a vested interest to see the success of one company?

And since we are talking about GLCs in a competitive market, I cannot avoid from touching on Lembaga Tabung Haji’s purchase of a piece of land from 1MDB. Both GLCs are embroiled in an issue that has been widely commented over the last week.

The real issue to me is, if Tabung Haji paid market price to 1MDB, why is it that the government sold the land to 1MDB at such a low price in the first place? The price was not at all competitive, indicating that the responsible minister or ministry struck a deal with 1MDB without firstly opening it to the competitive market.

And now Tabung Haji says that they are going to sell the land. Yes there will be a profit but if it was a decent purchase to start with, is there a good economic reason to sell off the land now? Wouldn’t Tabung Haji make even more profit if they waited another few years before selling?

Once again, there is a clear conflict of interest. This mess exists mainly because the status of Tabung Haji as a GLC. When there is political pressure, the calculation is no more about what would bring the most benefits to Tabung Haji’s savers and investors. The sell decision was made on political consideration.

I suspect we will soon see another problem surrounding Malaysia Airlines, yet another GLC. There are some really difficult decisions that need to be made about that GLC. With all the political pressures surrounding it, I wonder if the company can actually downsize and rebrand at all.

Clearly there are many issues caused by the presence of so many GLCs in our economy. Going back to the competition conference that I attended in Berlin back in March, the biggest lesson to me is that the government’s role in business, if any, is as a regulator. It is not the business of government to be in business.

Politicians and civil servants should realise that if they actually have any business acumen at all, they wouldn’t be working in government. Their proper job is to regulate. Do that job and do it well. And they should let true entrepreneurs operate.

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Wan Saiful Wan Jan is the Chief Operating Officer of IDEAS.

3 Comments

  • Brian Zbriger 2015 May 12 / 15:12

    It’s not at all clear to me that private versus public ownership is the central problem here. Private companies with connections and deep pockets are very capable of buying whatever special protections and sweetheart deals that they want from government. At the same time there is no inherent reason that a government monopoly cannot be subject to a level of transparency and oversight far beyond what we ever see in the private sector. Building strong institutions is a complex problem, and it is just as complex regardless of private versus public ownership.

    In Malaysia, the far more pressing problem behind these conflicts of interest is the lack of accountability in government. Would privatizing public companies do anything to change that?

  • azhari 2015 May 13 / 01:21

    I agree with you totally about the role of Government in business. Most if not all textbooks define that the Government has no business in business.

  • Wan Saiful Wan Jan 2015 May 16 / 03:41

    Brian, if lack of accountability is an issue, then getting the government out of businesses should be high on the list. At the moment they are accountable only to their political masters.

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