A NEW DAWN
LMD ARCHIVES (FEBRUARY 2009)
Dr. Mahathir Mohamad is certain that the rise of Asia as a global superpower “has already begun”
Larry Enas took flight to Kuala Lumpur to speak to him about what’s in store for the Asian region
Universally hailed as the father of modern Malaysia, the often-controversial Dr. Mahathir Mohamad surveys the country he loves from atop his 85th-floor office, at the Petronas Towers, in Kuala Lumpur. Still full of the energy that drove him to great heights to create the prosperity and progress that visitors and locals alike have come to enjoy, Mahathir now spends much of his time writing – most recently in his blog, which is hugely popular with both his supporters and the anti-Mahathir bloc.
Having survived the global economic and financial crises virtually unscathed so far, Asia is slowly but surely waking up to the realisation that all is not as rosy as it may have seemed. The export-led strategies of many emerging economies have resulted in massive drops in income, since the primary markets for these once-booming exports have been hard hit by the economic fallout.
What lessons can emerging economies, in particular, learn from the crisis? And what measures can be put in place to minimise or insulate Asian economies from the adverse effects of the recession in the Western world?
“In the first place, emerging economies must not fall into the trap of thinking that the Western model is the only model, and the best one,” Mahathir asserts. He believes that what is happening in the West is a result of abuses of systems that they themselves have invented – namely, the financial, banking, economic and free-market mechanisms.
“These were invented for their own benefit. But they are often open to abuse, and what we are seeing today is the result of this … The bubble must eventually burst, because it was built on very unsound principles,” he adds.“For example, the financial system allows the banks to print money, which is [a case of] creating money out of nothing. This, of course, is unhealthy, as it allows people to play around with money, because we assume that this type of business is larger than world trade – and eventually, this is based on something that is not real money,” Mahathir argues.
Commenting on the failure of global markets, he crystallises – somewhat simplistically, perhaps – the outcome: “This must come to a stage when they will be exposed and the abuses become known, resulting in a loss of consumer confidence. One of the many abuses stems from lending money to people who can’t pay back, merely because you want to maintain a large quantum of loans…”
And he goes on to add that “when people cannot pay, there is no interest to be collected. That’s what happened with the subprime market. Since then, it has trickled into other areas, where money was used to make more money… but this wasn’t real money. And eventually, when it comes to the crunch, you will have to find the money – and then, there is no money.”
“This is what is happening to the rest of the world. We shouldn’t be slavishly accepting these systems of the West,” Mahathir cautions. “We should be thinking about our own systems. Fortunately, we’re not too involved in playing around with money. We are much more confined to real things, real money. Our banks have not produced imaginary money as much as the Western countries have,” he contends.
SLAVES TO THE RHYTHM Most emerging economies are export-oriented and have become defacto economic slaves of the open-market system. Consequently, the ill-effects of the open-market system affect us all. The strengthening of regional economies does, however, provide Asian countries with an opportunity of increasing regional trade, as a fallback to the crashing markets Stateside.
“This is one way of avoiding the stress that we see in the West,” the former Malaysian Prime Minister suggests.
And he continues: “Of course, if the West fails – given that it is our largest market – we will also have to pay the price. But we deal in real things; we don’t play around with money. We produce goods, but because they have no money, they’re not going to be able to buy what we want to sell to them. We will have to start looking at other markets outside the developed countries… we can look at poorer nations, other Asian countries which are doing better, and we should learn to develop regional markets and cooperate much more seriously than we’ve ever done,” he concedes.
The emergence of an Asian power bloc seems inevitable in the wake of the current global crisis, the likes of which have not been seen since the Great Depression in the US, at the turn of the last century. Some analysts are speculating that this is the beginning of the ‘Asian Century’ – and no other fact seems as incredible, save for the rise of nations such as China and India to super-industrialised status.
Of all the people who advocate this theory, none is more certain of the rise of Asia as a global superpower than Dr. Mahathir Mohamad. He maintains that “it has already begun.”
“The fact is, Asia has been able to emulate the capacity of Europe, but hasn’t confined itself to playing around with money. We produce real goods that have value – tangible value. Asia has become the powerhouse, the factory of the world,” he says, proudly.
“What we are seeing now is the collapse of the Western system… and fortunately, for us, we are not as involved as some countries are in the collapse. Although there have been investments by Asians in American bonds, hedge funds and so on, we are in a position to make early corrections,” he says, confidently.
But despite the resurgence of Asia, some economists caution developing economies such as Sri Lanka against isolationist thinking – and they say that there’s a lack of preparedness in these nations. Famed for the foresight that helped him succeed in his two decades and more as Prime Minister of Malaysia, Mahathir is pragmatic of the need for global cooperation and a collective consensus, if we are to resolve the economic and financial woes of the politics of greed.
“This is too big for Asians to solve alone,” he declares. “This (economic crisis) is a problem of the world. The slowdown is a worldwide phenomenon. The world must come together to resolve this. To say that President Barack Obama must resolve this is nonsense, because he doesn’t have the power to do this on his own. Unless the world cooperates, and perhaps comes up with a new system, we cannot solve this – nobody can. There has to be worldwide commitment to a new system,” he urges.
Sadly though, the inability of Asia to stand together has not boded well for the region’s progress. Divisions of race, religion and status – amongst a host of other disparities – continue to mar the rich fabric of society that has contributed to Asia’s uniqueness and fascination.
But progress has been made, as is evident from ASEAN’s success and, to a lesser extent, with SAARC more recently. But the export-oriented policies adopted by many emerging and new economies has meant more cooperation vis-à-vis trade and commerce with the US and Europe, instead of strengthening regional ties. This may be about to change.
In the light of recent developments, Mahathir advocates increased regional cooperation and bilateral ties, to maximise on the opportunities that may now be open to Asians.
He explains: “The thing about regional cooperation is that we did not focus too much or too seriously on it, because we had these large markets that we could sell to. They are rich, while regional markets are poor, so we didn’t spend much time trying to develop regional markets. But that said, we find that ASEAN, for example, learned about developing their economies for each other, and there is no doubt that its formation – and the various meetings that are held – has ushered in much higher growth for member nations. And I think that, to a certain extent, SAARC countries have also benefitted from dialogue with each other.”
“But the time has come for this regional dialogue to be much more serious. And we have a need to help each other grow, so that we don’t always have to depend on the very rich markets of the West – because, as is evident today, they too can collapse,” he adds.
NEW STANDARD Advocated by many notable personalities over the years, a return to the gold standard is said to be a change for the better. And while practical issues of quantity and availability are impediments to the system, it would – if implemented correctly – produce tangible value to currency, irrespective of the region or country, Mahathir believes.
Unfortunately, the pegging of currencies to the US Dollar and the proviso of using the greenback in global transactions has resulted in many developing and emerging economies ending up on the losing side.
“When we pegged [our currency] to the dollar, it was the most stable currency at that time,” Mahathir recalls. “It was the currency used for all trade. So it was reasonable that we should peg to the dollar. But things change, and we should not slavishly follow a certain policy simply because it did justice before. It may not work as well now, because the dollar is not as stable as it is made out to be…”
And he points out: “We have to think of other ways of defending the value of currency. The Bretton Woods rule fixed currencies according to the value of gold. An ounce of gold at that time was around US$ 35, and we all pegged our currency to the dollar, basically relating it to gold. But with the end of the gold standard, we pegged ourselves to the American Dollar, because people somehow or other believed in it,” he reminisces.
Uniquely qualified to comment on the lessons of history, Dr. Mahathir Mohamad argues that “although we had the gold standard, the dollar was worth nothing, in reality. But they very cleverly insisted that all trade settlements must be made in dollars and quoted in that currency. That creates a demand for dollars, and makes it valuable. But it is not based on anything that is tangible; they were merely pieces of paper…”
“Gold stabilises currencies always,” he emphasises. According to the legendary ex premier, we may have to consider going back to the gold standard.
“Of course, we can’t move gold around freely; but then, we don’t have to move it. Instead, we have to move the value of gold, and people will have to back their currencies with gold. And then, I think there is a basis for determining the relative value of currencies,” he elaborates.
The present global crisis, having been precipitated by unscrupulous hedge fund managers and currency speculators, has seen the value of the greenback swing like a pendulum… and this, in turn, has left many people and nations reeling.
The politics of greed is the culprit…
Mahathir agrees: “Yes, basically it’s greed that has caused this situation. Why would businesses want to manufacture and sell cars, when they can make 20 or 30 times more by shuffling some papers around?” he asks.
He continues: “When you sell cars, you have to put money in to produce them, and the margin is usually about 10 percent. But if you play around with money, you can make 100 percent or more from your investors.”
Hedge funds promise returns of some 30 percent, but they make more than that, Mahathir asserts. “People are attracted to these returns, but this is not real business. When you go into real business by providing goods or services, there has to be capital investment, and the return is around 10 percent… or even less. So it’s not as attractive as investing in hedge funds,” he explains.
That said, a number of notable Asian players have made considerable investments in Western economies. These could, in time, tip the balance in Asia’s favour. And the election of America’s first African-American president is a sign that times are changing…
“There is no doubt that Asia will be playing an increasing role in international affairs – including international economies – and of course, the international financial system. But Asia would be making a mistake if it were to invest in the collapsing banks of the West, because they are not as sound as they are made out to be. They’re playing around offshore – off-book banking, off-the-record banking and so on. These are unhealthy practices in the long run,” he feels.
Mahathir urges Asians to invest in industry, maybe by buying out Western equivalents. They are collapsing because of their dependence on the Western banking system, Mahathir suggests.
“The Chinese and Japanese could do a better job running these industries, than the Americans and others. That should be the direction in which we should be going. And, of course, if we do that, Asians will play a much bigger role in the world economy,” he adds.
GOOD THINGS DON’T COME CHEAP! The effects of the crisis Stateside are slowly but surely being felt across Asia – and none more so than in the world’s fourth-largest economy, China. The drop in demand has resulted in a slew of factory closures and massive job cuts across the mainland, as more and more businesses go under. Cuts in production will have wide-ranging ramifications for the country, as well as those that maintain close ties with it, analysts claim.
But Mahathir is hopeful and advocates a policy of ‘help thy neighbour,’ so that Asian economies can stem the tide and emerge healthier from the experience.
Commenting on China’s near-term future, he states: “It will go through a very traumatic period, because its national vision was based on rich markets in Europe and America. Now, these markets are disappearing, so it cannot help but cut back on production; and this invariably results in closures.” “China will have to make adjustments and look into regional development, and invest in the region rather than looking to the West,” he sums up.
And Mahathir points out: “We can benefit from China’s skills and investments. It will have to close some of its factories, but they will reopen and China can then develop new markets. And these new markets are to be found in emerging industrialised countries.
And if China helps in developing these countries, it will build markets for itself.”
HELPING HAND “We used to talk about ‘prosper your neighbour’… to help your neighbours to become prosperous. This is because when they become prosperous, they become a good market for you. And at the same time, of course, they will have less trouble and you will not have to bear the brunt of their problems. They will not face employment issues and migrate to your country… and so on. It is better for us to help them create jobs in their own countries. That was Malaysia’s policy, and I think it was sound. China should adopt it, I feel. Japan invested in my country, and Malaysia prospered. And so, a prosperous nation became a lucrative market for Japan.
That is the way to go,” he maintains. Today, Malaysia shines brightly, as a beacon and also an example of a nation that has embraced its independence. It has adopted systems and processes that are accepted as being both successful and adaptable in a multi-ethnic milieu.
So does Mahathir think that Sri Lanka can adopt Malaysia’s policies?
“Yes, most certainly,” he responds.
“When we became independent, instead of nationalising foreign holdings, we actually invited more foreigners. Most countries, when they gained independence, wanted to be free from others and rejected foreign involvement in their economies. They became socialistic, and they couldn’t grow. But Malaysia went the other way. We invited more foreigners to invest in our economy; and in the process, develop our economy. We then acquired the skills that we needed from them, so we can now move abroad and invest in other countries,” he says.
Elaborating on an inclusive philosophy that Sri Lanka would do well to adopt, Mahathir advocates a change of mentality as being crucial for the country to reach its full potential and achieve prosperity.
“I think we should change our mindsets,”he says, adding: “We should not be looking inward; we should be looking outward, but selectively. In our case, we had to depend on developed countries to invest in ours. Now, we may have to look at countries like China. Just like in Malaysia, it is investing in other countries with a view to prospering them…” Expounding the theory of selective inclusion, Mahathir recalls: “At the time of our initial Foreign Direct Investment (FDI), people didn’t even talk about FDIs.”
“But Malaysia went ahead and invited foreign investors, creating jobs for our people – so many jobs, in fact, that we had to invite foreign workers to take up the jobs created in Malaysia. And they became prosperous together with us,” he states.
THE COLOUR OF MONEY Likened to the US Dollar, the Malaysian Ringgit has maintained a strong presence in Asia, prompting analysts to use the currency as a benchmark or measure of buying power in the region. The fall of the dollar provides a window of opportunity that may see the birth of a new dominant currency, at least within Asia. But this may just be a dream for most Asians. The almighty dollar is likely to hold sway… at least in the foreseeable future.
Mahathir comments: “In Malaysia, the Ringgit is used as the currency for all transactions. In many countries, although they have local currencies, whenever they engage in business transactions – for example, the hotels – ask to be paid in dollars, because they don’t have the same faith in their local currencies.
In Malaysia, you pay with the Malaysian currency, because they know that the Ringgit can be converted at a rate that is quoted and backed by the Government – and because people have confidence in the value of the local currency. We often find that although the Malaysian Ringgit is valued at around a third of the dollar, the purchasing power is the same. One Ringgit in Malaysia would buy the same amount of goods and services as a dollar in America,” he notes.
“So, in reality, our purchasing power is very high, because our cost of living is relatively low. I think it is important for people to have faith in their own currency. It is more important to determine purchasing power, rather than exchange rates. We work on the basis of purchasing power. Our per capita income is approximately 6,000 US Dollars, but our purchasing power is roughly US$ 16,000. This is something we must focus on, in determining whether there is poverty or not,” Mahathir asserts.
SUPERPOWER ASIA? Comparing and contrasting the divergent systems of Asia’s two new super economies – India and China – Mahathir stresses that while the existence of a democratic system in India provides its people with many benefits, excesses to the process have resulted in slower growth for the nuclear-powered nation.
“Well, China has greater control over its economy, because of its political system. India is a democratic country, and democratic nations are unstable. We change governments every now and then, which means that policies can’t be followed through. So India’s growth would be much lower than that of China, but it has the capacity to grow. Indians have skills, they are intelligent people. But politics in India presents a barrier to growth. So if we look into the future, India’s growth will be much lower than that of China. But in terms of ability, the Indians are as able as the Chinese. I think if they get their policies right, they can compete with the Chinese,” he muses.
The emergence of other technology-driven economies such as South Korea and Taiwan has seen a resurgence of late, pointing to the possible overshadowing of big brother Japan in the near-to-medium term. But Mahathir is sceptical of South Korea’s ability to withstand external shocks that are a direct result of the open-market policies that it has embraced.
“Well, in terms of technology, mastering production techniques and so on, Korea is almost on par with Japan,” he affirms. “They have the same technology, and their people are very well educated. But Korea’s weakness stems from the economic and financial crises, because its speed of recovery is largely due to foreign investors buying up Korean businesses. But if there is any sign of instability, foreign investors will pull out and Korea’s stock market will collapse. This is because foreign investors came in to boost the economy, but they can pull out at anytime…”
“Too much dependence on FDIs can be very damaging; it can be very dangerous,” Mahathir warns. He goes on to say that “Japan is less dependent on FDI. Its investments are Japanese, not foreign. And Japan has the technology. The Koreans have the same technology, but they are too dependent on foreign investment – this is where I see an Achilles heel, as far as Korea is concerned. But if it can overcome this, and its investments are more Korean, then I think it can catch up with Japan very quickly in terms of technology, and in terms of production – we know its production cost is much cheaper than Japan’s.”
OPEN INVITATION? Mahathir notes that there are different types of foreign investments: “One is where foreigners acquire shares in stock markets. This is not very good, because they can easily pull out. They make money and leave, in short.”
He continues: “The other type of FDI is where they invest in producing goods and services. In this case, they have a commitment to stay on; because if they pull out, they will lose money. They are investing in tangibles such as factories and hotels.”
Mahathir states: “I think this type of investment should be encouraged, because it creates jobs, it brings prosperity. Also, they cannot pull out like they would exit a stock market. But we must be very selective in encouraging FDIs. They must bring in technology, skills, capital, etc… and when they do this, our people will have a chance to learn. And eventually, we should be taking over. So the management of FDIs is very important.”
VISION 2020 To echo the sentiments of LMD’s 2008 Sri Lankan Of The Year Dr. Hans Wijayasuriya, the vision for Mahathir’s Malaysia was socialist by design. Sadly invoking the violent rebellions witnessed in the past in Sri Lanka, socialism has it roots in a collectivism and inclusion that is aimed at empowering the majority.
Elaborating on Malaysia’s Vision 2020, Mahathir stresses the need for the private and public sectors to work in concert. This, more than anything else, seems to be the formula for success – a simple truth that seems to have eluded us. But as Mahathir says, there has to be a political will to do this.
He warns, however, that while formulation and planning must remain intrinsically socialist, execution cannot be tied up in flawed socialist ideas that have proved to be failures.
He explains that “Vision 2020 is socialistic.” What counts is planning, he stresses, adding that five-year plans, for instance, are socialist concepts. “You decide on a target, and you work towards it. The difference is that you need the support of the private sector. If the private sector doesn’t support you, you cannot reach your destination. While planning may be socialistic, this cannot be tied up with socialist ideas all the time. Yes, we must have the right to go on strike to demand better wages, but we must also keep in mind that if a business isn’t capable of delivering healthy profits, it’s going to close down. And when it closes down, it’s no good talking about the rights of workers… because they have no jobs!” he quips.
“We have to have a plan for workers to receive a share of the products of their labour. But when you demand more than you can give, it will not work. In Malaysia, we explain to the workers that they can go on strike and demand higher wages; but if the company collapses, they will not get anything anyway. Now, let’s see how you can work with the employers, so that both will prosper. It’s no good making demands without contributing. And I think the workers and the unions in this country (Malaysia) understand that. There must be a balance. So while we should care for the welfare of workers, this welfare can exist only if there are jobs,” he points out.
WINNER TAKES ALL? Whilst an anti-Western sentiment is evident in Mahathir’s remarks, what is more striking is a desire to find an alternative path. “The workers must understand that this confab or confrontation is a very Western concept. In the West, everything is based on competition. Whoever wins, takes all. You have a competition between workers and employers, and you think that you can take all; but if a business fails, there is nothing to give anybody. That has to be understood. Competition is good, but excessive competition can result in losing everything, rather than getting everything. What we want to see is a win-win result, not a winner takes all scenario,” he insists.
“So when we pursue Vision 2020, we have a target. We want to achieve ‘developed country’ status. And to work towards that, you have to work together with people who will create jobs and improve wages. But the workers must also produce, if we are to achieve our goal,” he emphasises.
ROOT CAUSES Recognising that ethnic discord often has its roots in basic socio-economic imbalances and unequal opportunities, Malaysia took steps early on to minimise – if not eradicate – these disparities, while respecting the needs of its many cultures to maintain individual racial and cultural identities.
Can Sri Lanka learn from the example set by Malaysia?
“Well, Malaysia recognised very early that disparities in economic well-being are a source of conflict,” Mahathir explains. “We can’t change people’s ethnic origin, their culture and all that. That’s not possible. They want to retain their cultural and racial identities. But we can reduce the disparities. That’s what we started to do, when we launched our new economic policy – to correct economic imbalances and reduce disparities. And we find that it has worked; not completely, because lower-income sections must change their value systems, if they are to prosper. If they don’t change, if they don’t work, they are obviously not going to achieve prosperity,” he acknowledges.
“It’s no good owning 100 percent of a cake that is shrinking. It is better to have a slice of a cake that is growing. That is basically the philosophy that we adopted. And, by and large, it has worked. Malaysia is stable, it has grown, and its people are richer. There is disparity no doubt, but we can close the gap gradually,” he adds.
SONS OF THE SOIL The Bumiputra policy that, in the eyes of many, affected Malaysia not too long ago has its roots in similar policies that continue to cause dissension in many other parts of Asia – including Sri Lanka.
The politics of segregation and separatism based on ethnicity, caste, creed, religion and culture continue to ravage many lands.
Mahathir, reflecting on the lessons of Malaysia, is pragmatic in his approach: “Of course, the Bumiputra identify themselves much more with the country than others who they claim are latecomers. Latecomers should adopt the culture and habits of the indigenous people. That happens in most countries. But when the latecomers are more aggressive, they are much more successful… and asking them to adopt the ways of the others and contain their aggression is, I think, quite difficult. It is far better if the Bumiputras were to adopt the ways of the latecomers, and become more aggressive themselves. But their claim to an identity with the country cannot be denied. In Sri Lanka, you have the Tamils and actually, when you see them, you identify them with the mainland (India) – and you can’t say ‘become like us.’ Then, of course, there will be conflict.”
“So we are slowly trying to claim identity. We cannot say that Malaysia will be India or China. Singapore has done that, but the majority of its people are of Chinese origin. But even they do not identify themselves with China absolutely – they are Singaporeans. We are trying to do this too; but it is a slow process… and we have to be patient. We have to understand the sensitivities. We should not have public discussions on these issues, because they tend to raise tension, emotions and all that, which could destabilise and stifle growth. And when a country is poor, you are going to suffer from instability,” he contends.
But can Sri Lanka achieve national unity?
“Slowly… I think when you stress too much about being Sinhalese, there will be resentment to that. In Malaysia, we talk about Malaysian; we don’t talk about being Malay. We have to accept that we have to make sacrifices, but the others must make sacrifices too,” Mahathir says, in conclusion.