The sale of Esso Malaysia by ExxonMobil to San Miguel of the Philippines is a done deal. But it was not completed before economic nationalists sounded the alarm. They feared foreigners would seize control of strategic assets within the country while seemingly ignorant of the fact that ExxonMobil is a US-based multinational corporation in the first place.

The more discerning economic nationalists hoped, demanded and appealed to ExxonMobil to sell all of its shares to the locally-based Lembaga Tabung Angkatan Tentera (LTAT).

Luckily, the jockeying was to no avail. Why luckily? Here is a question for consideration: Were these economic nationalists interested in the welfare of Malaysians?

I would say no.

This is a pertinent question given that LTAT already owns Boustead, which in turn operates petrol retailer BHPetrol. To have LTAT controlling Esso Malaysia would likely reduce considerable competitive force within the industry, if there were any to start with. More importantly, it would turn back the clock on any effort at introducing competition in an industry already stifled by government regulation and effective monopoly.

The LTAT path advocated by economic nationalists in Barisan Nasional, Pakatan Rakyat and whoever else would reduce competitive pressure in the area, and it would also exacerbate the already adverse relationship that exists between the government and businesses.

With the government already involved in various industries, what ensures that the government has the interest of actual individual Malaysians in mind instead of the profits of various government-linked companies — or in the latest case of the economic nationalists’ wet dream, the profits of LTAT and its companies?

This is an organization that is already mired in a controversy revolving around opaque military procurement which is closely related to yet another case of conflict of interest. How is it not a conflict of interest when LTAT is the major beneficiary of various military contracts while at the same time being a retirement fund for armed forces of Malaysia? And let us pretend that unlike the experience of Indonesia and Egypt, a military with direct or indirect business interest is an ingredient for the creation of a healthy civilian government.

Real business concerns run mostly on a profit motive. It cannot afford to entertain nationalistic sentiment. If it does entertain nationalism, then it typically seeks to manipulate such sentiment to its own advantage. Proton is one such case: save Proton, buy Malaysia. Or Malaysian Airlines: save MAS, fly Malaysia.

It is not a phenomenon unique to Malaysia of course. In the United States, General Motors and Ford have from time to time brandished their American credentials to American consumers. Many businesses in the past have also employed economic nationalism to justify protectionism in these business favors.

Zooming back to Malaysia, economic nationalism takes the extra step of merging business interest with government interest, thus making the issue of conflict of interest two-fold: government protecting its profits rather the interest of its citizens, and businesses manipulating government powers to advance business interests at the expense of citizens. It is a symbiotic relationship between government and business that turns the very components of a free society into parasites, living on taxpayers’ sweat.

Such perverse incentives cannot be good for the welfare of Malaysians in general.

For these two reasons, the sale of Esso Malaysia to San Miguel should be celebrated.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malaysian Insider on September 18 2011.

2 Responses to “[2431] Two cheers to San Miguel”

  1. on 19 Sep 2011 at 15:11 hishamh

    Given that pump prices are fixed, the only competition between retailers is through non-price avenues. That has some benefits (attendants now are aggressively welcoming and polite; some of the toilets are actually clean), but also entails some costs and inefficiencies (which one actually has the better petrol for the price? No idea – innovation here is obviously a non-starter).

  2. on 19 Sep 2011 at 15:31 Hafiz Noor Shams

    Given the controlled nature of the industry, I’m mostly concerned with status quo effect, i.e. if the industry liberalizes, it’s better to start from a competitive beginning than a monopolistic one. This way, there is greater chance for the equilibrium to be competitive, instead a monopolistic one.

    But even under the current price controlled setup, I think there’s still room for competition. You’re right, they have to be non-price avenue but it’s competition nonetheless.

    Product-bundling is one area. Free gift is another (this happened in the past until the govt decided it cannot be done, e.g. buy some liters get some liter free!). Discount arrangement is another (We’re already see loyalty card).

    True also that competition under this environment might add cost but that might just encourage retailers to lobby for competition harder.

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