Wednesday, May 18, 2022

The end of race-based business cartels?

Where the strong arm of the government has failed in ending business monopolies by certain communities, technology could succeed.

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How many times have you noticed a money changer who is not of Indian origin, or a pharmacy run by other than ethnic Chinese?

One theory is that the money changers today inherited the trade from their ancestors who literally cashed in on the early Indian economic migrants to British Malaya in the early 20th century.

As for pharmacies, or for that matter car accessories shops, it is said that they operate in close communal networks, passed on to the younger generations along with all the trade secrets.

In essence, they are cartels, which over a long period have built a wall around their businesses that even governments will find difficult to penetrate.

Many experiments by the previous Barisan Nasional government to break business monopolies met with failure.

The most recent was the technology gadget business.

In 2015, then-rural development minister Ismail Sabri Yaakob mooted the Mara Digital Mall, a plan to get the Bumiputera community involved in the lucrative business and, ultimately, to break what was seen as a one-race monopoly of the trade, symbolised by the Low Yat Plaza in the heart of Kuala Lumpur.

A touchy problem

The plan soon collapsed despite the many incentives, with complaints from traders that the same monopoly was replicated, only this time with their own people behind it.

The topic of so-called cartels or independent businesses which work together resulting in near-complete control over the market can be a touchy one.

For decades, some business sectors in the country have operated on a communal basis with activities dominated by those in a particular community.

Mara Digital Mall in Kuala Lumpur, the government’s ambitious attempt to break what was seen as a one-race monopoly of the technology gadget trade.

But where the government has failed, technology may succeed, says an academic.

Changes are in fact already taking place, said Prof Izlin Ismail, who heads Universiti Malaya’s Centre for Business Excellence.

“Look at how the money changing business has gone online,” she told MalaysiaNow, referring to the sector normally associated with those of Indian Muslim heritage.

She said car repair shops, once dominated by Chinese, would also be a dying industry.

“New cars are also going electronic and electric.”

With technological advancements, more and more people can now acquire the knowledge and skills needed to succeed in any given sector.

Government’s true role

Still, it is not the death knell for cartels, Izlin said, as they thrive due to control over the supply chain.

“Since that community controls the supply chain, it’s difficult for others outside that group to penetrate the market,” she said.

“The government has tried to open up some of these businesses to the Bumiputera community but has never really succeeded. That’s because somewhere along the supply chain, there is a communal relationship that will give preference to those within the group.”

Even so, she added, economists are generally cautious about government intervention as markets are better at allocating resources.

“Government intervention is required when there is market failure.

“The role of the government is to make markets more efficient, not to take over their role.”

Market failure usually occurs when the supply of goods and services does not meet demand.

In any case, Izlin said, there is a lack of data on the influence of cartels which makes it difficult to assess whether they are bad for the economy.

Nevertheless, economists believe that fewer barriers to doing business is good for the economy.

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