Lost behind the Umno Youth attack on DAP's ideology is this: the New Economic Policy (NEP) that Umno itself champions so fervently is actually a socialist policy that will lead to dangerous ends.

The NEP (and all its racist reincarnations) is a form of socialism, which will degenerate into communist-like and fascist corruption and cruelty.

Umno and Barisan Nasional (BN) will naturally take offence at being associated - ironically - with communist-like policies.

The NEP may sound very far from socialism and communism. But they all share similarly idealistic roots in centralised planning to benefit the poor, with a misguided nationalist or 'unity' rationale. And they all end up far and away from the original ideals, in the centralised, authoritarian, censored, racist and suppressive realm of fascism.

Like all socialist and communist policies, the NEP started as an idealistic attempt at social engineering. Policy makers use the government's coercive power to take resources from one group and give to another.

They churn out new laws, regulations, administrative practices that control business licences and permits, government employment, assets, institutional appointments, contracts and projects in attempts to redistribute economic wealth.

Like all well-intended socialist policies, NEP requires centralised intervention. A small but powerful 'planner or allocator' group (mainly at the ministries, National Economic Action Council, planning units, Employees Provident Fund, Khazanah Holdings and Bank Negara) to pick winners (with woeful accuracy).

Erosion of productivity

Along the way, this has obscured market signals that would have helped us to do our best. That leads to a less productive economy and society day by day.

Nowhere is NEP's damage to productivity more clearly demonstrated in Malaysia's bipolar economy of successful export-oriented industries but perennially failing domestic services.

NEP planners have mostly left export industries alone because they quickly learnt they have no control over international competition. Relatively unhindered by NEP, Malaysian entrepreneurs and foreign investors have achieved high productivity and created a seemingly unstoppable export economy, mainly in electronics and agricultural products.

In contrast, NEP planners focus on manipulating the domestic services, tightly controlling and allocating licences, permits, project approvals, senior appointments to banks, finance, telecommunications, energy, transport, media, toll roads, and other pet projects such as Langkawi tourism, movie village, Multimedia Super Corridor and public-sector construction.

All of these have failed to prosper, most have failed miserably and destroyed untold value, delivering lousy services, despite years of federal budgetary support.

Like all socialist policies, NEP's erosion of productivity leads to a smaller and smaller pie to share among its beneficiaries. In time, the 'allocators' need even more concentrated power to coerce, and dispense with judicial independence and the rule of law. The more concentrated the power, the more irresistible the urge to hijack the NEP by an inner circle around the 'allocators'.

It is a mistake to argue that NEP socialism is acceptable because it is less severe than communism. A milder beginning just means a longer journey to the same fascist end. After 30 years, we are far along that journey. All socialist policies are dynamic: They spiral downward because the damaged economy leads to a even smaller circle of beneficiaries, even more coercive tactics, and even more damaged economy, and on and on ....

Eventually, the circle of NEP beneficiaries has shrunk so much that the poor Malays can no longer benefit from it. Even within BN, and then within Umno, the circle of cronies keeps getting smaller, as economic value is constantly destroyed by socialism.

Something has to give periodically. Hence the power struggle and the aborted reform that resulted in the political and character assassination, judicial mistreatment, physical assault and jailing of former deputy premier Anwar Ibrahim.

These are all very typical outcomes of socialist, communist, fascist regimes if you let them run their course for a generation.

Hidden moral cost

A book that explains well this process of degeneration of centralised planning into fascism is the 1944 Frederick Hayek classic 'The Road to Serfdom'.

Although the NEP is not as extreme as its communist cousins, the damage can still be shocking, even as expectations are lowered repeatedly.

In less than two decades from 1980, Malaysia saw a quick procession of political, judiciary, economic crises, including the 1985 depression and Carrian/Pan-Electric affairs, constitutional and judicial crises (1983, 1988, 1993), Operasi Lalang (1987), financial crisis (1997), eventually fascist treatment of Anwar and supporters (1998) and now basically unfair and un-free elections and society.

(Don't be fooled by the 'booming' economy of the 1990s. It was partly a regional bubble; partly a rebound from the 1985 recession; partly derived from then finance minister Anwar's repeated lowering of taxes and conservative budget starting 1992; partly the genuine benefits of then premier Dr Mahathir Mohamad's privatisation exercise before that was hijacked by cronies to give privatisation a bad name; and partly the benefits of a still outward-looking Malaysian export economy before China simplified and devalued its currency in 1994.)

Like all socialist policies, well-intended intellectuals contributed to their beginning. The noble ideals of social justice inspired and even recruited good people early on. But because the system relies on the coercive transfer of individual rights, initial supporters tend to end up alienated or jailed.

After a generation, those still supporting this socialist system are either ignorant, immoral or lack the courage to stand up against injustice. I'm talking about former USSR, pre-WWII Germany, and communist China after their initial romance with socialism. Any similarity you might detect closer to home - though to a lesser degree - may not be your imagination.

Remember that implementing NEP always involves a real but hidden moral cost - the oppression of the right of a section of citizens to fully enjoy the fruits of their own labour. Those unwilling to be unjust by invading such rights (Tunku Abdul Rahman, photo) were forced out by young Turks calling for stronger hands.

While dillying and dallying for a decade (1970s) on the impossibility of coming to a consensus plan to oppress part its own society, the country in vain built up a propaganda machine to coax unity and muhibbah, which conveniently evolved into today's control over the media. Then strongman Mahathir was finally called upon to do the job in 1980s.

Having learned from the inability of democracy to reach consensus on oppressing its own people, and given a job description and mandate by indecisive intellectuals, the efficient and ruthless Mahathir did away with judicial independence and Malay rulers' oversight, concentrated power, and delivered results.

He implement NEP as it could only be implemented: arbitrarily allocating economic resources. If he had concentrated power, it was for the purpose of implementing NEP, a job that others were reluctant to carry out, given the oppressive implications.

The good doctor treated the symptoms, but with heavy side effects of corruption and cruelty. All that happened from 1970-2000 was inevitable once NEP socialism was accepted.

Tomorrow: Pawns in NEP game

CHEAH KAH SENG consults and lectures on investment ethics, valuation and portfolio management. He considers himself a student of the Austrian School of classical economics.