Friday, June 29, 2012

Malaysia's Billionaire Crony Problem?

Volume 4 Issue 27: Intelligent Investing

The chart below is appalling, though I must say, not entirely surprising (HT: Ezra Klein). The circles on the left measure the total net worth of billionaires (in USD) and the proportion of the net worth compared with each country's GDP. 

Before the economist in you starts griping about how meaningless it is to compare the ratio of a stock variable (net worth) with that of a flow variable (GDP), let me just preemptively stop you. While on its own, it doesn't mean much, but it is possible to use it as a relative measure, as in this case. To give you examples of such ratios, in the world of speculation, analysts discuss concepts like the "PE ratio", which is the ratio of  price (a stock variable) over net income (a flow variable). Again, on its own it means nothing. But it is often used as a relative measure to compare what the market's expectation of earnings of various companies. 

But in this case, the proportion of total billionaire's net worth compared with the country's GDP just measures how concentrated wealth is among the richest bunch in the country. It is no surprise that Russia tops the list at 20.0% with all its oil tycoons and oligarchs. 

Surprise, surprise, Malaysia is No. 2 on this list! Malaysia only has NINE (actually supposed to be TEN, but   I am not exactly sure when the net worth was measured because Vincent Tan comes in 10th with a net worth of USD1.2 billion. It also depends on the methodology and exchange rate and what not). So, with just nine billionaires, the net worth of these nine people forms about 18.3% of Malaysia's GDP, not very far from Russia. The subsequent countries are far behind. What this shows is that Malaysia's wealth is heavily concentrated among these nine or ten people.   

So, who are these nine or ten people? See the list below. I am sure they are no strangers to you.

Rank Name Net Worth (USD billions)
1 Robert Kuok 12.4
2 Ananda Krishnan 9.9
3 Lee Kim Hua 6.5
4 Lee Shin Cheng 5.2
5 Teh Hong Piow 5.0
6 Quek Leng Chan 4.2
7 Syed Mokhtar Al-Bukhary 3.3
8 Yeoh Tiong Lay 2.6
9 Tiong Hiew King 1.5
10 Vincent Tan 1.2

Out of the ten names above, how many of them are cronies? I am not going name any names, but this just goes on to show how cronyism has concentrated the wealth among a few of Mahathir's good friends. In fact, this is just a small piece of a bigger puzzle. Income inequality has been rising rapidly over the past three decades, which is evidence of the utter failure of the NEP. This issue is very well-documented at Economics Malaysia. Granted, it is relatively wonkish, and definitely not for the faint-hearted. Hisham has shown that income inequality is not just a phenomenon that is apparent across ethnic groups, but it is also just as pronounced within each ethnic group itself.

Source: Economics Malaysia
The Gini coefficient measures income inequality, where 0 indicates perfect equality and 1 indicates perfect inequality. The chart above shows that income inequality has not improved since the late 1980s. In fact, it is on sort of a downward trend since around 2003.

The mega projects under the ETP would only serve to enrich a few and lead to even more inequality. Trickle-down economics is just exactly as its name suggests. The lower to middle income earners will only enjoy the scraps from the tables of those that have been awarded those mega projects. Mere trickles from a waterfall of fortune.