THE INTERNATIONAL ECONOMIC AND COMPETITIVE STRATEGY SEMINAR JOINTLY ORGANISED BY PNBCD AND MSC SDN. BHD. KUALA LUMPUR, 30 NOVEMBER, 1992

We are now going through a perplexing period. The signals are indeed confusing. Some two years ago many of us were led to believe that the so-called Velvet Revolution in Eastern Europe and later the dismantling of the Russian Empire signaled the final collapse of the command economy. There was a rush towards democracy and praise for free enterprise. The former totalitarian states were embraced as new coverts to the democratic and capitalistic fraternity.

However, while the First World was gloating in their supposedly ideological victory, their economies are undergoing a period of persistent stress which now has emerged as major structural difficulties. The feeling of the hollowness of the moral victory of free enterprise over command economy is pervasive. The results of the recent presidential election in the United States is nothing but a clear vote for a strong government role to receive the economy, a major shift in public opinion in the recent years where governmental intervention was considered a major source of distortion in the economy.

Indeed what is happening in the United States is the progressive deterioration of a situation diagnosed and dissected with great lucidity by Prof. Thurow in "The Zero-Sum Society." What he and other liberal American economists have persuasively argued, is to us a matter of common sense. We believe in the efficiency of the market system but we -- to borrow Galbraith's expression -- never did fall in love with it. The visible hand of the government must provide directions and determine national and societal priorities.

One of the great merits of Prof. Thurow's writings, apart from liberating economics from obfuscating jargons -- something that our local academia may well emulate as if jargons would give them some air of competency and professionalism -- is to offer an alternative to the dominant view. His critique of the conventional economics in "Dangerous Currents" is refreshing and more relevant to the economics of the real world.

Perplexing and confusing may be the currents of economic opinions, we are nevertheless clear on our purpose. The shift towards state activism in the United States and Europe must not be misread by economic planners and managers in Malaysia. We must not revert to expansionary fiscal policy simply because major industrialised countries are doing so. Our policy of privatisation, downsizing the public sector, must go on.

The social and intellectual criticism in the tradition of Michael and Galbraith, the mantle now passed to Prof. Thurow, of the dominant view in the US must be viewed in proper context, and we should not draw wrong or irrelevant lessons from such critiques. It is a criticism directed against their own society and government which oscillate according to their economic fortunes between the liberals advocating strong government and the conservative's hands-off policy prescription. When the economy is doing well, the businessmen wants the government to stay clear out of their way but when they are in trouble they want the government to salvage them and also help clear the mess they had created. The New Deal of FDR was a liberal and Keynesian response to the Great Depression. Now Governor Clinton is elected because the electorate expected another New Deal that promises economic recovery. While we share the views of Galbraith and Thurow on the need for the government to ensure investment in infrastructure, social services, and education, we must be aware that for us in Malaysia the size of government expenditure is already huge. Expanding government role in the US and EC may be appropriate, but a further dose of government spending in our country could spell disaster, for the proportion of government spending to our GNP is already high compared to that of the US and EC.

Don't get us wrong. Privatization does not mean that the private sector is a priori more efficient that the government, nor that fiscal restrain always entail deterioration in social services, reduction in our commitment to the poor, and increasing inequality. We privatize because we want to re-prioritize government functions, to serve the people better, to have a leaner and more efficient public sector. It relieves the government from severe financial strains, and enable us to focus our efforts on urgent sectors such as modernizing and upgrading the infrastructure, education and training and on the more chronic pockets of poverty.

The privatized entities must not be misled into thinking that they are now more efficient simply because they are in the private sector, or that they are free from the responsibilities they used to shoulder in the past. The greatest advantage of these privatized entities is that they are accorded natural monopoly. They are in a privileged position. For that, they also must shoulder additional responsibility beyond the normal responsibility of employers to the employee. Their assumption of social responsibility must be genuine, not cosmetic and subsumed under public relations. Training must not be confined to staff, but must be directed at upgrading the efficiency, productivity and the competitiveness of the industry in general. We are also considering them to undertake the implementation of rural projects, which has always been the responsibility of the government. We are confident, in view of the enormous profits of these companies, that this would in no way affect their viability.

While for the government, social spending, such as on poverty eradication, and care for the unfortunate and senior citizens, must continue undiminished, the modes of their implementation and delivery must undergo revision. Quite often social responsibility has been invoked to mask reckless spending and to evade public accountability. It is important to stress here that all government agencies and their subsidiaries implementing social responsibility programs must be efficient, transparent and subject to public scrutiny. This is not only to prevent dubious programmes under the guise of social responsibility but also to avoid duplication, hence waste of resources. The administrative costs of their implementation must be kept to the minimum. We must avoid the pitfalls of many developing countries where programmes for the poor are rich in number and allocations but poor in results. Most, if not all, of the money never reach the intended beneficiaries. It is either diverted somewhere else or absorbed by the bloated implementing machinery.

As the government takes a bold new departure in development and the management of the economy, the private sector must respond to the changing environment. It is not enough for one to recite the formula that the private sector is the engine of growth. One must deliver and live up to the people's expectations. In our present context, the pursuit of growth must not preclude societal and environmental considerations. If the private sector wishes to shed the image of being Ersatz capitalists -- growing by impoverishing others -- and to avert the possibility of disenchantment towards the market system in the future, one must demonstrate commitment towards moral ideals and national and societal objectives such as fairness, prudent management and accountability.

Our private sector must learn to think beyond profit pure and simple. Cynics among you would reply that business should not be concerned with ethics as long as it does not break the law. Our repeated emphasis on the necessity of social responsibility and ethical behaviour in business must not be viewed as an exercise in rhetoric. We say this with conviction, that unethical behaviour exacts tremendous long-term penalties not only on individual organizations but on society in general. It is not necessary for me to cite specific examples to support my view, for the events of the corporate world in recent years have rendered such exercise superfluous. In this respect, Japan -- while having a strong work ethic resulting in high productivity and quality worthwhile emulating -- has exhibited and possibly tolerated some of the most unethical practices within its financial and corporate sector. We are concerned not only of the bad examples but also of the threat of fallout from such scandals to the region's financial sector.

Thank you