Let The Market Deal With Ali Baba

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The call for anti-Ali Baba legislation ostensibly aims to curb the use of business licences by migrant workers and contribute to better targeting and use of government subsidies.
Unfortunately it also stirs unpleasant anti-foreigner overtones.
Economy minister Rafizi Ramli is right to emphasise that this is a decades old national issue and is not primarily one of foreign workers.
So when looking for effective solutions we must avoid a racial narrative and look at it objectively.
Business licences are given to Malaysians who sell or rent them to entrepreneurs, who happen to be from abroad.
Sometimes these collaborations amount to effective joint ventures.
The foreign entrepreneurs run successful businesses, bothering nobody and providing jobs, investment and activities in otherwise rundown areas.
The issue of concern appears to be that the sale or rental of the licences may be unlawful and the accusation is that the foreign entrepreneurs are to blame.
This should not be presumed and if anyone is behaving badly the “Ali Babas” are at least as culpable.
An obvious question is who is harmed by this activity? The Malaysians holding licences are benefiting from the fruits of their ownership, foreign entrepreneurs are doing business and meeting the demand from customers and Malaysian entrepreneurs are benefiting through the supply chain.
From an economics perspective there are very few losers.
It largely affects micro, small and medium enterprises (MSMEs) in low value-added sectors in retail and food stalls which Malaysians find generally uninteresting because they have better options.
So there is little economic harm in allowing foreigners to run these businesses.
The economic solution is to change the rules of the game to allow the market to function.
If Malaysians can freely sell or rent the licences in the free market then while still rent-seeking, it would not be illegal.
A better option is to cut out the middlemen and let the foreigners apply for the licences and run the businesses directly according to the rules.
Foreign entrepreneurs will be more likely to abide by the law because they have more to lose if they are caught.
Currently the Ali Babas break the rules because there is very little chance of being caught and very little loss to them if they are.
It is simple economic cost-benefit analysis.
The foreign worker recalibration programme has been hugely successful in regularising foreign worker registration and could be extended to allow people to take up roles as entrepreneurs according to new rules.
Subsidies also play a role and changing the rules to stop subsidies of these businesses is a proactive option.
Without subsidies the business licences would be less attractive to everyone and the problem would solve itself or go away.
So the subsidies are a partial cause of the problem by making the licences more valuable than they would otherwise be.
Remove the subsidies and you remove the demand for the licences from “Ali Babas” and foreigners alike.
In fact allowing foreign entrepreneurs to use the licences adds value and should be encouraged.
It creates impact by providing cheap outlets for consumers for which there is a demand. It also keeps neglected areas economically active.
If the licences were available to foreign entrepreneurs the market would be revitalised and competitiveness would improve.
This creates jobs, investment and business in local communities and keeps them running in economic terms.
Otherwise they will decline and close down. There would be clear net benefits to everyone, except the “Ali Babas”.
So objectively the foreign businesses and entrepreneurs are adding value and should be supported by changing the rules to remove the Ali Babas in favour of the market. - FMT
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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