Malaysia Airlines and why the government shouldn’t get involved in business

The question of whether the government should be involved in business, running a business and making business decisions, is nothing new. It has been expounded many times over, often under the pretext of assisting Bumiputeras in business, but nothing has come of it except reports on continued losses, failures and closures of businesses, one after another.

There is also the parallel issue of civil servants being tasked to manage government-owned business organisations. The question is, since when have our civil servants been able to double up as business experts and advise Bumiputera entrepreneurs on how to run their businesses?

This brings into focus the long-held belief that the government knows all – how to govern, regulate, plan, budget, tax and spend. But to run businesses too? Certainly not. This fallacy needs to be expunged immediately under the Pakatan Harapan (PH) government.

It is also about time that the government withdraws from being entangled in business decisions and enterprise management. It has no expertise in this and it is definitely not why it was voted in to begin with.

Selling these business units, preferably through an open and competitive tender, would probably make the government more popular and endear it to many voters.

After all, many privatised outfits that are successful today were once lethargic and loss-making in the hands of the government. Why not use the same formula now?

Faulty decisions

Even though some of the businesses owned by the government are parked in various commercial entities – in the case of Malaysia Airlines, owned and managed by Khazanah Nasional – major decisions are still made by the government or people who were appointed by the government.

In the case of Malaysia Airlines, the board of directors consisted mainly of people from Khazanah, representing the government, including many civil and ex-civil servants.

When wrong decisions were made, resulting in losses, the board members should have been taken to task, made answerable, penalised or told to resign. But in this country, accountability is always in short supply.

Many of them not only walked away scot-free, in some cases they were reappointed to other government-owned entities or portfolios. Many of those who failed Malaysia Airlines are now managing other government outfits. When is the PH government going to realise this phenomenal mistake?

Here’s a lesson in business history: failures at Malaysia Airlines occurred in a series since 1994 when it was first “sold” to Tajudin Ramli. An obvious disaster in the making, but one could argue that the government did not anticipate this mistake. What about the second, third, and fourth mistakes and many errors in judgment that followed, though? Who was to blame, if not the government and its appointed officials?

Not long after, another poor decision was made by the government of the day when public funds were used to buy the airline back from Tajudin at RM8 per share when these were actually traded at only RM3.08 in the market.

The next person appointed from the government to “look after” Malaysia Airlines did not do any better. While the airlines operation lost money, assets were sold to cover loses and showed a small profit.

Board composition

The poor management and financial performance of Malaysia Airlines has been a case study for many MBA students, discussed in many classrooms of business schools in the country. I would not be surprised if they have strategic solutions, too.

The government should examine the board composition of these government-owned companies. Why appoint civil servants to these boards? What role are they expected to play? What business specialty do they bring that will add value to government-owned enterprises?

A commercial entity is all about understanding the market, understanding your customers in the face of competition, making quick decisions and new investment decisions, formulating business policies, serving customer needs and charging reasonable sums to enhance your revenue streams. At the end of the month or quarter, revenue should exceed costs. These are just some of the routine needs of business organisations.

But the training of civil servants is the opposite of these business elements. Operating expenditure is never measured against operating income. Costs are not measured against revenue. There is no profit element built into their equation.

Which civil servants have been trained to act on some of the routine needs of business organisations? Were they graduates of business schools before joining the government? Did they learn business management while serving in government enforcement units or drawing up regulations?

Let’s be sensible. What makes the PH government think that these civil servants, the majority of whom are monolingual, can perform as board members of business entities and contribute business value propositions to government-owned organisations?

This is something the government needs to seriously consider. How government enterprises perform or suffer is mainly due to the management structure of the government itself – helmed by none other than civil servants.

Their insufficient knowledge and lack of business acumen and experience have caused many such organisations to fail. Now is the best time to review and revise management strategies.

For instance, there is a bad habit of putting ministry secretaries-general in operating units or agencies. What exactly is their role there? KTMB, for instance, has a civil servant from the finance ministry, transport ministry and the Malaysian Industry-Government Group for High Technology sitting on its board. So does Malaysia Airports Holdings Bhd and a score of other companies including hotels, racing circuits, construction firms, water supply and housing companies.

Many other government-owned enterprises, especially under the finance ministry and Khazanah Nasional, are littered with officials from the same ministry that are supposed to regulate them. Wouldn’t this be a conflict of interest between the operating unit and the regulator? Or can a civil servant differentiate between these roles?

No more business

The PH government today should not copy this approach and repeat the mistakes of the previous government. It should never use the same business model to manage these enterprises as was done in the past.

PH should realise that it is not in its best political interest to continue managing businesses that have failure signs written all over them. It should not think about turning these businesses around because its civil servants are not exactly business-turn-around managers by profession. Business acumen is not in their DNA.

Instead, the PH government should get rid of these loss-making enterprises along with others by selling them to the highest bidder. The days of the government running big businesses are over. It would be better off concentrating on regulatory reforms and setting up even playing fields for businesspeople to compete more effectively.

There are many areas of business which are dominated by a single group of people due to historical reasons, business monopolies, business distributor networks, capital outlay requirements and so on. This should also be rectified.

The government should set up regulatory frameworks to allow competition to flourish and each business sector to be more effective. Malaysia Airlines is a classic example of this, but there are also many more to contend with.

The views expressed are those of the author and do not necessarily reflect those of FMT.