Malaysia insists capital control the right move
Malaysia insists capital control the right move
This is the second of two part series, based on Prime Minister
Mahathir Mohamad's monthly column Dr. Mahathir's World Analysis
which was first published in Mainichi Shimbun.
KUALA LUMPUR: We have said right from the beginning that the
present international financial regime exposes newly emerging
economies and middle-income countries to very destructive
currency trading and manipulation by the hedge funds and other
currency traders.
The only way this danger can be eliminated is by curbing the
activities of these traders, by regulating currency trading, by
making them accountable and transparent.
All these things can be done if the powerful economies of the
world agree to do so and assert their authority over their own
nationals.
We have seen how a superpower can actually ignore
international norms and arrest the leader of a foreign country to
bring him to trial under the laws of the superpower.
If this can be done I don't see why currency traders who have
in fact destroyed the economies of whole regions of the world,
precipitating riots, looting and killing, cannot be curbed and
their activities regulated.
Free trade is not a religion that anything done in its name
cannot be modified, regulated or banned altogether.
If and when currency trading is rendered less harmful to
emerging economies, Malaysia will lift its selective capital
control.
Until then the controls will remain in place and will be
defended and kept effective by whatever means Malaysia has at its
disposal.
We are doing nobody any harm by our controls. Indeed we are
doing a lot of good to ourselves and I venture to say, to our
trading partners, investors and even the worlds's economy.
So I hope we will be left to administer our economy in our own
way. No one should tell us when we should lift the controls.
On Sept. 1, 1999, we will celebrate one year of defying
convention. We would of course make an assessment of the result.
We think it is going to be good. Some will take the money they
have invested in our share market out. That is all right. We will
change their ringgit into whatever currency they wish so they can
take it out.
We will not bear any ill-feelings towards them. That is their
right and in Malaysia we respect the rights of everyone including
foreigners.
We are prepared to face challenges and we believe we can
handle most of them. Whether we fail or succeed, we hope we have
provided the world with an experience that will be useful for
case studies in the management of a country's economy under
stress.
I met Japanese Prime Minister Keizo Obuchi when I visited
Japan in early June. He is a person who uses his advisers very
well.
Before giving an opinion or answering a question he would
refer to his staff and colleges first. I believe he knows what he
is talking about but is being very careful.
A bad leader is somebody who doesn't know and doesn't ask for
information or the opinion of others.
I am sure that with Obuchi's leadership and knowledge, Japan
can revive its economy.
Revival of the Asian economy is very much dependent on the
economic recovery of Japan.
It seems that Japan wants to do away with government/private
sector co-operation, which has been dubbed "Japan Inc." by the
West, to replace it with the "so-called" Western concept of
separation between government and the private sector.
Close government/private sector co-operation was what helped
Japan to recover from the wreckage of the Pacific War and go on
to become the world's second-largest economy.
Admittedly, there were abuses of the system, but Japan Inc.
worked very well. Dropping it suddenly must cause economic
turmoil as people, both from the government and the private
sector, find themselves having to adopt a totally different way
of doing work.
Matters are aggravated by officials and senior members of
banks and companies being arrested and charged with doing
something that they had been doing for decades and even
centuries.
Now neither government officials nor businessmen dare to do
anything that may expose them to legal action and probably
jailing.
With this atmosphere of uncertainty business cannot succeed.
Admittedly abuses must be gotten rid off. But this must be done
gradually so as to give time for adjustments to be made.
If Japan Inc. is to be replaced, time must also be given for
both the government officers and businessmen to understand and
familiarize themselves with the new system.
Gradual adoption of the new way of doing business will result
in less economic turmoil and disruption. I must always be
remembered that government has a share in all businesses in the
country. When companies make profits, the government is entitled
to a percentage of the profit in the form of corporate tax.
If a company fails, the government will not get to collect the
tax. It is, therefore, important that the government ensures
companies don't fail, and that, in fact, they make profits.
A government under the Japan Inc. concept helps companies make
money and in the process helps itself.
Since the government uses the tax the good of society, helping
the companies to make profits amounts to helping the people.
If the government does not approve of such practices then it
must accept frequent company failures, low profits and
consequently diminished revenue.
Without Japan Inc., economic growth would have been stifled
and Japan would not have recovered and prospered so quickly after
the war.
Abuses within the system are not inevitable. They can be
reduced with proper methods and surveillance.
In Malaysia, corporate tax is 28 percent. This actually means
that the government has a 28 percent share in the companies.
Clearly we stand to gain by helping the private sector to
succeed. But impartiality must be maintained because as far as
the government is concerned, whichever company makes the profit
the government will still get its 28 percent.
A company's failure is a national failure. When a company
fails, governments get no money and employees suffer, as do
consumers.
So you cannot simply allow companies to fail, especially when
it is due to no fault on their part, as in a recession.
Because we in Malaysia believe that helping businesses to
succeed will help government revenue to increase, we adopted the
Japan Inc. concept and deliberately propagated what we call
"Malaysia Incorporated."
We regard all businessmen as our cronies and we will help them
to succeed. When they do, government revenue is increased, the
country's economy grows, people are gainfully employed and the
country enjoys a lot of positive spin-off effects.
The devaluation of currencies and plunging share prices will
put any company, even the most successful, into trouble.
The attacks on the currencies and shares prices of East Asian
countries caused many good businesses to fail or lose money.
To recover, they needed injections of new capital, as banks
would not lend them money even for normal operations.
Foreign companies and banks of the rich countries thought that
they could acquire these businesses and banks cheaply and then
inject capital to revive them.
This is unwise because the people will resent their companies
being taken over by foreigners. In the United States, foreigners
can buy only 24 percent of an airline.
In Canada, a company that has always been identified with
Canada' history was taken over 100 percent by Americans. There
was a lot of resentment.
People cannot avoid feeling that the economy would be
controlled by foreigners. My first overseas holiday was to Hong
Kong in 1960 after I left government service.
The next year, I went to Japan, I went to Europe in 1962. I
had the opportunity to observe these three peoples.
My first impression of Japan was that its postwar recovery was
very rapid. In 1945 Japan lost the war, and the whole country was
destroyed.
When I went to Japan there were still signs of bomb
destruction in various Japanese cities. However, there was also a
lot of economic activity.
I went to a factory in Osaka. It was a glass factory. I use a
lot of bottles and thought this was a good business for Malaysia.
I also passed the Matsushita factory that was in the middle of
a rice field. It looked quite odd to me as factories in Malaysia
were not allowed on rice fields.
But I could feel that Japan was on the move at that time. Lots
of construction were going on. They were preparing for the
Olympics, building the highways over Nihonbashi, etc.
Of course, everything was cheap at that time.
I could see that the Japanese people were very determined, fo
cused on working and very polite to each other.
For example, if one car hit another car, both drivers came out
and bowed to each other. And they seemed to settle their problems
immediately.
I was also impressed by the train system. It was very
punctual. However, Tokyo was very polluted. There were big
factories inside the city giving out a lot of smoke.
As a result of what I observed in Japan in 1981, after I was
appointed Prime Minister of Malaysia, I introduced the Look East
Policy.
Because of race riots in 1969, the country adopted the New
Economic Policy designed to reduce the economic gap between the
indigenous Malaysia and the ethnic Chinese who dominated the
business scene.
To make a success of this policy it was necessary to improve
the capabilities of the people, the indigenous people in
particular.
Japan's rapid recovery and growth was due to the character to
the Japanese people, their work ethic and their management
methods.
The Look East policy is not abut cutting out the West and
giving all contracts to the Japanese. It is about learning the
Japanese work ethic and business practices.
The indigenous people must acquire these ethics and business
practices if they are going to make a success of the New Economic
Policy. Still it is not possible to change the culture of the
people completely, nor is it desirable to do so.
But it is easier for the people of Malaysia to adopt Japanese
ways then to emulate Western ethics and practices.
I have been to Japan more than 50 times and have seldom seen
signs of poverty. But on my latest trip to Nagoya this year I saw
a lot of makeshift huts of poor people under elevated highways
and in parks in the city.
I am told that some six million people are jobless in Japan.
What strikes me is that these people seem to accept their
situation.
In other countries, if the unemployment rate goes that high,
people will march on the government and protest against its
policies.
In many cases there would be riots and violence. There was no
such reaction in Japan. This self-restraint is remarkable. Riots
and violence can only worsen the situation and make the cost of
recovery higher.
I was told that these people chose to escape from their
families rather than be a burden to them. Since they don't
register as unemployed they don't get government aid.
They have to eke out a living by collecting discarded things
and selling them. I don't think that this is good.
In Malaysia we have no unemployment benefit. We expect
families to look after their unemployed members.
Not wanting to be a burden to their families, these unemployed
try to get employment as soon as possible.
Japanese are nationalistic and proud of their independence and
skills. However, over the past five years or so, the Japanese
seem to have lost some of their self-confidence and even national
pride.
It is right not to be militaristic, but it is not wrong to be
nationalistic.
Nationalism motivates and helps a country to overcome
problems.
Alliances will other countries should not result in total
dependence. To be able to defend one's own country is not
synonymous with aggressive militarism.
Japan has a good reason for rejecting militarism. It should be
ready and willing to admit that it had done a lot of wrong in the
past.
But it should not be burdened by a permanent sense of guilt
over actions committed more than half a century ago.
I don't see Germany being reminded of its Nazi past.
Nor is Germany required to go around apologizing for Nazi
atrocities during the war.
But it would see that every Japanese prime minister must
apologize for deeds committed by people of two generations ago.
Apologies are not needed, but undertaking not to be an
aggressive military power is necessary if Japan wants to allay
the fear of its neighbors.
The Self-Defense Forces are necessary but must not limit
themselves to internal duties only. While they should not attack
other countries, the forces should be prepared to help with the
peacekeeping functions of the United Nations.
Japan feels a need to be allied to the United States. This is
understandable if it is not directed against other nations.
Unfortunately, the United States shows open hostility to some
countries in Asia and the U.S.-Japan alliance seems to be
directed against these countries.
This is not good because these countries would regard Japan as
an enemy and there would always be tension in the region.
Malaysia does not want to have enemies. That is why we say we
are against the presence of foreign forces in the region.
War is no longer a way of solving international problems. If
there is another world war, the whole world will be destroyed.
I believe that nuclear weapons should be abolished, although
that is going to be very difficult if not impossible.
No one knows what to do with nuclear warheads. But even so-
called conventional weapons are getting more and more
sophisticated and expansive.
A lot of money is now spent on the periodical testing of new
weapons.
There should be an international agreement to reduce research
on new weapons.
Then poor countries need not spend so much money in acquiring
new weapons to match the ones acquired by neighbors.
But unfortunately some countries refuse even to outlaw land
mines. Why land mines should seem so necessary when missiles can
reach any point on earth is something I cannot understand.
As much as Japan fear China, China must fear the U.S.-Japan
alliance. However the world must accept that China, with 1.3
billion very hard-working, intelligent people cannot help but be
a powerful country eventually.
We have to live with this eventuality.
If we can live with the United States as the sole superpower,
there is no reason why we cannot live with China as a world
power.
China has practically no history of conquering and colonizing
neighbors. European powers have. I believe that all conflicts
should be resolved around the table. That is why we should
support the East Asia Economic Caucus (EAEC).
Through the caucus we can resolve problems between us and
discuss common problems facing the region.
Europe has the European Union and North America has the North
American Free Trade Agreement.
We accept them. Why cannot they accept the East Asia Economic
Caucus. Japan should rethink the EAEC. It should not be led into
believing that it is going to be a threat to countries outside
the region.
East Asia needs the economic and financial strength of Japan.
We welcomed Japan's 1997 proposal for a US$100 billion (RM380
billion) Asian Monetary Fund. Unfortunately Japan dropped the
proposal due to U.S. opposition.
Later the Japanese government introduced the $30 billion
(RM114 billion) Miyazawa Plan. This has been very helpful for
Asia's recovery.
A newspaper reported that there was some opposition to the
fund being made available to Malaysia.
Fortunately the Japanese government stood firm and provided
loans to Malaysia.
I hope that the Japanese will always stand by its friends in
times of need regardless of pressures from elsewhere. Asian's
prosperity will help Japan to recover. In helping Asia, Japan
will also be helping itself.