Do we really need enforcement?


  • Opinion
  • Saturday, 27 Feb 2016

Education loan: A PTPTN officer attending to a borrower at the PTPTN office in Kuala Lumpur. The Government had offered discounts to borrowers who promptly settled loans.

Maybe it’s time for Malaysia to perform a bold experiment

IT appears that the Government knows something about the psychology of wrongdoing that we don’t.

Perhaps it’s the belief that the softly-softly approach to law enforcement gets better results than throwing the book at the culprits. It’s possible that the latter doesn’t work well because the enforcers have a poor aim, but that’s a discussion for another day.

For now, let’s focus on how our government agencies are sometimes amazingly flexible and accommodative when dealing with people who don’t play by the rules.

Discounts are frequently dangled before motorists and ratepayers to coax them to pay fines.

And what do you do to encourage borrowers to promptly settle the loans they’ve taken from the National Higher Education Fund Corp (better known as PTPTN)? Yes, you offer discounts, the great Malaysian financial lubricant.

And when faced with the problem of having too many unregistered foreign workers, the solution is a so-called rehiring programme so that these workers can get valid work permits.

It has been explained that the programme is meant to fulfil the demand for labour and to document the number of those workers, but it’s also an example of legalisation without changing the law.

And we’ve just heard about the Federal Territories Ministry considering a proposal to hold weekly street races in Kuala Lumpur — which involves road closures — as a measure to counter the long-standing Mat Rempit phenomenon. Those advocating this move argue that it’s a safer and better-regulated alternative to the illegal motorcycle races that are a major headache for the city.

However, many more people oppose the idea, saying it’s ineffective, indulgent and inconvenient. To them, it’s yet another case of the authorities pandering to lawbreakers instead of going after them.

But maybe there’s wisdom in bending over backwards to please those who have little use for rules. What if collecting revenue, converting undocumented foreign workers into permit-holders, or cajoling daredevils into entering official races, is more important than punishing offenders? What’s the right policy when leniency brings better returns than enforcement and penalties can?

This concept of elastic enforcement is best tested in the business world, where compliance with the law clearly translates into costs for the owners.

It’s not just about paying taxes and fees to the authorities. Compliance with the law requires a lot of other expenditure. Buildings have to be designed and built in certain ways.

The operators must abide by conditions set by the government, even if it means limiting the capacity to make money. People have to be hired to ensure that the businesses don’t stray from the rules. The management needs to spend time talking to the regulators.

When a company is deciding whether to invest in a country, the legal framework and regulatory environment are big factors. If following the law of the land is deemed too expensive, the company will look elsewhere.

Malaysia should conduct a bold experiment on the true worth of enforcement. Since we already have a lot of experience with dialling down our enforcement, it makes sense for us to embark on this.

Here’s how it should go. For a year, enforcement provisions won’t apply to businesses. They can follow the law if they choose to, but if they don’t, they won’t get penalised. For example, it won’t be mandatory for companies to pay income tax, file audited accounts, hold shareholder meetings, advertise truthfully and observe safety rules. They can profiteer, gang up against consumers, underpay workers, and pollute as much as they want.

Because they don’t have to worry about the consequences of ignoring the stock exchange’s disclosure rules, listed companies can stay silent the entire year or they can disseminate information only to certain people.

The objective of this experiment is to determine if the absence of enforcement does indeed bring benefits that significantly outweigh the negatives. One yardstick is investment growth.

Does a year of enforcement-free business spur businessmen and investors into pouring more money into the economy? Is there a spike in the incorporation of companies? Do foreign investors show greater interest in venturing into Malaysia? Has the capital market performed better?

We can also study the profitability of companies and the country’s productivity and GDP. On the government side, we measure the savings from the reduced enforcement, minus, of course, any drop in revenue. We may also need to account for the social costs (pollution and lousy safety standards, for instance) that come with the lack of enforcement.

Crunch the numbers and we can tell if there’s indeed basis to argue that enforcement is merely an optional tool, or that it can cause more bad than good. Malaysia can end many global debates with this out-of-the-box trial. Let’s lead the way.

Executive editor Errol Oh wants to be a lab rat.

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