The Biden administration has unveiled a
US$ 2 trillion in infrastructure spending package. It is a wide-ranging bill
that includes roads to R&D. This is in a way sets the stage for the U.S. to
compete with China.
How is it funded? Raising the corporate
tax to 28% from the current 21% (previously it was 35%).
The world needs this large fiscal
stimulus to help global recovery from the pandemic. The OECD estimates up to
1.5% increase in global growth based on the U.S. stimulus package.
Will there be inflation? The short
answer is No. Why? So long as there are subscribers to the U.S. debt issuance
and China restrains price increases, inflation will remain benign.
Andrew Sheng in a recent Starbiz article
(Saturday 10 April 2021) remarked state-owned enterprises (SOEs) contributed to
China’s growing net national wealth to US$ 88.6 trillion. The state owns
one-quarter of such wealth, ample reserves to address modernisation without
higher taxation. Chinese SOEs are best labelled as “social enterprises” –
achieving social goals through business methods – not wholly for profit.
In contrast, U.S. shareholder capitalism
and political requirements, cause formidable obstacles and delays in
implementing infrastructure projects. The bulk of public infrastructure in the
U.S. is in private hands. China has SOEs to own infrastructure but allows
private sector to innovate and compete on the basis of usage rights.
How then to deliver performance without
corruption, concentration and social injustices? Free markets have made the top
1% in the U.S. increase concentration of wealth and power. So, is it state
capitalism or more market socialism? That’s for the U.S. Congress to decide.
In Malaysia, the boundaries between
business, politics and state have been blurred so it is difficult to
distinguish between “rent-seeking” and “productive” or progressive capitalism.
Has Government initiatives since the NEP raised new entrepreneurs or fostered
more rent-seekers? Then there are state-owned enterprises (or GLCs) in almost
all sectors of the economy that competes with private sector entrepreneurs of
all ethnicities.
In terms of countries with the highest
SOEs or GLCs, Malaysia ranks fifth in the world. Total assets of these GLCs
amount to 51% of GDP as at end 2015 (Jayant Menon, IDEAS). Its debts amount to
15% of GDP and its revenue about 25% of GDP. The Government estimates GLCs
employ 5% of the workforce, and accounts for 36% of market capitalisation on
the Bursa Malaysia. GLCs are most dominant in utilities (93%, before sale of
Edra) and in transportation and warehousing (80%). GLC’s share is greater than
50% in agriculture, banking, information communications and retail trade. The
heavy presence of GLCs in the said sectors seem odd when they are neither
monopolies nor strategic to the nation. Wan Saiful Wan Jan (2016) remarked that
the Government’s share in the KLCI increased from 43.7% in 2011 to 47.1% in
2015.
Menon and Ng (2017) found that GLC
presence in general has a discernible negative impact on non-GLC investments in
Malaysia. Their research also determined that where GLCs account for a dominant
share (60% or more) of revenues in an industry, investments by private firms in
that industry is negatively impacted. This is the crowding-out effect!
There is a legitimate role for
Government in an economy – especially in provision of public goods and/ or
facing market failures. In Malaysia, the state is widely and deeply involved in
business. Good governance and quality leadership are then compromised. And when
massive bailout drains our limited resources, the question is whether the
political or social cost to be incurred is even higher.
To move forward, there is a need for divestment
by the Government of its interests in GLCs and an acknowledgement (that with
the GLCs) the NEP has been firmly met. Issues of income distribution can then
be addressed through divestment and restructuring of state enterprises.
Reference:
1.
Government-Linked
Corporations: Impacts on the Malaysian Economy, IDEAS
2.
Andrew
Sheng, Adopting state capitalism to compete against China, 10 April 2021, The
Star
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