Recent discussions on government-linked companies (GLCs) have failed to address the fundamental question: Why does Malaysia need them in the first place?

Get rid of the Bernas, Pernas, Petronas, and other 'nas-es'; the government has no business being in business. It should invest in citizens, not companies.

As it is, the government can barely perform its customary functions, like ensuring public safety and taking care of the environment. It should stick to activities that are properly within its purview and allow private investors do the investing in the marketplace.

There are many reasons to support the argument for getting rid of these companies.

First, they are perennial money losers and impose a severe drain on the public purse. The opportunity costs are immense. The billions spent on bailing out Bank Bumiputra, Perwaja and other GLCs could have been more productively spent on education and poverty reduction.

Second, these companies have failed miserably in creating a viable Bumiputera business community, which is their intended mission. Instead they have produced the Halim Saads and Tajuddin Ramlis, classic 'rent seekers' - an academic euphemism for economic parasites.

The notion that a politician sitting in some air-conditioned office remote from the marketplace could pick future winners among businessmen and companies is pure hubris.

In ambiance and culture, GLCs are no different from the civil service. They breed precisely the wrong kind of 'entrepreneurs'. More importantly, these 'ersatz capitalists', as one Japanese scholar derisively labeled them, inhibit the development of the genuine variety, in the same manner that lallang and other weeds would choke out productive crops.

Third, in this era of globalisation and free trade, consumers go for price and quality; they could not care less who provides the products and services.

Malaysians bank at Citibank and shop at Sogo not because of their love for Americans and Japanese, but rather because these companies provide superior products and services, and at better prices.

The fact that workers in these foreign companies are also Malaysians, just like those at the GLCs, indicates that Malaysians are equally capable of providing superior services and quality products. The only difference between them and the Malaysians who work at GLCs is leadership.

Classic example

The government's massive presence in the marketplace is intrinsically bad as it politicises the economy. Commercial activity on the part of the ruler, observed Ibn Khaldun, is harmful to his subjects and ruinous to the tax revenue. Substitute government for ruler, and we have today's multitude of inefficient tax-draining GLCs.

The failures of Malaysia's GLCs impose a subtle and psychological, but no less devastating, burden. It unfairly reinforces the negative stereotype of Bumiputera ineptitude for commerce.

To those harboring this racist sentiment, let me remind them of the legendary incompetence of Air India, China's GITIC, and other GLCs in those two countries. They failed precisely because their government owners cocooned them from market realities and discipline. It has nothing to do with racial talent.

The classic example still fresh in everyone's memory of what is wrong with Malaysian GLCs is Bank Bumiputra. Instead of becoming the promised economic locomotive that would drag Bumiputeras into the mainstream, it acted more like a giant energy-guzzling bulldozer in the hands of an incompetent operator, wrecking damage and destruction in its path.

The bank was put out of its misery barely two decades after it was established with great hope and fanfare, but not before the government expended billions in bailing it out. Today no one misses that bank.

I would have expected that spectacular failure to prompt much critical analyses and re-examinations of basic assumptions. Sadly to date, there are no theses, case studies, White Papers, or criminal prosecutions relating to that debacle. Malaysian academics, regulators, and policy wonks remain curiously uninterested, and consequently Malaysia continues repeating the mistakes.

I am reminded of the wise observation of Charlie Mayo of Mayo Clinic fame, on surgeons who keep making the same mistakes a hundred times, and then call that experience!

As expensive as the Bank Bumiputra scandal was, today there are many more GLCs vying for the bank's infamous record. The current contenders include Perwaja, the enterprise more adept at creating losses and labour disputes than in manufacturing steel.

Out in the various state capitals, there are literally hundreds of Bank Bumiputra wannabes in the form of the various SDCs (state development corporations).

Benefits from sale

If I were in charge, I would sell all these GLCs to the highest bidders, be they foreign or local. I would do it in an orderly and systematic way to avoid a 'fire sale' atmosphere. Then I would use the funds to beef up the educational institutions so they could produce the necessary trained and capable graduates.

To demonstrate dramatically this new bold policy, I would begin by selling the government's stake in Malaysia Airlines (MAS). I could not care less who owns the airline as long as it provides good services at competitive prices. The government's job is to ensure that there are enough quality facilities in the country to train the pilots, mechanics and executives for the industry, not only locally but also globally.

This means these institutions must meet international, in particular the American Federal Aviation Administration (FAA), standards so that not only MAS but also other airlines can employ the graduates. If there are enough of these superbly trained mechanics, Sepang Airport could become the centre for aircraft maintenance.

The success of AirAsia gives lie to the perennial excuse among MAS executives that the domestic sector cannot be profitable. There is nothing wrong with that sector, but everything wrong with MAS' management.

Its recent profitable performance announced with great hullabaloo is nothing more than an accounting sleight of hand, as the government had conveniently absorbed all the company's debts and unprofitable units through the government's 'Special Purpose Vehicle'.

There was nothing special about its purpose simply to bail out the airline just as the government did with Bank Bumiputra. And just like the bank, this will not be the last of the bailouts for the airline. They call that experience in Malaysia!

Whether a company is government or foreign owned, Malaysia would still reap the benefits in the form of corporate and other taxes, jobs for locals, and the spillovers into the local economy.

The only added advantage to GLCs is that the government gets to keep all their profits instead of only the 28 percent it would gain through the corporate income tax, assuming of course that the company is profitable. Meanwhile the government shoulders all the risks. It is just not worth it.

GLCs distract the government from performing its vital functions. By getting rid of the GLCs the government could at least dispense with the ministry concerned with monitoring them. Imagine the consequent reduction in bureaucracy and costs!

These companies serve nothing more than an expensive public works project for retired civil servants, discredited politicians, and Bumiputera managers who could not cut it in the private sector.

Getting rid of the GLCs would reduce the size and cost of government. This could only
enhance its efficiency.