Tackling Asean's corporate cronyism
Many Southeast Asian countries, particularly Thailand and Malaysia, have been breeding grounds for unchecked and unregulated relations between government and big conglomerates, which have kept a handful of crazy rich Asians increasingly wealthy and widened the income gap between them and the rest of the population.
For many decades, certain big businesses have maintained monopolies for state concessions and won handsome government contracts, thanks to their strong connections with governments.
In the wake of the 1Malaysia Development Berhad (1MDB) scandal, in which Malaysia's former prime minister Najib Razak was accused of channelling nearly US$700 million (21.5 billion baht) from the state-run 1MDB into his personal bank accounts, the business community in Malaysia has become increasingly fed up with corruption. They want a "new Malaysia" that does away with corruption. They also want a level playing field and a more inclusive economy.
During my recent participation in an anti-corruption forum in Kuala Lumpur last month, some business leaders, who did not want to be named, expressed their frustration that these relations between state officials and businesses have brought about a culture of favouritism and cronyism when it comes to bidding for government contracts. This has led to pure corruption, many of them said. That means that if your company wants to work on a government project, it needs to have solid connections with the government, otherwise it will never be granted a contract.
Technology also makes companies' payments of tea money to government figures difficult to trace, they said. This is because the payments are made in very complicated or even legal means such as electronic transactions or share transfers made by proxy.
I sat down on the sideline of the forum with Cheah Chyuan Yong, chairman of the International Strategy Institute (ISI), a non-profit organisation which organised the event, and asked him about the root causes of corruption in Malaysia and other Asean countries and how the business community can help tackle graft.
What commonalities do Asean countries share in terms of unregulated and opaque private-public sector relations that potentially lead to favouritism, cronyism and therein corruption?
In any developing country, there are usually many regulatory gaps especially when it comes to defining the relationship between a government and businesses. This often results in "grey areas" that businesses can leverage off to secure contracts, for instance.
To be fair, this problem of corruption and poor regulation does not only affect Asean. Europe was like this right up until the establishment of the European Union, after which, with the creation of unified laws and regulations governing relations between government and business, corruption has been minimised.
So the lack of effective implementation of rules, which in turn leads to grey areas, is the common factor in Asean countries today.
In your opinion, what are the root causes of corruption; weak state regulations that are designed to favour certain groups of business, entrenched local culture and practices such as tea money, public tolerance, or the lack of checks and balances?
Corruption is the result of the following: the poor enforcement of rules and regulations; the existence of a culture of indifference from households to schools; and, unequal economic policies and distribution of wealth, which leads to a widening gap between the rich and poor. All that you have mentioned.
What steps can we take to tackle these ills?
Start implementing and enforcing rules. Don't have rules just to keep them in the legal books. Educate children about integrity and accountability from a young age. Don't just focus on the receiver, penalise the giver as the prime culprit for causing corruption.
Small- and medium-sized enterprises (SMEs) contributed 37% of Malaysian GDP in 2017 and that figure is expected to rise to 41% by 2020. Furthermore, SMEs employed two-thirds of all workers in Malaysia, and made up 98.5% of all businesses in the country. What impact does this kind of corruption, driven by the culture of cronyism, have on SMEs?
Corruption distorts the efficient distribution of resources in an economy and has a huge impact on SMEs. Corruption breeds favouritism and benefits those with networks and connections. This will inevitably create an economy skewed towards the big boys who will eventually get the biggest share of the economic pie. Those without these connections – despite having the skills and expertise -- will lose out no matter what.
How can growth be inclusive and how can we narrow income disparities?
As I explained, give more opportunities to SMEs and let them have a chance to partake in the "race". I know that this is easier said than done. At the end of the day, governments will always award projects to big players who have the means to sustain those projects, which in a way, makes a lot of sense. The smaller players in the market may not have the means to see through a project to the end and may end up in financial trouble before the project can be completed.
But perhaps governments can create a mechanism whereby it's compulsory for the big boys to subcontract to SMEs rather than do it themselves, and along the way, empower those same SMEs to climb up that value chain once they have more experience and capital in their coffers.
When it comes to tackling corruption, do you think punitive measures work? Or do you think there are other measures that could be more effective?
Punitive measures, if targeted towards the right people and not just scapegoats, can be effective. But they are by no means the only solution. It has to come with all the measures I mentioned earlier.
Many businesses say, "Everyone else is doing it, so why shouldn't we, otherwise we wouldn't stay competitive." Given widespread corruption in government procurement projects, do businesses and SMEs have any other choice?
Not really. But I think with digital technology, SMEs can easily showcase themselves as being worthy prospects. Technology also can lead to greater transparency in selection processes. Things can be brighter in the future with technology.
Can you comment on the new corporate liability law in Malaysia? How does it work? Do you think it can promote transparency and prevent corruption?
Well, before we focused on the receivers of bribes. This is not sustainable, because the source of corruption comes from the private sector, the giver. So with the corporate liability law, the private sector is now liable. The law also states that if the employee of a company is caught bribing, even the employer can be punished if no adequate measures or rules were in place to prevent such an act by the employer.
It most certainly will. But here's where political will is crucial. Normally policymakers drag their feet because that's the source of income of many politicians, and powerful, influential people are often involved. I guess we have to start somewhere.
There is also an important Chinese proverb which says that you cannot have both sides of a knife sharp. Similarly, you cannot have one agency to oversee the policing of corruption as this agency will be susceptible to corruption too.
The ideal situation would be for different agencies to take up different roles in the fight against corruption, so the fight will be effective, and at the same time act as checks and balances to the system.
Surasak Glahan is deputy op-ed editor of the Bangkok Post.
Deputy Op-ed Editor
Surasak Glahan is deputy op-ed pages editor, Bangkok Post.