Malaysia insists capital control the right move<\/p>\n
This is the second of two part series, based on Prime Minister
\nMahathir Mohamad's monthly column Dr. Mahathir's World Analysis
\nwhich was first published in Mainichi Shimbun.<\/p>\n
KUALA LUMPUR: We have said right from the beginning that the
\npresent international financial regime exposes newly emerging
\neconomies and middle-income countries to very destructive
\ncurrency trading and manipulation by the hedge funds and other
\ncurrency traders.<\/p>\n
The only way this danger can be eliminated is by curbing the
\nactivities of these traders, by regulating currency trading, by
\nmaking them accountable and transparent.<\/p>\n
All these things can be done if the powerful economies of the
\nworld agree to do so and assert their authority over their own
\nnationals.<\/p>\n
We have seen how a superpower can actually ignore
\ninternational norms and arrest the leader of a foreign country to
\nbring him to trial under the laws of the superpower.<\/p>\n
If this can be done I don't see why currency traders who have
\nin fact destroyed the economies of whole regions of the world,
\nprecipitating riots, looting and killing, cannot be curbed and
\ntheir activities regulated.<\/p>\n
Free trade is not a religion that anything done in its name
\ncannot be modified, regulated or banned altogether.<\/p>\n
If and when currency trading is rendered less harmful to
\nemerging economies, Malaysia will lift its selective capital
\ncontrol.<\/p>\n
Until then the controls will remain in place and will be
\ndefended and kept effective by whatever means Malaysia has at its
\ndisposal.<\/p>\n
We are doing nobody any harm by our controls. Indeed we are
\ndoing a lot of good to ourselves and I venture to say, to our
\ntrading partners, investors and even the worlds's economy.<\/p>\n
So I hope we will be left to administer our economy in our own
\nway. No one should tell us when we should lift the controls.<\/p>\n
On Sept. 1, 1999, we will celebrate one year of defying
\nconvention. We would of course make an assessment of the result.<\/p>\n
We think it is going to be good. Some will take the money they
\nhave invested in our share market out. That is all right. We will
\nchange their ringgit into whatever currency they wish so they can
\ntake it out.<\/p>\n
We will not bear any ill-feelings towards them. That is their
\nright and in Malaysia we respect the rights of everyone including
\nforeigners.<\/p>\n
We are prepared to face challenges and we believe we can
\nhandle most of them. Whether we fail or succeed, we hope we have
\nprovided the world with an experience that will be useful for
\ncase studies in the management of a country's economy under
\nstress.<\/p>\n
I met Japanese Prime Minister Keizo Obuchi when I visited
\nJapan in early June. He is a person who uses his advisers very
\nwell.<\/p>\n
Before giving an opinion or answering a question he would
\nrefer to his staff and colleges first. I believe he knows what he
\nis talking about but is being very careful.<\/p>\n
A bad leader is somebody who doesn't know and doesn't ask for
\ninformation or the opinion of others.<\/p>\n
I am sure that with Obuchi's leadership and knowledge, Japan
\ncan revive its economy.<\/p>\n
Revival of the Asian economy is very much dependent on the
\neconomic recovery of Japan.<\/p>\n
It seems that Japan wants to do away with government\/private
\nsector co-operation, which has been dubbed \"Japan Inc.\" by the
\nWest, to replace it with the \"so-called\" Western concept of
\nseparation between government and the private sector.<\/p>\n
Close government\/private sector co-operation was what helped
\nJapan to recover from the wreckage of the Pacific War and go on
\nto become the world's second-largest economy.<\/p>\n
Admittedly, there were abuses of the system, but Japan Inc.
\nworked very well. Dropping it suddenly must cause economic
\nturmoil as people, both from the government and the private
\nsector, find themselves having to adopt a totally different way
\nof doing work.<\/p>\n
Matters are aggravated by officials and senior members of
\nbanks and companies being arrested and charged with doing
\nsomething that they had been doing for decades and even
\ncenturies.<\/p>\n
Now neither government officials nor businessmen dare to do
\nanything that may expose them to legal action and probably
\njailing.<\/p>\n
With this atmosphere of uncertainty business cannot succeed.
\nAdmittedly abuses must be gotten rid off. But this must be done
\ngradually so as to give time for adjustments to be made.<\/p>\n
If Japan Inc. is to be replaced, time must also be given for
\nboth the government officers and businessmen to understand and
\nfamiliarize themselves with the new system.<\/p>\n
Gradual adoption of the new way of doing business will result
\nin less economic turmoil and disruption. I must always be
\nremembered that government has a share in all businesses in the
\ncountry. When companies make profits, the government is entitled
\nto a percentage of the profit in the form of corporate tax.<\/p>\n
If a company fails, the government will not get to collect the
\ntax. It is, therefore, important that the government ensures
\ncompanies don't fail, and that, in fact, they make profits.<\/p>\n
A government under the Japan Inc. concept helps companies make
\nmoney and in the process helps itself.<\/p>\n
Since the government uses the tax the good of society, helping
\nthe companies to make profits amounts to helping the people.<\/p>\n
If the government does not approve of such practices then it
\nmust accept frequent company failures, low profits and
\nconsequently diminished revenue.<\/p>\n
Without Japan Inc., economic growth would have been stifled
\nand Japan would not have recovered and prospered so quickly after
\nthe war.<\/p>\n
Abuses within the system are not inevitable. They can be
\nreduced with proper methods and surveillance.<\/p>\n
In Malaysia, corporate tax is 28 percent. This actually means
\nthat the government has a 28 percent share in the companies.<\/p>\n
Clearly we stand to gain by helping the private sector to
\nsucceed. But impartiality must be maintained because as far as
\nthe government is concerned, whichever company makes the profit
\nthe government will still get its 28 percent.<\/p>\n
A company's failure is a national failure. When a company
\nfails, governments get no money and employees suffer, as do
\nconsumers.<\/p>\n
So you cannot simply allow companies to fail, especially when
\nit is due to no fault on their part, as in a recession.<\/p>\n
Because we in Malaysia believe that helping businesses to
\nsucceed will help government revenue to increase, we adopted the
\nJapan Inc. concept and deliberately propagated what we call
\n\"Malaysia Incorporated.\"<\/p>\n
We regard all businessmen as our cronies and we will help them
\nto succeed. When they do, government revenue is increased, the
\ncountry's economy grows, people are gainfully employed and the
\ncountry enjoys a lot of positive spin-off effects.<\/p>\n
The devaluation of currencies and plunging share prices will
\nput any company, even the most successful, into trouble.<\/p>\n
The attacks on the currencies and shares prices of East Asian
\ncountries caused many good businesses to fail or lose money.<\/p>\n
To recover, they needed injections of new capital, as banks
\nwould not lend them money even for normal operations.<\/p>\n
Foreign companies and banks of the rich countries thought that
\nthey could acquire these businesses and banks cheaply and then
\ninject capital to revive them.<\/p>\n
This is unwise because the people will resent their companies
\nbeing taken over by foreigners. In the United States, foreigners
\ncan buy only 24 percent of an airline.<\/p>\n
In Canada, a company that has always been identified with
\nCanada' history was taken over 100 percent by Americans. There
\nwas a lot of resentment.<\/p>\n
People cannot avoid feeling that the economy would be
\ncontrolled by foreigners. My first overseas holiday was to Hong
\nKong in 1960 after I left government service.<\/p>\n
The next year, I went to Japan, I went to Europe in 1962. I
\nhad the opportunity to observe these three peoples.<\/p>\n
My first impression of Japan was that its postwar recovery was
\nvery rapid. In 1945 Japan lost the war, and the whole country was
\ndestroyed.<\/p>\n
When I went to Japan there were still signs of bomb
\ndestruction in various Japanese cities. However, there was also a
\nlot of economic activity.<\/p>\n
I went to a factory in Osaka. It was a glass factory. I use a
\nlot of bottles and thought this was a good business for Malaysia.<\/p>\n
I also passed the Matsushita factory that was in the middle of
\na rice field. It looked quite odd to me as factories in Malaysia
\nwere not allowed on rice fields.<\/p>\n
But I could feel that Japan was on the move at that time. Lots
\nof construction were going on. They were preparing for the
\nOlympics, building the highways over Nihonbashi, etc.<\/p>\n
Of course, everything was cheap at that time.<\/p>\n
I could see that the Japanese people were very determined, fo
\ncused on working and very polite to each other.<\/p>\n
For example, if one car hit another car, both drivers came out
\nand bowed to each other. And they seemed to settle their problems
\nimmediately.<\/p>\n
I was also impressed by the train system. It was very
\npunctual. However, Tokyo was very polluted. There were big
\nfactories inside the city giving out a lot of smoke.<\/p>\n
As a result of what I observed in Japan in 1981, after I was
\nappointed Prime Minister of Malaysia, I introduced the Look East
\nPolicy.<\/p>\n
Because of race riots in 1969, the country adopted the New
\nEconomic Policy designed to reduce the economic gap between the
\nindigenous Malaysia and the ethnic Chinese who dominated the
\nbusiness scene.<\/p>\n
To make a success of this policy it was necessary to improve
\nthe capabilities of the people, the indigenous people in
\nparticular.<\/p>\n
Japan's rapid recovery and growth was due to the character to
\nthe Japanese people, their work ethic and their management
\nmethods.<\/p>\n
The Look East policy is not abut cutting out the West and
\ngiving all contracts to the Japanese. It is about learning the
\nJapanese work ethic and business practices.<\/p>\n
The indigenous people must acquire these ethics and business
\npractices if they are going to make a success of the New Economic
\nPolicy. Still it is not possible to change the culture of the
\npeople completely, nor is it desirable to do so.<\/p>\n
But it is easier for the people of Malaysia to adopt Japanese
\nways then to emulate Western ethics and practices.<\/p>\n
I have been to Japan more than 50 times and have seldom seen
\nsigns of poverty. But on my latest trip to Nagoya this year I saw
\na lot of makeshift huts of poor people under elevated highways
\nand in parks in the city.<\/p>\n
I am told that some six million people are jobless in Japan.
\nWhat strikes me is that these people seem to accept their
\nsituation.<\/p>\n
In other countries, if the unemployment rate goes that high,
\npeople will march on the government and protest against its
\npolicies.<\/p>\n
In many cases there would be riots and violence. There was no
\nsuch reaction in Japan. This self-restraint is remarkable. Riots
\nand violence can only worsen the situation and make the cost of
\nrecovery higher.<\/p>\n
I was told that these people chose to escape from their
\nfamilies rather than be a burden to them. Since they don't
\nregister as unemployed they don't get government aid.<\/p>\n
They have to eke out a living by collecting discarded things
\nand selling them. I don't think that this is good.<\/p>\n
In Malaysia we have no unemployment benefit. We expect
\nfamilies to look after their unemployed members.<\/p>\n
Not wanting to be a burden to their families, these unemployed
\ntry to get employment as soon as possible.<\/p>\n
Japanese are nationalistic and proud of their independence and
\nskills. However, over the past five years or so, the Japanese
\nseem to have lost some of their self-confidence and even national
\npride.<\/p>\n
It is right not to be militaristic, but it is not wrong to be
\nnationalistic.<\/p>\n
Nationalism motivates and helps a country to overcome
\nproblems.<\/p>\n
Alliances will other countries should not result in total
\ndependence. To be able to defend one's own country is not
\nsynonymous with aggressive militarism.<\/p>\n
Japan has a good reason for rejecting militarism. It should be
\nready and willing to admit that it had done a lot of wrong in the
\npast.<\/p>\n
But it should not be burdened by a permanent sense of guilt
\nover actions committed more than half a century ago.<\/p>\n
I don't see Germany being reminded of its Nazi past.<\/p>\n
Nor is Germany required to go around apologizing for Nazi
\natrocities during the war.<\/p>\n
But it would see that every Japanese prime minister must
\napologize for deeds committed by people of two generations ago.<\/p>\n
Apologies are not needed, but undertaking not to be an
\naggressive military power is necessary if Japan wants to allay
\nthe fear of its neighbors.<\/p>\n
The Self-Defense Forces are necessary but must not limit
\nthemselves to internal duties only. While they should not attack
\nother countries, the forces should be prepared to help with the
\npeacekeeping functions of the United Nations.<\/p>\n
Japan feels a need to be allied to the United States. This is
\nunderstandable if it is not directed against other nations.<\/p>\n
Unfortunately, the United States shows open hostility to some
\ncountries in Asia and the U.S.-Japan alliance seems to be
\ndirected against these countries.<\/p>\n
This is not good because these countries would regard Japan as
\nan enemy and there would always be tension in the region.<\/p>\n
Malaysia does not want to have enemies. That is why we say we
\nare against the presence of foreign forces in the region.<\/p>\n
War is no longer a way of solving international problems. If
\nthere is another world war, the whole world will be destroyed.<\/p>\n
I believe that nuclear weapons should be abolished, although
\nthat is going to be very difficult if not impossible.<\/p>\n
No one knows what to do with nuclear warheads. But even so-
\ncalled conventional weapons are getting more and more
\nsophisticated and expansive.<\/p>\n
A lot of money is now spent on the periodical testing of new
\nweapons.<\/p>\n
There should be an international agreement to reduce research
\non new weapons.<\/p>\n
Then poor countries need not spend so much money in acquiring
\nnew weapons to match the ones acquired by neighbors.<\/p>\n
But unfortunately some countries refuse even to outlaw land
\nmines. Why land mines should seem so necessary when missiles can
\nreach any point on earth is something I cannot understand.<\/p>\n
As much as Japan fear China, China must fear the U.S.-Japan
\nalliance. However the world must accept that China, with 1.3
\nbillion very hard-working, intelligent people cannot help but be
\na powerful country eventually.<\/p>\n
We have to live with this eventuality.<\/p>\n
If we can live with the United States as the sole superpower,
\nthere is no reason why we cannot live with China as a world
\npower.<\/p>\n
China has practically no history of conquering and colonizing
\nneighbors. European powers have. I believe that all conflicts
\nshould be resolved around the table. That is why we should
\nsupport the East Asia Economic Caucus (EAEC).<\/p>\n
Through the caucus we can resolve problems between us and
\ndiscuss common problems facing the region.<\/p>\n
Europe has the European Union and North America has the North
\nAmerican Free Trade Agreement.<\/p>\n
We accept them. Why cannot they accept the East Asia Economic
\nCaucus. Japan should rethink the EAEC. It should not be led into
\nbelieving that it is going to be a threat to countries outside
\nthe region.<\/p>\n
East Asia needs the economic and financial strength of Japan.<\/p>\n
We welcomed Japan's 1997 proposal for a US$100 billion (RM380
\nbillion) Asian Monetary Fund. Unfortunately Japan dropped the
\nproposal due to U.S. opposition.<\/p>\n
Later the Japanese government introduced the $30 billion
\n(RM114 billion) Miyazawa Plan. This has been very helpful for
\nAsia's recovery.<\/p>\n
A newspaper reported that there was some opposition to the
\nfund being made available to Malaysia.<\/p>\n
Fortunately the Japanese government stood firm and provided
\nloans to Malaysia.<\/p>\n
I hope that the Japanese will always stand by its friends in
\ntimes of need regardless of pressures from elsewhere. Asian's
\nprosperity will help Japan to recover. In helping Asia, Japan
\nwill also be helping itself.<\/p>",
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